The HBFC was formed by an Act of Parliament in 1952, and made its first disbursement in 1953

July 05 - 11, 2004

Despite confronted with aggressive marketing policies of commercial banks, the state-run House Building Finance Corporation (HBFC) remains undaunted and stands on top in house financing business in Pakistan.

The HBFC, it may be mentioned, has created a 50 years history by disbursing loans to the tune of Rs1.2 billion in the first half of the current year.

Managing Director HBFC, Sohail Osman Ali conceded that despite Corporation's identical reputation it has managed to set a record in disbursement with old staff and officers by taking only few corrective steps. He said that corporation will face all the challenges in the future marketing policies all over the country. He said that corporation's staff has also adopted latest technologies and methods for taking even larger share in the housing sector in future. He was quite confident and saw week future of competitors in the light of HBFC's long experience.

The HBFC was formed by an Act of Parliament in 1952, and made its first disbursement in 1953. Its lending limit then was modest at Rs. 10,000, which has been raised periodically over the years and is now at Rs. 7.5 million. It has now 58 District Offices and 11 Zonal offices throughout Pakistan, Northern Areas and Azad Kashmir, and has around 1,350 employees. Over the last 50 years the corporation has disbursed more than Rs. 30 billion to around 400,000 homes.

Its shareholders include Government of Pakistan owning around 2/3rd, and State Bank of Pakistan owning around 1/3rd, share capital of HBFC is Rs. 200 million. Funding sources include share capital, recoveries and State Bank of Pakistan credit lines. The credit lines outstanding as at 31st December 2003 estimated at Rs. 13.857 billion and are to be repaid over the next nine years ending in 2012. Due to various reasons the HBFC has developed a reputation for inefficiency and corruption over the years. Lack of recovery efforts led to a highly infected loan portfolio. The accounts were un-reconciled, International Accounting Standards were not applied and Prudential Regulation issued by State Bank of Pakistan was not compiled, all of which led the Statutory Auditors to regularly issue Qualified Audits Reports.

In December 1999, following the decision of the Supreme Court of Pakistan in the famous "Riba" judgment, it stopped lending for a 20 month period. During this time, HBFC Act was amended to bring it in line with the terms of the judgment and a new scheme was designed. It was launched by the present management in March 2002 and is called "Ghar Aasan Scheme", for home construction and purchase on the basis of a diminishing Musharika. During 2003, the corporation was turned into a multi-product company when the "Shandar Ghar" scheme launched for home repair and renovation.

Keeping in mind the mistakes of the past, the present management has introduced numerous changes. The cornerstone of policy has been transparency in all products and for these purpose brochures, posters and notices are conspicuously placed in English and Urdu. Customers are provided quarterly and annual statements of accounts.

A website has also been developed in-house which has set the standard for other to emulate and include a calculator to work out entitlement, a pin code so you can check your account balance on-line, frequently asked questions and answers in English and Urdu and special links for overseas Pakistanis.

In order to eliminate "bad or fake loaning" or "bogus" loaning photographs are required to be taken at each stage of disbursement. In order to insure smooth recoveries post dated cheques are obtained up-front from the borrower for the entire loan tenure.

The accounts are now in compliance with International Accounting Standards and prudential Regulations. HBFC has been through to three credit ratings by Pakistan Credit Rating Agencies (PCRA) and has maintained its improved ratings for two consecutive years. The Long Term rating is "A" and the short-term rating is "A1" during 2003, the corporation made disbursement of Rs. 1.5 billion a record in over a decade. This is more noteworthy considering that in 2003 there were 16 other financial institutions offering housing finance. But in prior years HBFC faced no competition. During 2003, the HBFC made record recoveries of Rs. 2.8 billion the highest in the history. The credit lines of the State Bank ceased from 1992 and it is now required to be a self-sustaining institution. The HBFC has started to repay the credit lines and has repaid Rs 1.7 billion in 2002 on the due date. Rs 1.4 billion in 2003 on the due date and Rs. 13.857 billion are required to be repaid over the next nine years.

There are some serious type of hindrances in HBFC business one of them is the reasons for default. If we discuss the one reason the customer concept stands on the top the concept that remains in the minds of borrowers is: It is HBFC, they give the money for home and never recovers. 2) Expectation of relief packages, they relief packages are announced in the print and electronic media from other institution and same remained the expectation from HBFC. 3) Sale of property through power of attorney by HBFC borrower making a capital gain without paying off loan, to save stamp duties and registration fees.

Apart from many other hindrances and reasons of default Non availability of infrastructure on property, such as water, electricity, gas, sewerage etc. this situation makes the unit uninhabitable leading to the default. As a case in point, in Surjani Town 97% of borrowers or 7,521 cases are in default for 382 million because of lake of infrastructure.