Enhancing Builder Financing in Pakistan

To provide affordable housing and boost SMEs associated with the industry.
Financing to SME builders in Pakistan through commercial banks and financial institutions is low. Builders and developers in Pakistan fund their projects out of their own equity, investor advances, and customer installments. The land is purchased usually on the equity of one or a pool of several builders, while the initial construction costs are covered through multiple bookings made by private investors at below-market rates for ongoing projects. Meanwhile, installments by buyers fund the rest of the project.

Bank lending is usually relationship based and often limited to those builders who have other formal and established businesses, with an asset base that can be used as collateral. Owing to a range of limitations—from land administration and titling issues leading to insecure collateral, to the lack of capacity of SME builders—commercial banks are wary of lending to new or small builders with no history with the financial institution. Given a limited long-term mortgage market, only those who can meet the regular installment obligations within shorter time spans, or can pay fully upfront, buy property: this demographic usually falls in the upper-middle to upper-income households.

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