Housing loans: SBP issues mark-up subsidy payment mechanism


The State Bank of Pakistan (SBP) has issued a mechanism for payment of mark-up subsidy for housing finance and issued instructions to banks and development financial institutions (DFIs) for the facility.

The SBP advised banks to submit their claims to Development Finance Support Department (DFSD), SBP BSC, Karachi as per instructions contained in the attached payment mechanism within 15 working days from the end of each Quarter.

However, the banks shall submit their claim within 15 working days for the quarter ending December 2020 and March 2021 from the date of issuance of this circular.

According to the mark-up subsidy payment mechanism (MSPM), the SBP said that the government had issued a mark-up subsidy scheme to provide concessional housing finance for promoting home ownership.

The SBP issued necessary instructions to all commercial banks, microfinance banks and HBFCL through a circular no. 03 dated March 25, 2021 and revised instructions issued from time to time.

All loans disbursed under the scheme shall be reported to SBP under housing finance.

The SBP told banks about how to calculate equal monthly instalments (EMIs) for borrowers.

For first five years EMIs, amortization schedule would be prepared for full tenor of financing at markup rate i.e. 3 percent, 5 percent or 7 percent depending upon the financing tier.

The EMI for next five years i.e. 6th year to 10th year would be on the basis of amortisation schedule prepared at the applicable subsidized markup rate (i.e. 5 percent, 7 percent or 9 percent depending upon the financing tier) on outstanding principal for remaining financing tenor.

After 10th year of financing, EMI would be calculated on the basis of amortization schedule at applicable markup rate.

After calculating the EMI for the end user, the EAs will calculate the difference to be paid by the government of Pakistan by applying the difference between 1-Year KIBOR + spread and end user markup rate on the outstanding principal.

The banks will calculate the subsidy for the period of markup subsidy i.e. 10 years.

Payment of subsidy to EAs will be made through SBP’s operational arm viz.

Development Finance Support Department (DFSD), SBP BSC, Head Office, Karachi. —TLTP

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