Islamic banks take lead in housing finance

Islamic banks take lead in housing finance

Islamic banks take lead in housing finance KARACHI: Islamic banks have emerged as lead financiers of housing projects at a time when conventional banks struggle to raise deposits for long-term maturity leading to low lending levels.

According to a detailed report of the State Bank of Pakistan (SBP) for the January-March quarter, Islamic banks have been lending not only for long-term period, but the average size of their loans is also much higher.

During the quarter ending March 31, “private banks reported an average loan size of Rs6.3 million while in the case of Islamic banks it was Rs9.7m,” the SBP report said.

The House Building Finance Corporation (HBFC), which has been a prime financier for the housing, was far behind as its average loan size was Rs1.7m, an amount insufficient for even a small flat.

The recent upswing in land prices and cost of building has created a difficult situation for lenders, and the lending limits of banks, particularly that of the HBFC, look insufficient.

“Given the housing sector’s size of more than a trillion rupees, the current amount of lending by banks and other financial institutions is peanuts,” said Ashraf Hameed, a leading builder.

He said the government needed to intervene as the housing gap has been rising. He feared that the housing gap could be more than five million units as suggested by some reports. “A survey of the housing sector should be conducted in urban as well as rural areas,” he said.

Islamic banks lent Rs3.44 billion for the housing sector during the quarter under review out of the total home loans of Rs5.35bn.

The State Bank’s report showed that average maturity of lending to the housing sector was 12.5 years — 14 years in case of private banks 10.7 years for Islamic banks.

The weighted average interest rate was the highest for Islamic banks at 11 per cent compared to 8.8pc of the private banks.

Source: http://www.dawn.com/news/1277387/islamic-banks-take-lead-in-housing-finance

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