The Naya Pakistan Housing Scheme is a flagship project of the PTI government, which rode to power on the promise of building a new Pakistan. It was promised that the government would empower the low-income groups across Pakistan to enable them build their own homes. Building a home engages about 35 different industries and can have a significant impact on the economy.

The Naya Pakistan housing initiative can be a game-changer for the country. Building a house is a multidimensional activity. Housing finance can be coupled with alternative energy solutions, general and personal insurance and clean water to make a lasting impact on the life of low-income group people.

The Naya Pakistan housing scheme envisages building five million homes but the target cannot be achieved without adjusting it to the needs of people living in different parts of the country, with their own particular needs and ambitions.

As per available reports, the pace of work is too slow and short of the need. As of May 2021, while there has been traction in lending to construction companies — thanks to major tax concessions and the opportunity to whiten money — the actual number of low-cost housing loans is a paltry 610, with the disbursed amount being Rs1.3 billion only for the entire banking industry.

Many complex factors are involved in the situation. No doubt, there are issues related to the role of the State Bank of Pakistan and the response of the banking sector, there are also shortcomings with the programme, whose creators neglected to review the primary need of the low-income group.

As is well known, banks’ experience is limited to providing funding to their own staff or to selected clients. The first hurdle is the eligibility restriction imposed by the Naya Pakistan Housing and Development Authority (Naphda) for accessing the scheme. The SBP, after consultation with the industry, has now made three major changes that should result in higher loan disbursement. The government has now waived the requirement of the minimum one-year-old housing unit. The restriction on the first transfer has also been removed. The markup burden has been further reduced from 5pc to 3pc, while increasing the loan amount to Rs10m. This will allow a wide range of borrowers to equate the monthly loan instalment with their existing monthly rental.

Further, a new tier has been added to the existing three tiers. Tier 0 has been added to help microfinance banks extend loans up to Rs2m. Microfinance banks can either use their funds or obtain funding from commercial banks. With a 40pc first loss covered by the government and subsidised lending by the SBP, the desired number of 5m should be achievable, given the fact that there is a housing shortfall of 12m units in the country.

There are many other problems that need to be sorted out to make the scheme a success. Firstly, this is a segment of society that commercial banks have never lent to. Their experience of housing finance is either limited to providing funding to their own staff or to high-end customers in major cities. Experts recommend that banks should collaborate with grassroots oorganisations, like microfinance banks, microfinance institutions and housing finance companies, to serve low-income groups of people.

The requirement of an equitable mortgage is a big hurdle for most people, especially in the rural areas. This condition should be dropped and the ownership documents submission for loans under Rs1m should be allowed. The microfinance default experience indicates that as income levels drop, loan performance improves.

To help the low-income segment there is an urgent need to set up housing finance companies as a mediator. Housing finance companies without the burden of banks’ high infrastructure costs would be more effective for this purpose. The SBP and the Securities and Exchange Commission of Pakistan (SECP) should work together to provide the same markup subsidy and first-loss protection to these institutions as is being provided to commercial banks and more recently microfinance banks.

The inclusion of microfinance banks in the scheme is of questionable value, because their current loan size is Rs40,000 and the average tenor is one year. Expecting microfinance banks’ underwriting skills to suddenly migrate to a Rs1m loan with a 15- to 25-year tenor is unrealistic. Microfinance institutions, with a few notable exceptions, like Akhuwat, have even lower capabilities to underwrite this kind of risk.

The government’s sincerity is laudable but the sincerity should be underpinned with solid policy measures in the light of ground realities. The recent amendments are a step in the right direction but more needs to be done to bring the dream of 5 million housing units to fruition.