Micro and Small Housing

Micro and Small Housing:

Poverty is a multifaceted phenomenon that includes, but goes beyond lack of adequate income. It is inevitable and it can be reduce through a number of resources. Microfinance is one of the means for the poor and low-income people to enhance their standards of living and thus reduce poverty. Microfinance Institutions (MFIs) are organization—credit union, down-scaled commercial bank, financial NGO, or credit cooperative—that provides financial services for the poor.

The poor rarely access services through the formal financial sector and they prefer and address their need for financial services through a variety of informal financial relationships. This is because:

• They neither have enough money to open a savings account nor do they have any collateral to secure a loan. • They don't have a credit record as they are never been formally employed nor have ever taken out a loan. • They are illiterate and it is almost impossible for them to complete the necessary paperwork.

Formal financial institutions were not designed to help those who don't already have financial assets – they were designed to help those who do, which bring in the need for the formation of MFIs.

Households around the world consider housing from three perspectives: Housing as Shelter, Housing as Commodity and Housing an Investment. The two classification of Housing Microfinance programs are Micro-credit to Housing Finance (MCHF) and Shelter Advocacy to Housing Finance (SAHF).

In order to reduce poverty, countries around the world are working in Microfinance, noticeably South Asian countries, South American countries and some African countries and most of them are successful as well.

Though microfinance in Pakistan started way back in 1960s and 1970s, but it did not progressed well due to the country’s unsustainable systems. It was however, in 1980s when Aga Khan Rural Support Program (AKRSP) and the Orangi Pilot Project were introduced, marked the true foundation of microfinance in Pakistan. These two programs were such a success that their concepts were adopted by the communities across most developing countries.

The supplier of Microfinance services includes informal, semi-formal and formal sources and institutions. Informal services accounts for approximately 83% of the total credit supply. The semi-formal sector includes the NGOs and the participatory organizations such as Rural Support Programs (RSPs). The formal sector comprised of Commercial financial institutions, belonging to the mainstream financial sector and that consider microfinance as one of many product lines. Compared to other sources of micro financing, interest rates

from informal sources are much higher, ranging from 50% to 120% per annum.

Today, Microfinance in Pakistan is now in full swing. Some new Microfinance Banks are established since the introduction of the Microfinance Ordinance in 2001 and later the Prudential Regulations by State Bank of Pakistan.

While the progress has been made, the performance reveals a persistent structural flaw – a reluctance to increase the revenue earned from lending to fully cover costs.

Statistics Case Studies of Pakistan: Pakistan appeared on the map of world as an independent Muslim country on 1947. Population of Pakistan is hovering in the vicinity of 162,742,000 as of Feb 2007. Pakistan has the world's sixth largest population, placing it higher than Russia, and lower than Brazil. Death rate is 10 per thousand, and the rate of natural increase is 2.4%. It has a high infant mortality rate of 70 per thousand births. Fertility rate has declined from 4.5 % to 3.8 % over the last seven years.

GDP growth is remarkable for the last five years with average growth rate of 7 percents per year. During 2006-2007 Foreign exchange reserves stood at $ 14 bn, FDI at 6.1 bn and exports at $18 .6 bn imports at $28 bn. Contribution of Service sector in GDP is nearly 60 %.

Minimum wage rate in Pakistan is Rs.4,600 per month while per capita income stands at 5000 per month.

Currently there is a short fall of around 7.5 million housing units and estimated annual requirements of 1.2 million housing units. Mortgage to GDP is below 1 %. Around 80 % of the houses are either Kaccha or semi Pcca Houses. Most of the urban cities are lacking infrastructure facilities.

Government of Pakistan launched National Housing Policy in 2001. Objective of the policy is to review the prevailing housing conditions in Pakistan and to devise and formulate prudent policies to meet the challenges of affordable housing for low income groups. Govt. of Pakistan has not been able to produce some tangible results and only the paper work has been completed.

SBP is playing its role and has established a specialized department i.e. Infrastructure and Housing Department (IHD), has formulated Housing Advisory Board (HAG) and has established of a task force on infrastructure finance.

HBFC being the oldest and prime Housing Finance Institution is targeting the housing needs of the low and middle income groups of the country. It has been corporatized and is marching towards privatization. It has expended its wings in 100 big and small cities of the country through service representatives and mobile service Van network. Ground work to launch the Micro Housing Bank/Company and Sponsor a Shelter Foundation has been completed. In addition it is also working to launch Pakistan’s first Mortgage backed SUKUK (MBS), REITs and Real Estate Management Company in Pakistan.

Other then HBFC 25 commercial banks are offering housing finance. These banks target only the high profile clients and mainly offer the Finances for purchase cases. Average loan size of the banks is Rs.2.5 million while average loan size of HBFC is Rs.70,000. As of June 2007 total disbursement by all banks /DFIs was Rs 116 billion, of this Rs 76 billion was by banks and Rs 40 billion (34 %) by HBFC.

Pro-poor housing and housing finance has been initiated by some NGOs like SABAN. SAIBAN has developed a housing Scheme by the name of “Khuda Ki Basti” in Hyderabad, Karachi and Lahore. Acumen Fund from UAS is also working on the pro poor housing solutions.

Pakistan has an immense potential is housing finance sector and there is dire need to expand the horizons of financial institutions in terms of extended branch network, enhanced disbursement base and resource mobilization at maximum potential.

Technologies for Low cost materials/ housing, outburst of population, growing urbanization, depletion of existing housing stock, ever increasing housing backlog, lack of infrastructure facilities, poverty and low purchasing power, low mortgage affordability by majority of the population, legalization of katchi abadis, lack of Housing Finance institutions particularly for low income groups, high mark up rate, lack of standardization, unavailability of MIS & LIS, and lethargic approaches by the Govt. Officials are some of the major challenges being faced by housing sector of Pakistan.

To overcome the hurdles of low cost housing for low income groups and to meet the future housing need Government of Pakistan should focus housing construction at war footing level.

Govt. should establish housing observatory as soon as possible and should work on providing enabling legal and regulator framework.

Public-Private Partnerships will have to be promoted. Introduction of technologies for low cost housing/materials is essential.

Commercial bank should be encouraged to target the low income groups as well. More micro housing finance institutions should be established throughout the country.

Housing Statistics:

Housing Backlog and Potential Based on 1998 Census Units in million % 81.00 Ownership 15.63 % 10.00 Rent free 1.93 % Rented 1.74 9% Total 19.30 32.30 Urban 6.23 % Break up of Total Housing Stock in Pakistan 67.70 Rural 13.07 % Total 19.30 100% Kuccha House 7.53 39% Semi Pucca Over all housing stocks comprised House 7.72 40% Modern Bricks House 4.05 21% Total 19.30 100% 4.33 Housing Shortfall estimated at

Annual growth rate of housing demand in urban 8% areas

12.6 1980 19.3 Growth of housing Units 1998 20.29 2007

Housing Data-2008(Based on 1998) Population up to 2007 162 million Annual Growth 3% Housing Units per annum/Fig in million

Additional Supply required (Due to Population Growth) 0.74 Depletion of stock @ 1% p.a.

0.20

To meet backlog in 17years

0.41 New Housing need in 2008

1.35

Estimated Supply 0.30 Persistent gap adding to backlog

1.05 One third needed in urban housing

0.45 Total Housing Units 19.3 million Housing Shortfall 4.33 million Incremental Demand per Year 0.5 million Important Data Census Supply per year 1998: 0.3 million Short fall (Per Year) 0.27 million Ave. House Hold Size 6.6

Ave. Room Density 3.3

Housing Short Fall in 2005 6 million/housing units

Affordable Housing Solutions

Affordable housing has been the major challenge for the entire stakeholder involved in housing and housing finance in Pakistan. Various housing schemes targeting poor and needy people of the country have been initiated in past.

Salient Features of These Schemes are as under.

Statistics of Old Housing Schemes

Surjani Town

Basic Facts Nature of scheme Low cost housing scheme for lower income group Period of financing 1987-88 Total number of units Approx: 10,000 financed

Loan provided (per unit) Rs. 33000 - Rs.35000 Total amount disbursed Approx: Rs. 350 Million Number of operative 5221 Accounts Outstanding loan amount Rs. 456 Million Default Amount Rs. 336 Million

KEY ISSUES - SURJANI TOWN

• Lack of infrastructure and basic amenities

• Inhabitants belong to lower income group

• Houses not completed by the builders

• Possession not given by the builders in case of complete houses

• General impression that HBFC financing being World Bank Loan, will be waived off by the government.

• Large number of unauthorized sale of housing units on GPA

Nature of occupation:

Number of Category Nature cases Total 766 366 I Owners (Occupiers) 1200 47 1247 II Rented by owners 230 446 676 III On GPA/Sale Agreement 350 1445 1795 Others: IV (a) Incomplete Houses (Unoccupied) 548 955 1503 (b) Only structure (Unoccupied) TOTAL: 2328 2893 5221

HBFC PROJECTS IN SURJANI TOWN:

S. No. Name of Projects Occupation status 1 Anarkali Banglows Totally unoccupied 2 KDA Flats Partially Occupied 3 Gulzar-e- Muhammadi Totally unoccupied 4 Gosha-e-Afiat Totally unoccupied 5 Imam Ghazali Town Phase - II Totally unoccupied

6 Yousufabad Partially Occupied 7 Universal Cottages Partially Occupied 8 Nobel Town Totally unoccupied 9 Gulistan-e-Ahmed Totally unoccupied 10 Zaheerabad Totally unoccupied

Korangi Pilot Project

The Korangi Township in Karachi was built under the supervision of General Azam Khan, which is globally acknowledged as among the best housing solutions to rehabilitate squatters/poor people. We need to replicate such an experience.

Khuda ki Basti Khi Lahore

Lahore

• A 20 acre project of incremental housing (Khuda ki Basti) is being planned in association with SAIBAN and ACUMEN Fund. Karachi

• Based on successful implementation of Lahore project, a similar project is being planned in Karachi. • HBFC has approached CDGK/Sindh Govt. for allotment of 100 Acres of land for HBFC’s low cost housing project in Karachi. • Saiban, HBFC, Acumen Fund and some local corporate are likely to be sponsors of Karachi Project. • A project on modified/improved pattern of “Khuda-ki-Basti”-Karachi of SAIBAN (NGO) will be launched in Lahore; • The project is being conceived on socio Commercial consideration; • Cost range is estimated at Rs.1,50,000/- to Rs.2,50,000/ • Initial pilot project of 500 housing units on 60: 40 ratio of built up to services area; • Plot size needed is 20 acres in Lahore; • Government to provide plot on concessional rate and deferred payment basis; • Government to ensure Municipal services etc. plus public transport;

Taiser Town

• Taiser Town Scheme 45 is a low cost housing project of Government of Sindh being executed by CDGK – Malir Development Authority. • CDGK has launched two schemes namely “New Malir Housing Scheme -1” and “Taiser Town Scheme 45” • There are 42000 plots in above schemes of 80 and 120 Sq. Yds. Categories • Currently work on both schemes is going on at a very rapid space.

• MDA has engaged M/s Paragon City and M/s Maxim Marketing for construction of low cost houses at Taiser Town on the allotted plots. • It is estimated that 10,000 houses shall be constructed in first phase by M/s Paragon City. • M/s Paragon City and Maxim Marketing initially will start construction of 150 low cost model houses according to three approved designs by the Government of Sindh.

Role of HBFC in Taiser Town:

• M/s Paragon City and M/s Maxim Marketing approached HBFC to provide housing finance to the interested allottees of the above scheme. • Memorandum of Understanding has been signed between HBFC and above developers and consultants. • HBFC will provide housing finance facility to the allottees of the above scheme on the basis of age and repayment of the interested allottees. • These companies will complete all necessary documentation and infrastructure before process of HBFC financing. • For quicker processing of request for housing finance HBFC will facilitate the clients through “One Window Operations” at the site.

Layri Express Way:

• Survey was done to know the basic needs of the peoples. • There are about 13,846 affectees of Lyari Express Way. Through rehabilitation project 80 sq-yds plots have been allotted.

• In 03 different places namely: – Hawksbay – Baldia Town – Taiser Town

The plot allotted to these peoples free of cost along with Rs. 50,000/- each for rehabilitation. Present market of these plots ranges from Rs. 200,000/- to Rs. 300,000/-.

These plots are not transferable upto 05 years and the registered title deed of plots will be handed over after 05 years.

HBFC is keen to provide financing ranges from Rs.100,000/- to Rs.150,000/- per unit for building their houses with the cooperation of City District Government Karachi, if CDGK provide registered deed with permission to mortgage.

Role of HBFC in Housing Industry of Pakistan

House Building Finance Corporation (HBFCL) was established in the year 1952 as a Statutory Federal Body with an object to provide financial assistance for construction and purchase of houses. It is amongst the oldest

housing finance institutions in Asia Pacific region. For nearly 50 years, it enjoyed the monopoly status in housing finance. Today, nearly 25 Private Commercial Banks are also engaged in housing finance business. It has always maintained its focus on low and middle income housing needs.

To help design fresh solutions to today’s affordable housing challenges, HBFCL has been corporatized and is operating under a new charter as a Limited Liability Company under the Companies Ordinance 1984. This will lead to an ultimate “Privatization” of HBFCL through strategic disinvestment and stock market listing. Its ownership will be offered to multilateral agencies, housing finance institutions and general public.

Efforts to provide low cost housing are occurring at a time of great change. The new platform requires a far-reaching and progressive strategy. With the technical assistance of International Finance Corporation, CMHC of Canada has prepared a new “Business Plan” for HBFCL. With its Comprehensive Reforms Program in place, a computerized loan origination and processing scheme to support this progressive plan, HBFCL is all set to meet housing and housing finance challenges in Pakistan.

Following are the key projects that HBFC has initiated to provide tangible housing solutions for low and middle income groups.

Social Housing Company/Social Housing Bank:

Micro-Housing Finance Bank(s) HBFC intends to establish a separate financing platform Social Housing Bank (SHB) for promoting low-cost housing under micro housing finance scheme. The SHB will have an initial capital of Rs.500 mn and will be licensed as a Micro-Finance Bank by SBP. The sponsors of the Bank along with HBFC may include institutional sponsors like ADB, IFC, Islamic Development Bank etc.

Social Housing Company(s) In order to design, develop and manage specific Low-Cost Housing Projects, a Social Housing Company is being promoteds by HBFC from the platform of Social Housing Bank. It will play the role as a “Developer and Manager” of Low-Cost Housing Projects. It will have an initial capital of Rs.125 million.

Charity window for public:

There should be a separate organization that should look after the mortgage payment of the most needy that does not have enough resources to pay their mortgage payments. HBFC is promoting the idea of Sponsor a Shelter Foundation salient features of which are as under.

Sponsor a Shelter Program:

• Eligibility for such poor and needy will be determined through a transparent mechanism of the Foundation and the amounts will be limited within its financial resources. • It has been checked with the religious scholars that such a support program is perfectly eligible for Zakat. • Initial response is positive from various corporates, philanthropists and overseas Pakistanis to make their Zakat contributions/ donations for the purpose. • HBFC is in a very comfortable position to ensure that the recipient is a very deserving case and the contributions are being applied towards reduction of loan obligations. Since the objective is a very noble one, of providing shelter to the poor and needy, it is expected to receive a good response. • HBFC would only recommend deserving cases to be assessed by the foundation. The Foundation would approve/disapprove requests for financial support on merit, as per its own laid down criteria.

• Through “Foundation” we propose to take charity and social service outside HBFC.

Initial Resources: (Rs. In Mn). HBFC’s ……………………………………. 250* Zakat Foundation, ………………………… 750 Corporates, Individual. ……………………… 1,000 Total 2,000 • * HBFC will contribute this amount from a special fund at HBFC, which can be used only for charity and social cause.

• Corporate and Individual donations will be tax exempted.

• Management of Foundation will be a combination of public and private sector nominees.

Certification and Promotion of Low Cost Technologies. Low-cost construction technologies - certification. There are many low-cost housing construction technologies being promoted by various international and local vendors. There is no one platform which would evaluate and certify as to which technologies are internationally proven low-cost housing technologies and would cater to our local requirements. HBFC, in association with Pakistan Council of Architect & Town Planners (PCATP) has initiated a project to review all available low cost technologies, and “technically clear” as to which of these internationally proven technologies would best suite the local conditions and could be financially evaluated by micro housing finance institutions.

Low-cost construction materials Industries. Banks and DFIs, under a policy framework have to encourage low-cost construction material industries (CMI’s). The CMI’s are needed to be developed on a mass scale, wherein some fiscal incentives are to be granted by the Government to make CMI an attractive investment for the project sponsors.