Yavar Moini Director - Islamic Banking Department International Conference on Affordable Housing & Mortgage Finance, May 28-29, 2015, Islamabad 1

 Unique in Islamic countries- Islamic banking attempted twice in 1980s and 2001  First attempt achieved limited success but second attempt has rather been successful  Current Islamic Banking Paradigm-Key Features  Parallel Banking System- Three Types of Islamic Banking Institutions  Full fledged Islamic banks,  Islamic banking subsidiaries of conventional banks and  Islamic banking branches (IBBs) of conventional banks. Conventional banks having Islamic banking branches also allowed to have Islamic banking windows in their conventional branches.

Shariah Governance Framework Essentials and model agreements of Islamic modes of financing Adoption of AAOIFI/IFSB standards Risk Management Guidelines PLS and Pool Management Framework Guidelines for Agriculture and Microfinance 3

 Establishment of Steering Committee  Islamic Banking Strategic plan 2014 – 2018  Issuance of comprehensive Shariah governance framework  Development of comprehensive liquidity management framework  Rationalization of MCR  Active collaboration with stakeholders  Nation-wide mass awareness media campaign  Launch of first survey based national study on Islamic banking - Knowledge, Aptitude and Practices  Establishment of Centre of Excellence 4

5 Number of IBIs: 22 Number of Branches: 1574

 There is a large and widening gap in housing market in Pakistan  World Bank estimated a shortfall of 8 million housing units in Pakistan in 2009  ABAD claims annual incremental demand of 600,000 units of which 50% is met by the private/public investment leaving an annual shortfall of 300,000 units  Formal financial sector caters only up to 2 per cent of all housing transactions, the lowest ratio in region 6 State of Housing Sector in Pakistan

HBFC st HFC 2001 National Housing Policy 2003 Commercial Banks 2004 Islamic Banks 2006 I&HFD 2007 HAG Recommendation 2008 MFBs 2015 MRC (expected)

 Formation of Housing Advisory Group Implementation of HAG recommendations  Issuance of Prudential Regulations for Housing Finance – 2014  Issuance of Housing Finance Guidelines – 2014 Guidelines for financing to Housing Builders / Developers – 2014  Development of secondary mortgage market in Pakistan by creating a Mortgage Refinance Company (MRC) – 2015  Capacity Development Programs – IFC, World Bank  Effective coordination with key Stakeholders – ABAD, AMB, Banking Courts, Financial Institutions and GOP 8

 Twenty nine financial institutions are catering to housing finance needs:  Commercial banks27 (including 5 Islamic Banks)  HBFC 1  MFB 1  Forty industries allied to housing sector  Principle nature of housing finance / mortgage product  Construction  Outright purchase  Renovation  As of Dec 2014, Islamic banking industry has a share of 33.4% in overall housing finance which is growing at an unprecedented growth rate 9

Core Structures Product Types  Murabaha  Ijara  Istisna  Diminishing Musharaka (Mostly used in banks for Islamic Housing Finance)  Murabaha  Ijara  Istisna  Diminishing Musharaka (Mostly used in banks for Islamic Housing Finance)  Home Purchase – Buying a new house  Home Construct – Constructing house on already owned land or purchasing land and constructing house thereon  Home Renovate – Renovating the existing house  Facility Replacement – Replacing the existing home mortgage facility from any other bank to Islamic Bank  Home Purchase – Buying a new house  Home Construct – Constructing house on already owned land or purchasing land and constructing house thereon  Home Renovate – Renovating the existing house  Facility Replacement – Replacing the existing home mortgage facility from any other bank to Islamic Bank 11

 Weak property rights  Inefficient legal framework and land information systems  Improper implementation of foreclosure laws; outdated building and zoning regulations  Lack of secondary mortgage market  Rising land prices and rapid urbanization  Lack of product innovation  Inadequate research for introducing cost effective construction techniques 12

 Catering to faith sensitive customers  Rationalization of transaction costs in housing sale/purchase transactions  Investment linked tax incentives for developers to increase the supply of affordable housing  Development of Shariah compliant REITs  Focused research initiatives 13

14 Thank you!