Islamic Guarantee Scheme Model
The Government of Pakistan in order to promote low-cost housing sector created a Guarantee Trust Scheme for Low-Income Housing (Trust), a trust established and existing under the laws of the Islamic Republic of Pakistan, acting through its trustee, Pakistan Mortgage Refinance Company Limited. The Trust shall invest the Funds received from GOP in Shariah compliant avenues such as Sukuk etc. Claim payment for overdue profit/rental amount will be covered under the Guarantee and in addition to it the trust will provide coverage for the outstanding buyout units as conditional Tabarru’/Gift.
The overall Islamic Guarantee scheme is based on the concept of Kafalah/Guarantee and Conditional Tabarru’/Gift. Under this Guarantee & Conditional Tabarru’ arrangement where the Trust is providing risk coverage to the qualified Islamic Participating Financial Institutions (IPFIs) incurring/classifying loss (of profit/rental & unit financing amount) as per Prudential Regulations in respect of their eligible low-cost housing portfolio. At any point of time, if the facility is settled in full by the customer or regularized through restructuring or the qualified IPFI sells the asset in the market and recovers the loss through proceeds and/or any other source(s), the recovery amount so received shall be returned to the Trust up to the amount of Guarantee & Tabarru’ arrangement paid by the Trust to the qualified IPFI.
Product Features
- Guarantee Scheme will be issued by the Trust on a portfolio basis for up to 40% guarantee cover on first loss basis of outstanding principal amount.
- Designed for low-income group specifically.
- Increase the accessibility of affordable housing finance to low-income group.
- Coverage period of up to 10 years.
- Provides partial guarantee for low-income housing to mitigate risk and encourage banks to finance to this group.
- Focuses on low-income households, particularly those in the informal sector who are typically excluded from traditional housing finance.
- Based on Kafalah/Guarantee and Conditional Tabarru’/Gift concepts. Covers losses related to profit/rental only, with unsold unit coverage being conditional Tabarru’.
- If the customer settles the facility or the asset is sold and proceeds are recovered, the recovered amount will be returned to the Trust up to the guarantee amount paid.
- The Trust funds shall be invested in Shariah compliant avenues such as Sukuk etc.
Eligibility Criteria for Financial Institutions
- Must be qualified financial institutions (QFI).
- A QFI shall be a financial institution that meets the following criteria:
- It is licensed and regulated by SBP and/or SECP and are engaged or contemplating to engage in the business of mortgage finance
- It has a long-term credit rating of at least “A” issued by one or more recognized credit rating agency licensed by SECP, provided that credit rating of up to “BBB” may be acceptable in the case of Non-Banking Finance Companies and a minimum credit rating of “BB” may be acceptable in the case of newly incorporated Housing Finance Company; and
- It has unqualified audited financial statements for the last two (2) financial years, provided that, in the case of newly incorporated entities, unqualified audited financial statements for the most recent financial year will be acceptable.
Eligibility Criteria Relating to Principal Customer
Eligibility and parameters given in housing finance circular IH&SMEFD No.03 dated March 25, 2021 must be complied and any subsequent amendment from time to time by SBP.
- It is the duty of the (Islamic IPFI/Financier to carefully assess the ability to pay by the Principal Customer including the assessment of his/her incomes and to the extent needed, of his/her living expenses.
- The Principal Customer is a natural person either:
- having an income source that is estimated by the IPFI/Financier using generally acceptable market methodology; or
- having a verifiable source of income (duly assessed and verified by the Financier).
- To the best knowledge of the Financier, the Principal Customer is not an undischarged bankrupt nor have any bankruptcy proceedings been commenced against the Principal Customer
- The financing profile of the Principal Customer shall be supplemented with credit report from the Consumer Credit Information Bureau of SBP/other credit bureaus/any verification companies or by the Financier. The Financier should also obtain a written declaration from the Principal Customer divulging details of all financing facilities already obtained from other financial institutions
Eligibility Criteria Relating to Housing Facility for Guarantee Coverage
- It is a Mortgage Facility that is disbursed to or for the account of the principal customer by the financier and/or A Mortgage Facility extended during residential property construction with the land plot for such construction in prior ownership of the Debtor is eligible for CGS coverage. All relevant clauses in 5.3 of Scheme Manual shall apply. The maximum allowable Mortgage Facility amount as per the Mortgage Facility Agreement and/or the Mortgage Security Agreement shall comply with the limits as per 5.1.3 (as per Scheme Manual) but for the duration of the construction process the Guarantee Coverage only applies to the portions of such Mortgage Facility actually disbursed to the Debtor. Also, for avoidance of doubt, prior ownership of land in the context of this clause shall mean that the land plot on which the residential construction is being financed by the Mortgage Facility has been in the ownership by the Debtor prior to submitting application for such Facility and that such ownership complies with conditions as per 5.4 of Scheme Manual.
- Mortgage Facility has a return/profit rate/rental resetting period of at least five (5) years.
- The Mortgage Facility to conform with SBP circular for Low-cost housing/Govt. Subsidy Scheme (GSS) as updated from time to time.
- Total monthly amortization payment, including under the Mortgage Facility, and the repayment obligations of the Principal Debtor against all other financing do not exceed fifty per cent (50%) of the net disposable income of the Principal Debtor.
- The Mortgage Facility has not been satisfied, cancelled, subordinated or rescinded in whole or in part and the Mortgage Property has not been released from the first ranking mortgage created by the Mortgage Security Document, in whole or in part, nor has any instrument been executed that would affect any such satisfaction, cancellation, subordination, rescission or release.
- The Mortgage Facility is in compliance with Applicable Laws and Regulations.
Mortgage Facilities originated by the financier where such Mortgage Facilities are not in the List of Excluded Activities as set forth in Appendix 1 to this Scheme Manual.
Guarantee Charges
Trust fee as service charges 2% upfront on outstanding portfolio.
- These charges are a one-time upfront charge for guarantee term of 10 years.
- These charges are charged and payable upfront at the time of or after signing of Guarantee Agreement (known as Guarantee Charges).
- The amount received in term of service charges will be utilised in operational activities of trust in providing Guarantee.
