Does PMRC offer Islamic mode of financing to FIs?
Yes. PMRC offers financing to Islamic Financial Institutions (IFIs) in Islamic mode through participatory structure of Musharakah – Shirkah-tul- ‘Aqd.
What is Refinance?
Facility that is provided against existing housing finance portfolio of Islamic Financial Institutions (IFIs).
What is Prefinance?
Facility that is provided to the customer to generate housing finance portfolio.
What is PMRC?
Pakistan Mortgage Refinance Company (PMRC) is a liquidity facility that provides financing (known in conventional spirit as refinance/prefinance) to Primary Mortgage Financier (Banks and IFIs) to promote housing finance.
What is Liquidity Facility?
A specialized financial institution offering medium to long term financing against a pool of mortgages/assets as security.
What is the purpose of PMRC?
Development of primary mortgage market by providing medium & long-term funds and to promote sound mortgage financing practices.
What is the General Concept of PMRC Islamic Refinance Product
The Islamic Mortgage Refinance Facility is a specifically designed for PMRC in a Shari’ah compliant manner based on Shirkat -ul- ‘Aqd. which is known by Musharakah (business partnership).
What is the Definition of Musharakah?
Musharakah is a joint enterprise or partnership structure in Islamic finance in which partners share in the profit and loss of an enterprise. In other words: “Sharikat al-’Aqd (contractual partnership) means an agreement between two or more parties to combine their assets, labour or liabilities for the purpose of making profits.”
How is the Musharakah Pool Created
A Musharakah Pool will be created by the Customer on certain agreed contribution by PMRC and the Customer (IBI/IFIs) in the form of assets. PMRC shall purchase housing asset or any other Shariah Compliant Assets / Securities through Asset Purchase Agreement to start Musharakah.
The assets worth PKR 100M will be purchased at PKR 100M for Musharakah Pool Creation (which would be approximately 99% of pool). Moreover, the Customer will also contribute its assets for the same purpose (which would be 1% of pool).
Consequently, the assets of both the partners (PMRC and Customer) will be commingled/parked in special Musharakah Pool. So, the risks and rewards of such assets will be shared proportionately. Considering the subject joint enterprise (Musharakah Business), both the parties will set their profit-sharing ratio on the same time.
Therefore, in this regard, PMRC as financier/investor will focus on its desired/required/expected rate of return which is known as Hurdle Rate as well. The desired rate of PMRC on its financing/investment may be 8% (PKRV +/- margin) while weighted average profit earning rate on Musharakah pool is 14% (KIBOR/PKRV:11% + Spread:3%). Accordingly,
The Musharakah Profit shall be distributed between the Parties in the following manner:
Musharakah Profit up to the Desired/Expected Profit will be distributed in accordance with the Musharakah Participation Ratios;
Musharakah Profit in excess of the Desired/Expected Profit will be distributed in accordance with the mutually agreed ratio
How the Profit & Loss Sharing Mechanism works ar PMRC
The profit-sharing ratio will be pro-rata or any other ratio agreed at the time of contract. Loss (If any) will be shared as per their proportionate sharing as per investment.
Who can avail financing from PMRC?
Primary mortgage financiers providing financing to financial institutions (FIs) such as Banks/DFIs/HFCs/MFBs/MFIs/NBFCs with housing finance portfolio or those FIs that intend to enter the housing finance space and are regulated by either SBP or SECP. PMRC do not provide financing to individuals.
What is MMA?
Master Musharakah Agreement (MMA) is legal agreement between PMRC and Islamic (Shariah-compliant) primary mortgage lenders to cover general terms of financing.
What advantage/benefit will bank have for sign of MMA?
By signing of MMA, primary mortgage financier can avail financing facility from PMRC in Shariah Compliant manner.
Does signing of MMA requires any regulatory approval?
For signing of MMA, approval from the BOD of primary mortgage financier is required.
What other agreements will be executed?
- Musharaka Agreement
- Security Documents such as include Assignment Deed etc.
Who will bear the cost of signing MMA and other agreements?
Legal agreements will attract stamp duty and Primary mortgage financier will bear that cost.
Does PMRC have any obligation in terms of servicing of the portfolio??
PMRC provides financing with recourse basis; Servicing of the portfolio is the responsibility of Primary Mortgage Financier.