Two memorandums of understandings were signed between PICIC and the two groups the other day, both associated with the Aga Khan's establishments in Karachi.
It is for the first time that a development finance institution has extended financing facilities for the housing construction by individuals serving as employees or holding membership in a co-operative housing society.
This may be described as a sort of retail banking by a DFI which was so far engaged in financing larger industrial projects exclusively.
Smaller projects were out of the scope of PICIC's financing according to its own articles of association and memorandum.
As to whether PICIC's board of directors has made necessary amendments in the articles of association for loan financing to smaller housing construction projects, is not known.
While commercial banks are already engaged in offering housing construction loans to individuals, a DFI which is not authorised to accept and maintain deposits from account holders, has now stepped into this field, which is surely indicative of a decline in demand for loan finance from industrial projects.
The PICIC will thus be offering housing loans from its reserve funds unlike the commercial banks which use their deposits from clients for loan financing.
On the whole, PICIC's participation in the promotion of housing construction is a welcome initiative which may engender competition from other banking institutions in the construction sector.
In turn, the terms and conditions, including the mark-up rate on housing loans are likely to be softened for the benefit of the borrowers who generally belong to the low and middle income groups.
The individual members of the Gulshan-e-Fidai Multipurpose Co-operative Society Limited will be paying for ownership of flats to be built by the co-operative society out of the loan from the PICIC.
Similar loans will be offered to individuals working as employees of the Aga Khan Ismailia Charitable Trust.
The arrangement of housing loans to individuals through the co-operative society and the Trust appears to be a good approach for collectively financing a housing project.
This example may be followed by individuals having plans to build apartments or small housing projects by forming a co-operative society.
The sponsors of large industrial units may also offer housing facilities to their employees on the basis of loan financing from banks on this pattern.
PICIC is now said to have geared itself to offer loan financing for both long term and short term for various types of capital investments which would include leasing, mortgage financing, working capital, housing, equity participation in the share capital of a project, underwriting of public share issues etc.
Such financing facilities will be extended by the Corporation through a syndicate of banks and other financial institutions.
These are undoubtedly very promising channels of loan financing for the corporate sector of the country.
The combination of both short term and long term financing would provide a relatively wider scope to financing institutions and therefore PICIC's initiative could be described as a bold programme.
The housing finance from PICIC will carry a floating rate of interest which is reported to have been fixed at 8 percent for the present.
This is the same rate, according to the market sources, as has been fixed by a majority of banks which are offering housing loans.
It is indeed a pleasant development that housing loans would be available to borrowers not only fairly liberally but also at a comparatively low rate of interest as opposed to the conditions about two years ago when the housing loans from banks were prohibitively costly.