Banks directed to adopt income estimation model for low-cost housing finance

Shahnawaz AkhterWeb Editor

18th Jun, 2021. 04:01 pm
Income Estimation Model

KARACHI: The State Bank of Pakistan (SBP) has allowed all commercial banks to adopt an income estimation model for extension of the low-cost housing finance.

A circular issued on Thursday night read to facilitate the low-cost housing finance for the applicants with informal income, the central bank has asked banks to develop and deploy an income estimation model for extension of the low-cost housing finance.

“This measure is expected to ease difficulties being faced by [the] general public in availing [of the] housing finance under [the] government’s markup subsidy scheme (G-MSS), commonly known as Mera Pakistan Mera Ghar.”

The central bank said 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 the 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 banks have been asked to use PBA’s baseline model, customise the same, or develop their own income estimation model.

“[The] banks are required to confirm within 4 [four] weeks that they have made their informal income proxy models operational,” the SBP said, adding that the availability of these models is expected to enhance the prospects of informal income applicants to secure housing finance from the banks.

With this move, it is expected that the financially excluded segment will be able to avail of financing under G-MSS. This tool will enable the banks to expand their outreach and cater to the financing needs of the people having informal sources of income. The SBP, with the support of the banking industry, is working to reduce the hurdles being faced by the general public in availing housing finance under G-MSS.

A number of steps had already been taken to make this facility available to the general public, especially the low-cost housing finance applicants. These steps include relaxation of debt burden ratio, extension of housing finance against personal guarantee, development of online complaint resolution portal and establishment of banks’ joint call center to address queries.

Further, standardisation and simplification of loan application form, facility offer letter and documentary requirements for the approval and disbursement are also proving beneficial for the applicants under G-MSS. As of June 15, 2021, the banks have received applications of around Rs90 billion against which around Rs30 billion had already been approved, whereas the banks are processing the rest of the applications.

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