Refinance with Recourse

To develop mortgage market in Pakistan, PMRC is providing medium to long term financing facility to Primary Mortgage Lenders (PMLs) by securing their mortgage portfolio receivables through means of portfolio assignment. PMRC’s exposure to financial institution will, at all times be over-collateralized by at least 25%. Refinancing provided by PMRC will be with recourse, i.e. PMRC will have a full recourse on financial institution (FI) in event that any of the mortgages in collateral pool is defective, FIs will replace the defective asset (receivable) with performing asset.

Eligibility Criteria for Primary Mortgage Lenders

Licensed and supervised by SBP/SECP and is engaged in the business of housing finance;
Has a long-term credit rating of at least “A” issued by one or more recognized credit rating agencies licensed by the SECP; and
Has unqualified audited financial statements for the most recent financial year except for an emphasis of matter paragraph in the Auditor’s Report relating to the Customer’s minimum capital requirement as allowed by SBP.

Prefinance option is available for financial institutions that do not have an existing mortgage loan portfolio however intend to enter into housing finance market. Alternate collateral i.e. PIBs, T bills etc. can be given as temporary security which will be replaced with eligible mortgage portfolio once created.

Prefinance is available in both Conventional and Islamic Shariah-compliant mode of finance. Target market for this product consists of Financial Institutions (FIs) including Banks/DFIs/HFCs/MFBs/MFIs/NBFCs.

PMRC refinance product is based on refinance with recourse model. Objective of refinance is to provide liquidity to Primary Mortgage Lenders (PMLs) for expanding their mortgage loan portfolio. Refinance provides flexibility to generate mortgage loan portfolio on fixed rates which reduces the credit risk and provide comfort to end borrower for fixed installment for longer period.

Refinance is available in both Conventional and Islamic Shariah-compliant mode of finance. Target market for this product consists of Financial Institutions (FIs) including Banks/DFIs/HFCs/MFBs/MFIs/NBFCs.

Purpose

To provide liquidity to Primary Mortgage Lenders to generate more mortgages and to promote the housing sector.

Target Market

Banks/DFIs having Mortgage Loan Portfolios
Housing Finance Companies registered with SECP

Eligibility Criteria for Primary Mortgage Lenders

Licensed and supervised by SBP/ SECP and is engaged in the business of housing finance;
Has a long-term credit rating of at least “A” issued by one or more recognized credit rating agencies licensed by the SECP; and
Has unqualified audited Financial Statements for the most recent financial year, except for an emphasis of matter paragraph in the Auditor’s Report relating to the Customer’s minimum capital requirement as allowed by SBP.

Product Features

Refinance loan against existing eligible housing finance portfolio
Medium and long-term loan
Refinance loan on fixed rates
Servicing of loan by Primary Mortgage Lenders
Principal repayment at maturity of loan

Advantages of Refinancing with PMRC

Reduces maturity mismatch risk
Reduces liquidity risk
Innovate and offer fixed rate mortgages (advantageous to banks and borrowers)
Fixed rate mortgages increase affordability and reduces incidence of default by borrowers
Enables banks to diversify their sources of funds

SHARIAH STRUCTURE OF ISLAMIC BUSINESS PRODUCT OF PMRC

PRODUCT STRUCTURE:

Islamic Mortgage Business of PMRC is based on Shirka-tul-‘Aqd.

SHIRKAT-UL-AQD (BUSINESS PARTNERSHIP):

Shirkat-ul-‘Aqd (Business Partnership) means an agreement between two or more parties to combine their assets, labour or liabilities for the purpose of making profits and bearing loss (if any).

MUSHARAKA MORTGAGE POOL CREATION:

PMRC shall purchase mortgage assets at agreed rate.
Customer shall create special pool and comingle his share.
Risk and Reward of these assets will be shared proportionately.

PROFIT & LOSS SHARING MECHANISM

The profit-sharing ratio will be pro-rata or any other ratio agreed at the time of contract.
Loss will be shared as per their proportionate sharing (If any).
In addition, profit realized more than the Desired Rate will be given to client as incentive.

DIFFERENCES BETWEEN ISLAMIC AND CONVENTIONAL REFINANCE PRODUCTS OF PMRC

CONVENTIONAL BUSINESS	ISLAMIC BUSINESS
Conventional Business just lends to its customer actually a loan contract.	Islamic Business purchases assets and create joint enterprise through Musharakah – Shirkah-tul- ‘Aqd.
Conventional Business has no Shariah Compliant assets in its ownership.	Islamic Business has Shariah Compliant assets through purchases of the existing mortgage assets portfolio.
Charge interest.	Islamic business earns profit through rental agreement.
No loss will be borne.	Islamic Business may suffer from loss according to the spirit of Musharakah – Shirkah-tul- ‘Aqd.
Conventional Business charges Interest as income.	Islamic Business earns profit from Musharakah Pool as per agreed profit-sharing mechanism.
Penalties may be charge for late payment as income.	Charity may be applicable for late payment for charitable purpose (note: not an income of PMRC).

Reduced Maturity mismatch – Improved ALM.
Reduced Market risk – Fixed rate Loans.
Stable source of funding.
Reduced Credit Risk- Improved Affordability of Consumer.
Borrowings from PMRC are exempted from maintenance/calculation of CRR/SLR
Exemption in general provisioning for portfolio refinancing loans from PMRC.
Reduced Risk Weightage for PMRC refinanced mortgages.
Exemption from real estate lending limits – more exposure for Housing Finance.
PMRC’s funding will increase housing finance portfolio of banks thereby creating long term funding source.
Banks can cross sell different products to new customers to increase profitability.
Leveraging existing portfolio for additional lending.
Prefinance option available to generate mortgage loan portfolio.
Specialized products for low and middle income segment with price incentive.
Mortgage loans portfolios of Pensioners and Govt. employees can be refinanced.
PMRC assistance for capacity building and product innovation.