KARACHI: The State Bank of Pakistan has directed banks to come up with their informal income proxy models operational for low-cost housing within four weeks as the process of lending for housing is still much below than the expectations of the government.

“In order to facilitate low-cost housing finance applicants with informal income, the State Bank has asked banks to develop and deploy income estimation model for extension of low-cost housing finance to such applicants,” said the SBP on Thursday.

Bankers were of the view that basic problem was the lease of land as they can’t extend loan for construction of houses on unleased lands. The lease itself is highly complicated and time-taking process in the country. People usually buy unleased lands and build houses since getting lease means spending time and money.

Due to lease problem banks find it impossible to extend loans which could not help out the government’s support to boost low-cost housing with subsidised loans.

As of June 15, 2021, banks have received applications of around Rs90 billion against which an amount of around Rs30bn has already been approved whereas banks are processing rest of the applications.

“Banks are required to confirm within four weeks that they have made their informal income proxy models operational,” said the SBP. The State Bank said this estimation model is expected to ease difficulties being faced by general public in availing housing finance under Government’s Markup Subsidy Scheme (G-MSS), commonly known as Mera Pakistan Mera Ghar.

Recently, the Pakistan Banks’ Association (PBA), through a consultative process, has developed and circulated among banks a baseline income estimation model. The purpose of this model is to assess income and repayment capacity on the basis of routine expenditures like house rents, utility bills and educational expenses etc of a potential borrower who earns from informal sources.

The SBP has advised banks to use PBA’s baseline model, customise the same, or develop their own income estimation model. The availability of these models is expected to greatly enhance prospects of informal income applicants to secure housing finance from the banks, it said.

Published in Dawn, June 18th, 2021