Dubai Islamic Bank (DIB) has collaborated with Pakistan Mortgage Refinance Company (PMRC) to assist and support the Pakistani government’s vision for affordable housing. The partnership is part of the Mera Pakistan Mera Ghar scheme.
With a booming population and increasing urbanization, affordable housing is a major challenge in Pakistan. The government launched the ‘Mera Pakistan Mera Ghar’ scheme in the latter half of 2020 to address the housing crisis. The affordable housing scheme provides financing with subsidized markup rates to eligible applicants. Islamic financial institutions have been a disproportionate contributor to home financing, representing more than 50% of home financing despite Islamic banks representing only 18% of the banking sector in Pakistan, Shahzad Abdul Samah, DIB’s head of brand and corporate communication, tells Islamic Sustainable Finance and Investment.
The partnership directly contributes to the safe and sustainable housing target under UN Sustainable Development Goal 11. The affordable housing initiative will have a far-reaching impact beyond the housing sector.
“Housing construction contributes to economic output, create employment and generate demand for materials and related services. Second, improved housing raises the standard of living of occupants. House financing also generates large multiplier effects in terms of employment and output which ultimately lead to poverty reduction. Moreover, investment in the housing and construction sector has a spillover effect on 30 more industries and provides huge job opportunities to blue collar and unskilled workers,” Shahzad shares.
The partnership between DIB and PMRC enables the Islamic bank to better manage its asset-liability mismatch (ALM) risk as it no longer needs to finance long-term loans with short-term funds, providing affordable housing solutions through cost-efficiency.
As a mortgage liquidity facility provider set up by the State Bank of Pakistan, it is PMRC’s objective to develop a long-term, fixed-rate mortgage market to increase affordability, particularly for low-income group borrowers. PMRC’s long-term funding reduces ALM risks of banks and cushions banks against an adverse interest rate environment.
“Since banks utilize PMRC funding to also offer fixed-rate mortgage loans to end borrowers, their credit risk is also reduced because this increases affordability of end borrowers in the rising interest rate environment … PMRC financing is exempted from SLR/CRR [statutory liquidity ratio/cash reserve ratio] requirement which decreases cost to the banks. Furthermore, PMRC financing is also exempted from the general provision requirement which is at least 0.5% of the mortgage portfolio in case banks utilize its own funds to provide mortgage loans. All these factors make the borrowing rate of banks considerably lower than market rates and enable them to offer low rates on their mortgage products even in a high-interest rate environment,” Muhammad Shahzad Khan, PMRC’s head of business, shares with Islamic Sustainable Investment and Finance.