BB's refinancing scheme for housing sector
Sunday, 22 July 2007
IT is heartening to note that the Bangladesh bank has formed a Tk 3.0 billion fund to introduce, for the first time, a refinancing scheme for the housing sector. Under the three-year scheme, the central bank will make available Tk 1.0 billion every year to banks and other non-banking financial institutions (NBFIs) for disbursement as low interesting bearing -- at the rate of 10 per cent per annum -- housing loans to people belonging to the middle class and the lower middle class having a monthly earning not exceeding Tk. 30,000 each in six city corporations and in municipal areas of Savar, Tongi, Gazipur and Narayanganj. The central bank will provide 75 per cent and the participating banks and NBFIs 25 per cent of each of the loans having the maximum ceiling of Tk. 1.5 million and repayment tenure of 20 years.
The interest rate of the housing loan under the scheme fixed by the central bank is the most liberal one if seen in the context of the same offered by the Bangladesh House Building Finance Corporation (HBFC), a public sector entity, commercial banks and NBFIs. The rate of interest on HBFC loans is lower -- 12 per cent -- than that of banks and NBFIs. The latter charges interest rates between 14 per cent and 18 per cent on their housing loans. The lower middle class people living in major cities and areas adjacent to those hardly seek housing loans from the HBFC or other banks and others belonging to the middle class category, in most cases, fail to secure loans from the HBFC which has a very limited fund to lend. Many prospective borrowers of housing loans stay away from banks and NBFIs because of high rates of interest charged by the them.
Notwithstanding considerable rise in the costs of construction materials, the housing sector maintained a growth momentum in recent years because of noteworthy improvement in law and order situation. The incidents of local musclemen demanding extortion from owners of under-construction commercial and residential building have been much lower than before because of the anti-crime drive by the elite Rapid Action Battalion. However, the situation has changed for the past one year or so as the prices of construction materials, particularly that of MS rod, cement and bricks, have increased abnormally. These days, not many people having limited funds are venturing in new construction works. The prices of residential flats and apartments have also sky-rocketed.
The initiative on the part of the central bank to disburse housing loans to the middle class and lower middle class people is a noble one, no doubt. But compared to the demand for housing loans, Tk. 1.0 billion fund to be made available by the BB annually, plus another Tk 250 million to be provided by the banks and NBFIs, would be just a drop in the ocean. Moreover, the maximum loan ceiling of Tk. 1.5 million for the purchase of an apartment or construction of a dwelling house measuring a maximum area o f 1250 sq ft. will be inadequate, given the prevailing market prices of apartments, construction materials and labour costs. Any prospective borrower would have to invest an amount almost equivalent to the bank loan to buy an apartment or construct a house of the stipulated size. Under the circumstances, the central bank does need to take into consideration whether the people for whom the refinancing scheme is meant, will be able to invest such a large amount of fund from their own sources. For, a well-intended scheme must not suffer a setback just for wrong estimates.
The interest rate of the housing loan under the scheme fixed by the central bank is the most liberal one if seen in the context of the same offered by the Bangladesh House Building Finance Corporation (HBFC), a public sector entity, commercial banks and NBFIs. The rate of interest on HBFC loans is lower -- 12 per cent -- than that of banks and NBFIs. The latter charges interest rates between 14 per cent and 18 per cent on their housing loans. The lower middle class people living in major cities and areas adjacent to those hardly seek housing loans from the HBFC or other banks and others belonging to the middle class category, in most cases, fail to secure loans from the HBFC which has a very limited fund to lend. Many prospective borrowers of housing loans stay away from banks and NBFIs because of high rates of interest charged by the them.
Notwithstanding considerable rise in the costs of construction materials, the housing sector maintained a growth momentum in recent years because of noteworthy improvement in law and order situation. The incidents of local musclemen demanding extortion from owners of under-construction commercial and residential building have been much lower than before because of the anti-crime drive by the elite Rapid Action Battalion. However, the situation has changed for the past one year or so as the prices of construction materials, particularly that of MS rod, cement and bricks, have increased abnormally. These days, not many people having limited funds are venturing in new construction works. The prices of residential flats and apartments have also sky-rocketed.
The initiative on the part of the central bank to disburse housing loans to the middle class and lower middle class people is a noble one, no doubt. But compared to the demand for housing loans, Tk. 1.0 billion fund to be made available by the BB annually, plus another Tk 250 million to be provided by the banks and NBFIs, would be just a drop in the ocean. Moreover, the maximum loan ceiling of Tk. 1.5 million for the purchase of an apartment or construction of a dwelling house measuring a maximum area o f 1250 sq ft. will be inadequate, given the prevailing market prices of apartments, construction materials and labour costs. Any prospective borrower would have to invest an amount almost equivalent to the bank loan to buy an apartment or construct a house of the stipulated size. Under the circumstances, the central bank does need to take into consideration whether the people for whom the refinancing scheme is meant, will be able to invest such a large amount of fund from their own sources. For, a well-intended scheme must not suffer a setback just for wrong estimates.