According to press reports, some of the nationalized
and private banks have placed the journalists, the policemen and the
lawyers on negative list of their housing loan operations. It has also
been reported that some of these banks discourage housing credit for
certain areas in Karachi including Nazimabad, Malir, Liaquatabad,
Gulzar-i-Hijri Scheme and Orangi. It is said that these restrictions are
not official but are being practiced. The financing operations by the
banks generally are non-discriminatory. The banks have started housing
finance/mortgage finance only recently. It is unbelievable that in such
a short time these banks would have cogent reasons for restricting
housing finance to the three groups of people or the specified areas.
The three groups reported to be discouraged from
availing housing finance have distinct functions; though they might have
among them certain common traits. The police personnel are government
employees responsible for maintaining law and order; security and
investigation of crimes. The journalists are mostly employed by the
private sector publishers of newspapers or periodicals. They report on
what is happening in the society and comment on performance of various
functionaries and institutions. The lawyers generally plead cases on
behalf of their clients. In that capacity they are working in the
private sector and are considered experts in their own area of
specialization. The judges of various courts are generally selected from
the fraternity of lawyers. In their capacity as judges they are public
functionaries and provide justice to the down-trodden. Thus, the three
groups are important organs of society. As regards 'discrimination', it
could be that the banks had bad experience with one or more members form
these groups or a few people belong to the specified areas. Possibly,
the incidents were blown out of proportion. Reportedly, this
'discrimination' has been brought to the attention of the State Bank of
Pakistan (SBP). However, to streamline things, the issues might be
studied in depth by the authorities/stakeholders for remedial steps.
According to a press report of July 2003, about 20%
of the police force in Karachi had been provided accommodation, of which
about 11% was for families. Official accommodation is available only
during government service to the few lucky ones. The rest of the 80%
personnel are obliged to rent accommodation, until some of them find
resources to build or buy their own houses. Lack of suitable
accommodation for most of the force could be one of the reasons that at
times there are lapses in their performance. The police force has no 9
am to 5 pm routine as is the case for most other employees. To improve
housing situation, the government might build more official
accommodation for the police force on land already owned by it.
Alternately, the government might consider allotting suitable plots of
land to these employees on ownership basis for building own houses.
Banks and HBFC might develop special products to meet cost of
The Punjab Chief Minister on 12th November reportedly
said that the plan to provide houses to government employees upon their
retirement had been finalized, and it would be implemented from Lahore
with the development of a housing colony on the already acquired land,
for completion within a year. It was also said that land for such
colonies had also been acquired in some other cities, for development in
the next phase. The Punjab government will be creating an autonomous
Government Employees' Housing Authority for the purpose. The governments
of other provinces might consider similar steps for supply of housing
units to the employees including the police force during active service
or upon their retirement.
One reason for the 'discrimination' could be that
these groups were rich and needed no financing from the banks. But then
the banks mostly lend to those who already have lot of money and could
easily do without borrowings. The banks might, as they often do, provide
housing finance to the few resourceful against lien on cash deposits.
For housing finance to the rest, the banks shall have to devise
different procedures against other securities. Majority of the people in
the police force are constables and junior ranks.
Same is probably the cases with majority of the
people attached to journalism. The government has in the past provided
plots of land in different cities to some of the journalists.
Large sections of the lawyers, at least in initial
years of legal practice, earn only enough to feed the family. Major
portion of their pay might be used up by the monthly rent payments. None
of these people are thought to be in a position to save enough from
their meager salaries for buying a house using hard cash.
Discouraging such people from housing finance will
only add to their problems, with possible consequences for other members
of society. The families of these groups also deserve to live in their
own houses. They might be able to meet the criteria prescribed by the
banks as their requirements in most cases will be modest. Their debt
servicing capability or exposure limit could be determined from their
salary slips or income tax/wealth tax statements, in case they fall in
It is not clear if the banks had actual experience of
bad loans with these groups or areas; or they adopted these measures as
a precaution. Even if the banks had bad experience, one could argue that
why stop lending to these groups or areas when the banks have not
stopped financing loans to the industry and businesses despite huge
non-performing loans. The banks might revise their lending strategy to
squarely meet the challenges and offer a fighting chance to these people
of building their own houses.
One probable reason why the banks are avoiding
certain areas could be low rent of residential property. In many housing
finance cases, monthly rent is shared between the bank and that of the
house owner, in proportion to their investment. In case the property is
developed in an area where rents are relatively low, the yield to the
banks will be lower and thus unattractive. It could be said that same
loan amount if used for building a house in a posh area, potential rent
will be higher and thus promise higher return to the banks. However, it
is not that simple; in posh areas the cost of land will be higher and so
would the cost of construction. Though, the rent sharing ratio might
change in posh areas. In case of problems in loan servicing, the
properties in posh areas could be disposed off easily as compared to the
ones in less attractive areas of the city. In stead of putting an
informal ban on housing finance for relatively less attractive areas,
the banks might develop appropriate products to cover their potential
losses, if any.
The foreign banks have few branches in relatively
unattractive areas. The borrowers might consider approaching the banks
having branches in these areas. These banks would have better
appreciation of the property market as well as the level of rents.
Chances are these banks would be more accommodating. Alternately, the
borrowers might approach HBFC, which originally financed many houses in
these areas. HBFC was initially set up for housing loans in Karachi, and
later its role was extended to other areas in the country. The SBP might
consider assigning financing of small and medium houses to HBFC which
liquidity-wise is not as comfortable as the banks. Larger houses could
be financed by the banks.
The issue can also be looked from a different
perspective. Assuming the unofficial restriction is declared formal in
that case who would be the losers? The good people who form the majority
in all these three groups would suffer. Why should they be placed at a
disadvantage for being straight and honest? As such, it is suggested
that the 'discrimination' issue is considered by the authorities at an
One reason, though far-fetched, could be that the
people in the three groups will not readily accept 'unreasonable' terms
and conditions of the loans or the way loan cases are processed in the
banks or how the loan/security documents are drafted. These people being
exposed to the law/legal procedures would naturally not easily accept
what is considered 'unreasonable'. They will argue their cases and, if
need be, approach higher authorities to get their genuine grievances
redressed. Most banks are maintaining legal departments comprising
experienced lawyers, supported by practicing lawyers and therefore they
should not hesitate to do business with the educated and informed
customers. The banks should adopt truth in lending, and as suggested by
the SBP, publish pamphlets on loan policies/conditions for benefits of
all their customers.
Nazimabad, Malir and Liaquatabad are relatively old
localities of middle and lower middle class people to whom land and
built-up houses/living quarters were once provided by the government.
Many people who were once residing in these areas have with the change
in fortune moved to the posh localities like Defense Housing Authority.
Perception of the general law and order in these areas might not be as
good as in DHA. Yet, many middle-class people including government
employees, traders and businessmen still find life in these areas
peaceful and attractive. They might be wishing to re-build the houses or
converting single-family houses to multi-family accommodation. To my
thinking, these areas have good appetite for large number of relatively
smaller loans. Instead of ignoring these areas, it would be better if
new housing finance products specifically for these areas are marketed
by the banks and HBFC.
The banking sector has mobilized savings from small
depositors but it has not correspondingly met their credit needs.
Housing market in Pakistan has big potential but it has not flourished
fully due to non-availability of adequate finance. The SBP has since
addressed this issue and created a Housing Finance Window. In order to
make its initiative a success, the SBP is urged to take steps to end
'discrimination' in the provision of housing finance to certain segments
of society as well as the city areas that are not perceived as posh.