In an effort to promote low-cost and affordable home ownership among the low and middle-income groups, the government of Pakistan has revised significantly its markup subsidy scheme for housing finance to align with the prevailing housing market dynamics.

The revised scheme is expected to further ease access to housing finance for a large number of people, who currently do not own a house.

In October 2020, the government started providing the facility for the construction and purchase of new homes in a bid to promote housing finance among those buyers who were buying homes for the first time at subsidised and affordable markup rates.

This facility is being provided with administrative support from the Naya Pakistan Housing and Development Authority (NAPHDA) and implemented by the State Bank of Pakistan (SBP) through commercial banks.

In order to expand outreach of the scheme and to allow a higher number of households to take benefit of it, the government, on the recommendation of different stakeholders, approved significant revisions to key parameters of the scheme.

Earlier, the scheme had divided potential borrowers into three tiers. After the amendments, a new tier called Tier 0 has been added to facilitate the participation of microfinance banks (MFBs) for the disbursement of financing of up to Rs2 million per housing unit.

In view of the fact that MFBs specialise in extension of financing to the low-income households, it is believed that their participation will significantly enhance outreach of the scheme to these segments.

Under this tier, MFBs will either use their own funds or banks will lend them for onward lending to the low-income borrowers of housing finance. Another change in the scheme is that the end-user subsidised markup rate under Tier 1 has been lowered to 3% for the first five years and 5% for the next five years.

Published in The Express Tribune, March 26th, 2021.

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