Housing finance in Pakistan: Govt Appoints SECP as CGTF Regulator

Ibn-e-Ameer

The government has appointed SECP as a regulator of the Credit Guarantee Trust Fund (CGTF) to provide risk cover against financing in the housing sector in Pakistan.

Following this, the government will ensure registration of the Existing Credit Guarantee Trust Fund under the Islamabad Capital Territory Trust Act. 2020.

Finance Division had proposed the federal government under sub-clause of clause (1) of Schedule (IV) to the Anti-Money Laundering Act, 2010″ to appoint/declare SECP as a regulator of Credit Guarantee Trust Fund (CGTF).

It aimed at fulfilling the requirement of NOC from regulator required under section 12(AX1) of ICT Trust Act, 2O2O for issuance of a certificate of registration by the director of directorate of labor and industries, ICT to the Credit Guarantee Trust Fund (CGTF).

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The government had set up the Pakistan Mortgage Refinance Company Limited (PMRC) as a joint initiative of the Government of Pakistan and Commercial Banks/Development Finance Institutions (DFIs) to raise financing in the housing sector in Pakistan.

International Finance Corporation (IFC) and the World Bank (WB) had supported providing medium and long-term funding to primary mortgage lenders in the housing sector by raising funds from the capital debt market at cheaper rates.

The primary mortgage lenders themselves were generally not in a position to raise funds at lower rates.

The PMRC was incorporated with the Securities Exchange Commission of Pakistan (SECP) in May 2015 and had been specified as a Development Finance Institution (DFI).

The government held 28.86% of shares of PMRC, while Banking Sector Investors i.e., NBP, Summit Bank, Askari Bank, HBL, UBL held the rest of the 71.14 % shareholding.

SBP had issued a commencement of business certificate to PMRC to start its operations effective from June 12, 2018.

Risk Cover in Housing Sector

To provide risk cover against financing in the housing sector in Pakistan, the Government of Pakistan (GoP) established “Credit Guarantee Trust Fund (CGTF) for Housing Finance.

It appointed PMRC as Trustee under Trust Deed.

However, due to the repeal of the Trust Act, 1882, CGTF had become dysfunctional.

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Therefore, PMRC intended to register CGTF as a specialized trust defined under section 12 of Islamabad Capital Territory Trust Act, 2020.

Section 72(2) of the Islamabad Capital Territory Trust Act, 2020, amended through the Islamabad Capital Territory Trust (Amendment) Ordinance, 202L and promulgated.

Moreover, it stated that all trusts created under Trust Act shall need registration in accordance with subsection ( 1) within the timeframe.

The Finance Division had obtained the legal opinion of the Law and Justice Division on the matter. The Law and Justice Division were of the view that, as the Credit Guarantee Trust Fund was a specialized trust (established for issuance of Credit Guarantees against financing in the housing sector) that was created under the Repealed Act (The Trust Act, 1BB2) prior to the commencement of the Act of 2020.

Therefore, in terms of section 12A (3) of the Act ibid, it was necessary to register in accordance with section 12 of the Act ibid.