By Jawad Ahmed ISLAMABAD, March 24 (INP-WealthPK): The State Bank of Pakistan (SBP) has amended prudential regulations for microfinance banks (MFBs) to encourage access to funding for low-cost housing and microenterprises. The maximum size for general loans (other than the housing loans) shall be up to Rs350,000 to a person with annual income of (net of business expenses) up to Rs1,200,000. The maximum size for housing loans shall be up to Rs3,000,000 to a single borrower with annual income (net of business expenses) of up to Rs1,500,000. As per an amendment made by the banking regulatory authority, the MFBs will be able to offer housing finance for not only acquisition of land/plots but also construction on them. To accelerate the housing construction industry, the MFBs are permitted to disburse up to 90% of the market value of plots/land, but not more than 50% of the financing limit. The remaining amount will be disbursed to complete construction on the plot. “The SBP believes that the revised regulations are expected to bring down the cost of helping borrowers from lower-income groups to draw finance for low-cost housing and micro and small enterprises (MSEs),” says a circular issued by the central bank. The banking regulatory authority constantly helps home financing and MSEs acquire simple loans from MFBs by making contemporary adjustments in the MFBs laws. In a statement, the SBP said the revisions made in the prudential regulations were expected to play a crucial role in enabling the MFBs to reach out to the low-income segments of the economy that generally remain financially underserved. In March 2019, in order to rationalize lending limits under ‘Housing Finance’ for the MFBs, the SBP has enhanced the maximum loan size from Rs500,000 to Rs1,000,000. Furthermore, the restriction to maintain 60% of housing portfolio within the loan limit of Rs250,000 is also being removed. The SBP recognized the importance of MFBs in providing financial services to the low-income stratum, particularly the MSEs and low-cost housing segments. According to statistics, at the close of CY2021, the MFBs had over 4.6 million borrowers with outstanding loan portfolio exceeding Rs290 billion. This included over 674,000 MSEs and 75,000 housing finance beneficiaries with loans aggregating to Rs77 billion and Rs20 billion, respectively. Pakistan is the world's fifth most populous country and one of the fastest urbanizing countries in South Asia. According to estimates, Pakistan's population is predicted to reach 242 million by 2025. Furthermore, 44% of the country's total population would migrate to urban areas by 2030, exacerbating the country's housing demand. Urbanization Rate in Pakistan According to a report available with WealthPK, the country now has a housing shortage of 11.4 million units, which is predicted to rise to 17.2 million units by 2025. Unavailability of mortgage facility and a lack of awareness to the lower and middle class of the country is one of the obstacles in obtaining mortgage and home loans. In Pakistan, mortgage finance to GDP ratio is currently at 0.23% compared to the South Asian average of 3.4%. The SBP intends that the amendments to the MFBs prudential regulations will serve the financial needs of underserved sectors, especially in rural and remote areas.