A conference on housing finance was organized by the State Bank of Pakistan in December 2002. Focus of the conference was to seek ways and means to enlarge asset-backed mortgage financing, both in the primary and secondary markets.

Consultation was sought from all the concerned stakeholders to help create an enabling environment for the purpose. Whereas the attempt to address the issues related to housing finance is commendable, the approach adopted by the government and its partner institutions need to be objectively analysed in the perspective of ground realities in this sector.

Premise of housing requires a clear description. Conceptually referring, housing is a process and not a product as has been effortlessly termed by the wizards of reforms in this regime. It must also be recognized that housing and its financial mechanisms are not confined to any number game alone. It is a process that gradually evolves as the human settlements germinate, progress and gradually acquire stability in correspondence with the social and economic development of the masses. People gradually invest in their abodes and keep investing according to their needs and affordability. It is a lifetime process which even stretches to several generations.

The very term of ‘housing’ finance needs a re-definition in the proper respect. According to the normative standards, housing is a basic human need after food and clothing. In many deliberations, the terminological reference to housing is made from the same perspective. For instance, the second United Nations Conference on Human Settlements (Istanbul-1996) stopped slightly short of declaring housing as a basic human right.

Access to housing was regarded as a fundamental attribute for survival and sustenance. Therefore reducing down the scope and application of housing to a marketable good is entirely misconstrued and obviously an outcome of the donor prescribed prescription which our financial managers are religiously following. In a situation when housing is considered as a nascent tradable entity, nomenclature must be changed to ‘property’ finance. Time and again, housing finance is limited only to such assets which have a market price and transaction procedures.

The fact that a major segment of the housing stock has anomalous modes of transaction, which are normally in nature is not accounted for in this entire pretext. Policy makers and government functionaries have unabatedly emphasized upon increasing the clientele. However, it must be considered that the total taxpayers in this country are a little over one million. Obviously the so-called housing finance would be restricted to this very limited sphere of clientele. With over four dozen banks and financial institutions encouraged to open the housing finance window, the clientele remains extremely limited leading to almost an impossible extent of competition.

It is also disappointing to note that the so called financial experts/proponents of the housing finance laid stress on such tried and tested approaches which have met with visible failures. Developing new schemes for extensive housing development, renewed emphasis on mortgage based financing, confusing the house building process with construction industry, eliminating the issue of land supply and its dynamics from the financing process, overemphasis on major urban centres and a total absence of representation of rural and semi-urban housing were a few types of attempts that had already been applied without obtaining any amount of success in attaining their goals. Key issues related to housing and its financial provisions need to be re-visited with an objective perspective.

Actual housing need remains highest at the low-income group. This is a fact which has been proved by scores of studies and censuses. Due to absence of capital assets and poverty, this income group does not find favourable terms and conditions to access formal housing stock.

These terms and conditions include a piece of titled land to build upon, a verifiable source of formal income and a documentary evidence of the capacity to pay back any acquired credit. The real poor meets none of these conditions. They do not possess any titled land; work on wage labour which is most often undocumented and have little verifications to cite for their capacity to pay back their loans. For obvious reasons, they cannot access any window of formal housing credit.

They however possess some form of income, access to informal land parcels and usually a general willingness to pay back the loans. None of these assets are bankable in the formal system. In simple terms, a housing loan is meant for those who either own land or can provide a mortgage of any other property/asset to access. Thus all such clients who do not have these two attributes are automatically struck off from a potential favourable response. The challenge however remains open to be addressed as to how to service this vast category, if at all our banking community is willing to device people-friendly options.

Housing loans are usually granted in denominations that are large, at least from the perspective of the poor. With the exception of the recent initiatives in the domain of micro finance, such loans are above Rs 50,000. The lower income groups usually require loans which are below this figure to match their immediate needs and also the payback capacity. However, according to banking operations, such amounts would become non-bankable due to very high management cost normally incurred by the banks on it. Invariably this clientele has to approach the informal money lenders who offer credit at extremely high interest rates which becomes a drag on their already fragile domestic finances.

In the prevailing norms, the land in squatter settlements is not considered a bankable asset. There are several examples where the concerned authorities have issued directives to notify certain squatters but the individual leasehold documents or other form of titles have not been issued. For such administrative deficiencies, the owners of squatters are not able to make use of any formally available credit facility.

Besides the provision of housing credit is subject to approved construction activities. In a semi-formal or informal settlement, the owners of individual dwellings do not possess any formally approved building plan, a strong pre-requisite for a housing loan application. In some situations, building control regulations either do not exist or do not apply in low-income settlements. Thus this lacking further marginalizes the poor from obtaining worthwhile credit.

In the wake of a situation when government—acting faithfully to the dictates of its lenders — is withdrawing all incentives for promotion of savings, the so-called low mark-up credit packages for housing seem difficult to comprehend. From the lower middle income groups, high rate of return on their meagre savings would serve as a crucial support in bolstering the domestic finances especially in a situation of investing in housing acquisition or improvement.

However, after the withdrawal of such incentives the government has taken away the much needed socio-economic support instrument from the reach of the masses. It may not have hurt big time capitalists who have plentiful avenues of alternate investments but has hit the low income groups in a severe manner. Also the recent drives aimed at rightsizing of some government departments, institutions, enterprises and establishments has again hit the lower income groups in the worst manner.

In the usual practice, the low paid lower cadre employees are easy to retrench compared to high salaried big bosses. Once a stable employment is lost, the chances to access the credit package of any kind further diminish. It thus becomes a no-win situation for the low income groups is both the cases.

If at all the concerned policy makers and institutions are sincere to promote the housing access to the needy, several steps need to be considered. The lending approaches to the housing loan applicants need to be changed. An alternate to mortgage financing has to be found if the vast target of such borrowers who do not possess documentary proofs of their shelters. Banking experts need to initiate a study towards understanding the prevailing situation which shall give them the correct idea about initiating a workable strategy. Basic premise of this case can be built from the analysis of previous housing census and micro-case studies done by housing experts in low-income settlements. Besides, in situations where a whole-settlement, cluster or its part wishes to borrow, favourable conditions for provision of credit may be studied.

Such options have worked reasonably well in various developing countries. Experiences obtained from several micro finance institutions can also be of use in this regard. In order to make the land and property surveys aiming to ascertain the ownership and land use records. This shall also help various eligible clients to access housing stocks who find themselves at the losing end. Options of revolving credit for housing in communities may also be explored as a potential outlet for credit provision. Several non-governmental institutions have extended credit and have reaped considerable experience which need to be studied.

Examples include Catholic Social Services in Karachi and Human Rights Development Centre in Toba Tek Singh. Development of fresh locations for housing provision must only be made according to prescriptions of urban development plans. Contexts in which such plans do not exist must launch exercises to evolve such frameworks without delay. However to make all such options work, the housing must be put in its correct perspective as a social good. It must be remembered that no society can claim any real progress if its population has a rising number of shelterless people.