KARACHI: The government has revised the banking spread on housing finance for the Mera Pakistan Mera Ghar (MPMG) scheme from 400 basis points to 250 basis points over and above the prevailing Karachi Interbank Offered Rate (Kibor).

The State Bank of Pakistan (SBP) issued a circular on Tuesday that said the government is reviewing the housing scheme, which offers subsidies on financing. The main reason for the move appears to be that the interest rate has gone up to 15 per cent while the spread was 4pc for banks.

The SBP said the government has decided to allow banks/development financial institutions/microfinance banks to disburse financing as per the existing terms of MPMG in respect of cases approved and meeting any of the following conditions on or before June 30.

Approved cases (purchase and construction) pending for disbursement due to any legal formality. All pre-disbursement formalities have been done and the bank has communicated the same (being in adv­ance stages, these customers have completed almost all pre-disbursement formalities, paid token money and incurred all incidental exp­e­n­ses). This refers to Benchmark 1 aga­inst which the SBP solicited data from banks on July 7.

Further, approved cases where customers have entered into agreements, paid token money and obtained property documents from sellers or in case of construction loans have already been issued. These cases are just short of “approved cases pending for disbursement” (Benchmark 1), as in such cases, a few internal procedures of banks may still be required to be completed but the borrowers have incurred all major costs or expenses based on approvals from banks). This refers to Benchmark 2 against which the SBP solicited data from banks on July 7.

The banks/development financial institutions/microfinance banks were advised by the SBP to ensure that markup subsidy claims in respect of disbursements against above allowed customers are invariably accompanied by certificates of their respective internal audit departments verifying meticulous compliance with above conditions and other features of the MPMG. The SBP will also conduct inspection of these cases during regular/special inspection of the banks/development financial institutions/microfinance banks.

“The government has decided that (the) spread of banks and development financial institutions on the disbursements against cases mentioned above and falling under Tiers 2 and 3 of the MPMG will be a maximum of 250 basis points over and above Kibor (instead of the maximum allowed spread of 400 basis points currently allowed),” said the SBP.

The government has been in the process of withdrawing all kinds of subsidies to get loans from the International Monetary Fund (IMF). The IMF was critical of the subsidies on the prices of petroleum products and electricity.

The previous government offered a number of subsidies to the housing sector, which pushed up economic activities. However, the IMF believes it was not sustainable.

Published in Dawn, July 27th, 2022