Many people are quick to blame the banking sector for investing heavily in government papers while shying away from extending credit to the private sector and individuals — something that can actually spur economic growth in the country.
What most critics ignore is the fact that unlike state-owned enterprises, private banks think twice before taking risky assets onto their balance sheets.
Take the example of housing finance. Its size is enormous in many countries, with banking institutions playing a most vital role in increasing the pace of asset accumulation in the economy. In contrast, housing finance is disappearing from Pakistan. The mortgage-to-GDP ratio is only 0.6 per cent while gross housing finance at the end of 2013 amounted to just Rs52.2 billion, down 8.5 per cent from a year ago.
However, a close look at the issue at hand reveals that banks should be the last ones to be blamed for the abysmal state of housing finance in Pakistan. Banks are often accused of maintaining a ‘negative list’ of areas when it comes to extending housing finance. In my opinion, their conservative approach makes perfect sense because land records are not computerised and the existence of more than one ‘file’ against a single property is commonplace — at least in Karachi.
The problem becomes more acute because of rampant corruption at registrar offices in Sindh. I experienced it recently when I had to pay off government officials at every single stage of lease processing for a new apartment. My journey into the property-owning middle class was marred by bribery, regardless of complete documentation with a multitude of no-objection certificates from a host of government bodies.
According to Transparency International Pakistan, property registrars receive bribes of Rs20,000 to Rs500,000 on each property registration in Karachi. With over one hundred properties sold or purchased every day in each district of the city, the Business Recorder estimates bribes amounting to Rs15 billion are paid every year in Karachi just for property registration.
Under such circumstances, which bank will extend housing finance if it is not sure whether the property being financed actually belongs to its seller? Expecting the government to clean the mess it has created is futile. Textbook economics tells us that the government is inherently inefficient. Experience tells us textbook economics is right. Let’s do away with the 20th century model of governance through government officials.
Housing finance will increase only when land records are computerised and the job of lease processing is given to an independent corporate body with requisite autonomy set up along the lines of National Database Registration Authority.
Published in The Express Tribune, July 3rd, 2014.