Pakistan: Establishment Of Mortgage Refinance Company
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| Document Type: | General |
| Publish Date: | 2001 |
| Primary Author: | Talha Khan |
| Edited By: | Suneela Farooqi |
| Published By: | The Express Tribune |
Introduction
The government is set to incorporate Pakistan Mortgage Refinance Company Limited in partnership with domestic and multilateral banks with a paid-up capital of Rs6 billion in a bid to push the housing finance market in the country. The company is expected to be set up in the next two weeks. Federal Finance Minister Ishaq Dar chaired a meeting on Monday to consider matters pertaining to the establishment of the mortgage refinance company before the Securities and Exchange Commission of Pakistan formally incorporates it.Pakistan has long faced an acute housing shortfall, especially among middle and low-income populations. To tackle this crisis, the government has initiated steps to establish a Mortgage Refinance Company — a much-needed institution aimed at strengthening the country’s housing finance infrastructure. This strategic move, documented in the Express Tribune article from March 17, 2015, outlines a plan that could revolutionize mortgage lending in Pakistan.
With the establishment of this Mortgage Refinance Company, the government aims to stimulate the housing finance market by creating a strong secondary mortgage platform, encouraging commercial banks to expand their mortgage lending portfolios without taking on excessive long-term risk.
Why a Mortgage Refinance Company Is Needed
The housing finance sector in Pakistan remains underdeveloped. While banks are aggressive in offering consumer and business credit, housing finance makes up a meager share of their overall lending. As per State Bank of Pakistan data at the time, out of the total Rs10.8 trillion credit portfolio, only Rs39.4 billion had been extended as house financing — highlighting the urgent need for an effective institutional mechanism.
The planned Mortgage Refinance Company is designed to bridge this gap by offering liquidity and reducing the burden on banks. It would provide refinancing for short, medium, and long-term loans given by banks and financial institutions. In this way, the Mortgage Refinance Company will indirectly enable more consumers to access affordable mortgages by making it easier for lenders to fund housing projects.
Structure and Stakeholders
The Mortgage Refinance Company, to be incorporated under the Securities and Exchange Commission of Pakistan (SECP), will begin with a paid-up capital of Rs6 billion and an authorized capital of Rs10 billion. The government plans to contribute Rs1.2 billion, with Rs24 million released immediately to cover start-up expenses.
Several stakeholders from both the private and public sectors will co-invest in the Mortgage Refinance Company, including:
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National Bank of Pakistan
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Habib Bank Limited
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United Bank Limited
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Askari Bank
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Bank Alfalah
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Allied Bank
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Bank Al Habib
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House Building Finance Corporation
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International partners like the International Finance Corporation (IFC) of the World Bank and the Asian Development Bank (ADB)
This diverse participation underscores a national commitment to the success of the Mortgage Refinance Company and reflects confidence in its operational model.
Operational Model and Objectives
The Mortgage Refinance Company will function as a secondary mortgage institution, offering refinancing to financial institutions against their existing housing loan portfolios. It will cater to both conventional and Islamic banking institutions, thereby making the model more inclusive.
Key objectives include:
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Enhancing accessibility to housing finance
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Encouraging long-term mortgage lending
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Lowering interest rates for borrowers
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Providing technical advisory services to banks
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Promoting international best practices in housing finance
By achieving these goals, the Mortgage Refinance Company aims to become a cornerstone of Pakistan’s broader housing reform strategy.
Policy Support and Strategic Alignment
Finance Minister Ishaq Dar, who chaired the planning meetings, emphasized that the company should also serve as a technical advisory body, offering consultancy and guidance on both conventional and Islamic housing products. This reflects a vision to transform the Mortgage Refinance Company into more than a liquidity provider — a developmental finance engine to align housing reforms with global standards.
The company’s head office is to be based in Karachi, strategically positioning it within the country’s financial hub to leverage operational efficiencies.
Barriers the Mortgage Refinance Company Intends to Overcome
Pakistan’s commercial banks have historically hesitated to finance housing on a significant scale due to:
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Mismatch in loan tenure and funding sources
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High default risks in the housing sector
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Lack of secondary mortgage markets
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High interest rates, making mortgages unaffordable
The Mortgage Refinance Company is expected to mitigate these barriers by absorbing part of the risks, thereby catalyzing bank participation. Its refinancing mechanisms will allow banks to transform illiquid, long-term mortgage loans into short-term, liquid assets, thus making housing finance more sustainable.
The Role of International Institutions
The participation of IFC and ADB is especially important. These institutions bring international credibility and can advise on global best practices. Their involvement ensures that the Mortgage Refinance Company will align with globally tested structures for refinancing, transparency, and governance.
Their financial backing will also increase investor confidence, making the Mortgage Refinance Company an attractive vehicle for long-term capital inflows into the housing sector.
Potential Economic and Social Impact
The establishment of the Mortgage Refinance Company holds promise for transformative changes across the housing sector:
1. Increased Access to Affordable Housing
By incentivizing banks to lend more for housing at lower interest rates, the company directly contributes to solving the housing crisis for low and middle-income earners.
2. Expansion of Financial Products
Its inclusion of both conventional and Islamic housing portfolios ensures that it caters to a broad demographic, respecting cultural and religious preferences.
3. Employment Generation
Construction-related jobs will likely increase as financing flows into new housing projects, aiding in poverty alleviation and economic development.
4. Market Stabilization
A stable and liquid secondary mortgage market will reduce volatility in housing finance, safeguarding both lenders and borrowers during economic downturns.
Thus, the Mortgage Refinance Company will not only enhance home ownership but also act as an economic multiplier.
Comparison with Regional Practices
Countries like India, Malaysia, and Turkey have successfully deployed similar mortgage refinance institutions. For instance, India’s National Housing Bank and Malaysia’s Cagamas Berhad are leading models. By adopting these practices, Pakistan’s Mortgage Refinance Company can benefit from a steep learning curve and tested refinancing structures.
Moreover, the dual approach — combining government equity with private capital and international donor support — provides a robust and balanced foundation for the company’s long-term success.
Timeline and Execution
According to the article, the Mortgage Refinance Company was expected to be incorporated within two weeks of the March 2015 announcement. While timelines in public-sector projects can be fluid, the urgency and focus displayed in meetings chaired by the Finance Minister signaled a strong political will to expedite the project.
The government also planned to concurrently establish an Export Import (Exim) Bank with a similar capital base and mandate, showing a broader intent to build specialized financial institutions that support key sectors.
Conclusion
The launch of the Mortgage Refinance Company in Pakistan represents a strategic, long-awaited reform in the country's housing finance sector. With robust support from public and private banks, global financial institutions, and the government, the company is poised to redefine how Pakistan finances its housing needs.
By promoting affordable mortgages, enhancing liquidity in housing finance, and supporting long-term homeownership, the Mortgage Refinance Company aims to democratize housing access — potentially pulling millions out of substandard living conditions and into dignified homes.
If implemented efficiently, the Mortgage Refinance Company will not just be another financial institution, but a vehicle for socioeconomic transformation, financial inclusion, and urban development in Pakistan.