Banking Law and Practice 5548

HISTORY OF PAKISTAN FINANCIAL SYSTEM

Before 14 august 1947 here was a combine Bank of Pakistan and India which was federal reserve bank of
India. It remain bank of Pakistan 1948 on 1st

July 1948 Quaid e azam loved foundation one of state bank of Pakistan.State bank of Pakistan is the
controll bank of the country while it,s constitution ,as

Originally laid down in the state bank of Pakistan order 1948 basically

Unchanged until 1st January 1974 when the bank was nationalized the scope of its Function was
considerably enlarge. The state bank of Pakistan act 1956 with subsequent amendments forms the basis of
its operation today. Under the state bank of Pakistan order 1948 the bank was charged with the duty to
regular the issue of bank notes and keeping of reserves with view to security monetary stability in
Pakistan and generally to operate the currency and credit system of the country to advantage”.

The scope of bank operations was considerably widened in the state bank of Pakistan act 1956 which
required the bank to “regulate monetary and credit system of Pakistan and to foster its growth in the best
national interest with a view to seare monetary stability and fuller utilization of the country productive
resources”. Under financial sector reforms the state bank of Pakistan granted autonomy 14 Feb 1974. On
21st Jan 1974 this autonomy was further strengthened by issuing three amendment ordinances which
were approved by the parliament 14 May 1947, namely state bank of Pakistan act 1956, banking company
ordinance 1962 and banks nationalization act 1974. The changes in state bank act gaved full and
exclusive authority to state bank to regulate the banking sector to conduct and independent monetary
policy and to set limit on government borrowings from the state bank of Pakistan. The amendiments in
banks nationalisation act abolished the Pakistan banking council and institutionalized the process of
appointments of chief exectives and board of the nationalized commercial banks and development finance
institutions with the state bank having their appointments and removals the amendments also increased
the autonomy and accountability of chief exectives and the board of directors of banks and DlfS pak
rupees issued by state bank is under its policy .

Pak rupee remained link to pound sterling till September 1971 and subsequent to us dollar .it was decided
to adopt the managed floating exchange rate system W.E.F. jan8 1982 under which the value of the rupee
was determined on daily basis. During the course of time and important development look place when
Pakistan accepted obligations of article _111 section 2,3 and 4 of the IMF article of agriment there by
making the Pak rupee convertible for current international transactions with effect from July 1 1994.

After nuclear detonation by Pakistan 1998 , a two tier exchange rate system was introduced W.E.F 22nd
July 19198 with view to reduce the pressure on official reserves and prevent the economy to some
excellent from adverse implication of sanctions imposed on Pakistan however effective 19th may 1999.

The exchange rate has been unified with the introduction of market based floating exchange rate system.

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Banking Law and Practice 5548

CAPITAL OF THE STATE BANK

The paid up capital of state bank of Pakistan is Rs30 million which is divided in 3 lea share Rs100 each
befor nationalization its 51% share were owned by the federal Govt and remaining 49 by the people. On
nationalization on 1st January 1974 its 100% shares were transferred to federal govt and now it is
completely a govt organization.

FUNCTIONS OF SBP
Like a central bank in any developing country state bank of Pakistan performed both traditional functions
which are normaly performed by centeral banks lmost ll over the world may be classified in two groups.

1. The primary functions including issue of notes regulation and supervision of financial system
bankers bank , lender of the last resort banker to govt , conduct of monetary policy.
2. The secondary functions including the agecy functions lile management of public debt
management of foreign exchange and other functions like advising the govt on policy matters and
maintaining close relationships with international financial institutions.
3. The non traditional and promotional functions performed by SEB include development of
financial from work institution aligation of savings and investment provision of training facility
to bankers and provision of credit to priority sector the state bank also has been playing an active
part in the process of islamization of the banking system.

CHAT FUNCTIONS OF STATE BANK OF PAKISTAN.

FUNCTION OF SBP

Traditional Non trading

Primary Secondary

 issue of note 1:public debt management 1:Development

 Conduct of monetary 2:Management of foreign exchange of financial and credit policy 3:Adviser
to govt intitutions
 Regulation of financial 4:Reltions with IFIS 2 :Trading facultysystem to bankers
 Bankers bank 3:Credit to primary
 lender of last resort sectors
 Banker to govt

FUNCTIONS (TRADITIONA)
The central bank performs following functions

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1MONOPOLY OF NOTE ISSUE

The SBP has the monopoly to issue currency notes are issue according to need of the public no other bank
can issue note.

2 BANKER TO GOVT
SBP maintains govt accounts, its reserves deposits and make payments on the behalf of govt SBP grants
loans to the govt . it lso makes investment in govt bills and securities.

SBP management the public debt, and also handle the financial business.SBP acts as advisor to the govt
in all monetary matters

3 BANKERS BANK
SBP acts as banker to commercial banks in following ways

 The commercial banks keep a fixed portion of their total deposits as a reserve with SBP its ratio
is 7.5 of total deposits
 Whenever the commercial banks re in trouble the take loans and rediscount their bills from SBP
 SBP also provides remittance facility to the commercial banks
 SBP manages and supervises the clearing house to facilitate the clearing of cheques between
banks

ISLAMIZATION:
From 1985 the SBP has prepared a programme to introduce istamec economic system PLS scheme is
practiced in all banks.

ROLE OF STATE BANK OF PAKISTAN IN ECONOMIC

DEVELOPMENT
Before independence hindus had a strong hold on the banking sector of the then India economy. They
migrated to India after the independence of Pakistan. So there was no virtually banking system in the
country to establish level promot the banking structure in the country state bank of Pakistan was set up on
1st July 1948. Since then this bank has been keenly working to develop the financial sector of our
economy 0ptill now its achivement have been commendable and they are as follows.

EXTENTION AND DEVEOPMENT OF NANKING STRUCTURE

There were only 69 bank branches after independence which for below the requirements of the country.
So SBP took special measures to promot the banking structure in the country. As a result of this new
banks came into existence new branches were opened in large number banking facilities are now
available in rural and underdevelop regions of the country. Now the total number of branches operating in
has increased manifold.

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Banking Law and Practice 5548
SBP has also played a vital role in setting up specialized financial institutions like ADBP and IDBP.
Besides this is giving adequate amount of loans to run house building finance corporation, small business
finance corporation, national development finance cooporation.

ASSITANCE TO SPECIALIZED FINANCIAL INSTITUTIONS

SBP gives financial assistance to different specialized financial institutions every year. It gives heavy
loans to agriculture development bank of Pakistan every year. Under order of govt of Pakistan issued on
7th December 1979. SBP gives loan to ADBP at a rate of interest which is 6% less than the bank rate and
federal govt compensates SSBP at ate 4%.

SBP gives a sufficient loan to federal bank for cooperatives every year at 3% less than the bank rate.

SBP also gives the loans to house building finance corporation on profit and loss basis.

Special loans are also given by the SSSBP to investment corporations of the Pakistan (ICP) and industrial
development bank of Pakistan (IDBP).

PROPER DISTRIBUTION OF CREDIT

SBP sets sector wise credit targets for commercial banks which has helped to achive proper distribution
of credit between different sectors of our economy. For example 14 June 1954 62% of bank credit was
being given to tred and commerce whereas the industrial sector received only 18% of total bank credit.
Now due to measures taken by SBP the pattern of credit distribution has allogether changed. In 1993-94
the industrial sector got 45% of the bank credit 31% went to trade and commerce and remaining 24% was
distributed to different sectors of the economy.

ISSUANCE OF SMALL LOANS

In 1959 credit inquiry commission of the govt of Pakistan pointed out the proper credit facilities are not
being given to small business man. Therefore SBP paid special attertion for the issue of small loans to
petty shop keepers and small industrialists are reasonable rate of interest. In May 1970 SBP directed

SPECIALIZED FINANCIAL INSTITUTIONS:

1. Pakistan industrial credit and investment corporation (picic)

2. Industrial development bank of Pakistan (IDBP)

3. National development finance corporation (NDFC)

4. Agricultural development bank of Pakistan (ADBP)

5. House building finance corporation (HBFC)

6. Investment Corporation of Pakistan (ICP)

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Banking Law and Practice 5548

1. Pakistan industrial credit and investment corporation (picic)

Pakistan Industrial Credit and Investment Corporation (PICIC) is a financial institution in Pakistan, one of
the first Development finance institutions established with the World Bank Group assistance in 1957. In
2007, PICIC Commercial Bank was bought by Singapore's NIB Bank.

PICIC subsidiaries

 PICIC Commercial Bank

 PICIC Assets Management Company
 PICIC Insurance

Functions of Pakistan industrial credit and investment corporation

(picic):
 Commercial Financing
 Home Financing
 Car Financing
 Home Financing
 Telebanking
 Mobile Banking
 Motorcycle Financing
 Islamic Banking
 Deposit & Saving Products

Board of directors of Pakistan industrial credit and investment

corporation (picic):
 chief exactive hilal khan
 Mr.Afghan badshah ceor chairman
 Mr. Ahsan Bashir
 Mr. KASHIF BASHIR
 Mr. Muhammad Ali Khoja
 Mr. Sulaiman Ahmed Saeed Al Hoqani
 Mr. Kamal Afsar
 Mr. Manzoor Ahmed
 Mr. Waseem Haqqie

2. Industrial development bank of Pakistan (IDBP)

IDBP has become one of the two most important financial institution for private industrial development in
Pakistan. Its lending has concentrated heavily on the export-oriented industries of textiles and jute. IDBP
has, moreover, made special efforts to assist in East Pakistan, where 41 percent of the total amount of past

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Banking Law and Practice 5548
lending has been directed; IDBP hopes to increase this percentage in its future operations. For the next
phase of Pakistan's industrialization, adequate facilities for the financing of industrial investment will be
very important. Among the chief priorities for investment are the expansion of the domestic jute
processing industry, the modernization of the textile industry and the encouragement of certain
engineering and chemical industries. IDBP should continue to play a key role in financing these
developments.

Functions of Industrial development bank of Pakistan (IDBP):

DEVELOPMENT BANKING BUSINESS
*Provides medium and long term finances
*Provides guarantee, loans
COMMERCIAL BANKING BUSINESS
*Deposits
*Remittances
*Bills
*Short term advances
*Guarantees
*Letter of Credit
*Foreign exchange accounts
MERCHANT BANKING BUSINESS
*Underwriting of public issue of shares
*Bridge Financing
*Leasing
COLLECTION OF UTILITY BILLS
*Telephone Bills at all branches
*Gas Bills at Branches in Karachi
EQUITY INVESTMENT/TRADING
ADMINISTERS OF THE EQUITY PARTICIPATION FUND

Board of directors Industrial development bank of Pakistan (IDBP):

*MR. JAMAL NASIM MD/ / Chairman

*MR. MUHAMMAD IQBAL HUSSAIN / Director

*MR. MAHMOOD AKHTAR / Director

*MR. TARIQ IQBAL KHAN / Director

*MR. PERVEZ HANIF / Director

*MR. MAQSOOD ISMAIL / Director

3. National development finance corporation (NDFC)

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Banking Law and Practice 5548
National Development Finance Corporation (NDFC) is based Karachi, Sindh, Pakistan. National
Development Finance Corporation is the largest development finance institution of Pakistan performing
diversified activities in the field of industrial financing and investment banking. It was established
through an Act of Parliament in 1973 to finance public sector industrial enterprises but, later on, its
charter was modified to provide finance to the private sector as well. The Corporation's resources consist
of funds generated through its own deposit schemes, lines of credit from the State Bank of Pakistan and
multilateral credit agencies.

Functions of National development finance corporation (NDFC)

A major objective behind the NDFC's project lending operations is to maximize economic (private and
social) benefits that accrue to the economy from the projects financed by it. An overview of the past
performance of NDFC reveals that it has successfully played the role of a catalyst for the country's
industrial development. The projects with strong backward/forward linkages were given more weight
even if they carried less attractive financial benefits. Economic appraisal of projects explicitly establish
and quantify the socioeconomic benefits interms of the internal economic rate of return, local cost of
foreign exchange saved, economic value added, employment generated, and capital output/capital labour
ratios. There are instances in which projects were rejected simply because they were economically not
feasible. The Kamalia Paper project carrying a capital cost of Rs. 4 billion, which was declined financing
on economic grounds, can be cited as an example displaying management's prudence. Projects assisted by
the corporation have continued to make a significant contribution to the country's economic development.
As per a survey conducted by NDFC of the 139 projects that were financed by it and were operational
during 1994, the gross value added to the country's GNP is estimated to be Rs. 30.4 billion, besides
having generated employment opportunities for 161,794 persons.

4. Agricultural development bank of Pakistan (ADBP)

Agricultural development bank of Pakistan (ADBP) was established in 1961. The main purpose of this
bank is to provide short, medium and long term loans to the farmers for the purchase of high yield seeds,
chemical fertilizers, insecticide and agricultural machinery.

ADBP advances loans on the basis of land mortgage or on the personal security. This bank issues loans
through Mobile credit officers. Each M. C. O. is in charge of 10 to 15 villages for the distribution of
loans.

Functions of Agricultural development bank of Pakistan (ADBP):

The main function of this merged institution was set to provide viable credit to the agricultural
community for development and modernization of agriculture and to help develop cottage industries and
Agri-Business in Rural Areas.

Starting operations with the field network of only 4 regional offices and 27 brances in both erstwhile East
and West Pakistan now conducts its operations with 4 high powered provincial offices, 49 regional
offices, 332 branches and 1440 Mobile Credit Officers. In the first year of operations, the Bank could

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disburse a meagre crediit of Rs. 31.5 million which now touches as high a disbursement figure as Rs. 10
billion targeted for 1990-91.

Since its inception, the Bank was providing credit on general loaning pattern under which the pace of
operational activities of the Bank remained too slow. In 1979, the Bank designed and introduced a new
mechanism of credit disbursement named as "Supervised Credit System" popularly known as "MCO
Scheme". Under this scheme all operations of the bank became village-based instead of branch-based. At
present the bank has a fleet of 1440 mobile credit officers, all agricultural graduate providing credit and
technology to farmers of each and every viable village of the country at their doorstep. In 3 decades, the
bank served as many as 20 lac farmers and lent them Rs. 57.5 billion, Rs. 13.2 billion for short term
production loans, Rs. 8.0 billion for medium term development loans and Rs. 36.3 billion for long term
development loans.

5. House building finance corporation (HBFC):

House Building Finance Corporation Limited (HBFCL), Pakistan’s leading housing finance institution.
Through our Head office in Karachi and a countrywide network of Regional, Zonal and Branch Offices,
we are able to offer our services to clients in every part of the country.

Since our inception we have provided a range of housing finance products and services for nearly half a
million housing units. Now, HBFCL is geared up to play a pivotal role in addressing the increasing
housing shortage in the country, currently estimated to be in excess of 7.5 million housing units.

Functions of House building finance corporation (HBFC):

1. The maximum limit of investment is one million rupees.

2. The Corporation does not finance the housing units beyond the covered area of 2250 square feet.

3. The financial assistance can be availed only once in the life time of house builders.

4. The interest bearing loans are not converted in to investment under this scheme.

5. The period of the repayment is 15 years, divided into 5 cycles of 3 years each. The Corporation’s
profit / share in rental income are reduced after repayment of 36 installments at the end of each cycle.

6. The repayment in each individual each begins after the completion of the agreed period of 9 months
of 12 months, as the case may be, or three months from the date of drawl of final installment whichever is
earlier.

6. Investment Corporation of Pakistan (ICP):

Investment Corporation of Pakistan (ICP): ICP was established in February 1966 with the objective of
broadening the base of investment and developing the capital market in the country.

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Functions of Investment Corporation of Pakistan (ICP):

(i) to underwrite and distribute public issue of shares and purchase of Term Finance Certificates
(TFCs),
(ii) to manage closed-end Mutual Fund and
(iii) to manage individual accounts. At present ICP manages 26 closed-end Mutual Funds. These
funds serve as a medium for selling seasoned portions of underwriting take-ups of shares and
shares acquired in the process of support operations on the stock market.

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PRACTICAL STUDY
House Building Finance Corporation HBFC
The House Building Finance Corporation was established in 1952 under an act of the parliament (Act
XVIII of 1952) to finance construction of house in the urban areas of Pakistan. Its operations started from
the city of Karachi and were later on extended to other cities and towns. While the Corporation played a
vital role in the field of housing, its progress remained restricted due to budgetary limitations. It was in
the year 1973 that the financial allocation of the Corporation were increased and its charter and scope of
activity was extended which enabled the Corporation to raise more funds, accept term deposit, extend
loans to rural areas natural calamities, increase the lending period to 25 year. lend for purchase of house
finance development authorities and important trust for development of plots, housing projects and even
participate directly in construction and management of houses for sale to public. This revolutionized the
operative potential of the Corporation but a major revolution in its working came in 1979 when a new
scheme of housing finance on income sharing basis replaced the old interest bearing loading scheme.

As a result of promulgation of Islamic laws in Pakistan, the HBFC has introduced a

revolutionary scheme of ‘Housing Finance on Income Sharing Basis’ thereby eliminating interest on its
loans. This scheme aims at providing credit facilities for construction / purchase of a housing unit by
becoming a partner in the venture in proportion to its investment. This joint-owner ship terminates as
soon as the partner repays the entire investment, together with income deriving there from. Such
investment by Corporation includes the cost of land. The Corporation continues to share the rental income
proportionately during the life of the joint ownership. The Corporation makes the arrangement for the
survey of the places for determining the cost of construction, rental rate, and cost of land prevalent in
various localities of a city or town. The result obtained as the consequence of survey / assessment enables
the Corporation to maintain the rates of profit with in a limited range so that the house builders,
particularly the low income groups, are not over-burdened. This new scheme has not only done away with
interest, but has also lessened the burden of heavy repayment on the house builders. More over the
possibility of constructing big and palatial houses has also been checked and discourage.

CAPITAL
In addition to share capital of Rs. 125 million, the capital resource of the Corporation comprise the state
bank loans (Rs. 2,435 million), debentures (Rs. 23.3 million), and Government loans (Rs. 438.3 million).

MANAGEMENT
The affairs of the Corporation are directed and supervised by a Board of eight Directors appointed by the
Federal Government as under:

 Two Directors from amongst the officials of Federal Government.

 One Director on the recommendation of the State Bank of Pakistan.
 Four directors, one from each province, on the recommendation of the respective Provincial
Government.
 The Managing Director,
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Banking Law and Practice 5548

ELIGIBILITY FOR LOANS:

The Corporation advances loans where the applicant holds a clear title of the property and his monthly
income, as also of the guarantor, is sufficient to repay the loan with in the prescribed period. The
applicant should also have the permission of the competent authority for Corporation’s becoming a
partner in the land and the house to be constructed with its financial assistance.

The borrower is required to submit an application on the prescribed form obtainable from the office of the
Corporation at the rate of Rs.1/-per form along with the following documents/information:

1. INFORMATION

a) The assessment of cost of land and the cost of construction.

b) Gross and net rental income of the property.

c) Share of the Corporation in the net rental income in consideration of the loan.

d) Corporation’s share in capital gains, if the property is sold or transferred during the currency of
Deed of Assignment and Partnership.

e) Levying demand charges in case of default as per repayment schedule.

f) Fixation date of completion of house.

The following fees shall be payable to the Corporation along with the application:

1) Application fee at the rate of one rupee per thousand rupees on the amount of loan being applied
for.
2) Inspection fee at the rate of one rupee per thousand rupees on the amount of proposed loan.
3) Insurance fee at the prescribed rate.

All fees are to be deposited with any authorized branch of Muslim commercial Bank.

2. DOCUMENTS

a) Sale deed/lease deed/gift deed etc. to prove ownership.

b) A copy of the relevant page from jamabandi /survey sheet.

c) Alienation certificate.

d) P.T.D/P.T.O.

e) Non-encumbrance certificate.

f) Site plan of the house, duly approved, with permission.

g) Permission of the competent authority for assignment of property.

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Banking Law and Practice 5548
h) In case of lease:

i) Proof of income.

ii) A copy of National Identity Card.

iii) Agreement.

1. If the loan is required for construction of a house, information about the cost of the plot according to
the sale of deed etc., area on which construction has already been made, proposed area for construction,
stage of the construction work and the amount of loan needed from the Corporation, has to be provided to
the Corporation.

2. In the case of loan for purchase of a house, all necessary particulars/details of the house, including
the cost; approved constructed area, total area, number and date of letter regarding approval of the site
plan, and the amount of loan required, have to be provided. In addition to the above mentioned documents
particulars, the Corporation would also required the borrower to supply the following information:

1) If the plot /house are or have been the subject matter of litigation and if yes, details should be
given.
2) Whether the plot / house are under any encumbrance and if so necessary details should be
provided.
3) Has the borrower previously secured any loan or investment on profit sharing basis? The details
should be given.
4) Details of loan/investment obtained from Corporation by anyone of the dependents of the
borrower.
5) If the borrower wants to assign, along with the property in question, any other property or
property in lieu of the house / plot in question, its particular should be given.
6) Details about bank, branch, account number act, etc where the borrower want to deposit the
installments of the loan/investment.

SECURITY FOR INVESTMENT:

The land/house shall be assigned to the Corporation in the prescribed form of Assignment and
Partnership. It shall be duly registered with the Local Deputy Registrar and all the expenses involved,
including stamp duty, registration fee etc., are to be borne by the borrower / proposer.

COVERED AREA OF THE HOUSE:

The Corporation does not provide financial assistance for a housing unit having a covered area of more
than 2250 sqr.ft. The maximum amount of investment admissible is calculated by multiplying the
proposed covered area of a housing unit by the following:

1. Pucca house with RRC roof: Rs. 80/- per sqr.ft.

2. Pucca house with out RRC roof: Rs. 50/- per sqr.ft.

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3. Multi-storied apartments: Rs. 70/-per sqr.ft.

The maximum limit of investment is rupees one lakh.

PAYMENT:
After the loan/ investment have been sanctioned, the amount is released in installment concomitant with
construction of house as under:

First installment: On completion of plinth.

Second installment: At roof level.

Third installment: After casting of roof.

In the case of purchase of housing unit, the investment is released in lump sum.

REPAYMENT CAPACITY:
1. BASIS:
The repayment capacity of a borrower/proposer calculated on the basis of his/ her regular income and the
anticipated rental income of the house according to the following formulae:

a) SHARE OF THE INCOME:

i) For person with monthly income up to Rs. 500/-: 15%

ii) . . . . . . . . . . . . between Rs. 501/- : 20%

and Rs.1,000/-.

iii) . . . . . . . . . . . . between Rs. 1001/- : 25%

and Rs.2,500/-.

iv) . . . . . . . . . above Rs. 2,500/- : 30%

b) If the amount of investment is Rs. 20,000 or below, the total anticipated rental income is taken into
consideration irrespective of the monthly income of the proposer. If the amount exceeds Rs. 20,000 the
anticipated rental income of house is taken into account to the extent of the share of proposer’s income as
detailed in (a) above.

2. BOOSTING REPAYMENT CAPACITY

A benefit to the extent of 50 percent of the proposer’s income is given where a guarantee is provided to
boost the repaying capacity. The Guarantor’s income in all cases should not be less than the proposer’s
income.

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Banking Law and Practice 5548
The persons who are solely dependent on the income of others e.g. husband / wife, parents/ children can
apply for investment on the basis of guarantee of their supporters. Where the parents / children, husband /
wife are both earning of the family, joint income of husband and wife or father / mother and one of the
children can be accepted provided the guarantor signs the letter of guarantee. An attorney may also apply
in his own name on the basis of his own income only, if the owner of property is residing abroad or is
serving in another province of Pakistan.

3. MODE of REPAYMENT
a) The investment is repayable in180 installments comprising the principal amount and Corporation’s
share in the rental income. The amount of principal is distributed over the period as per schedule given
below:

Ist Cycle : Rs. 4.30 per thousand rupees of investment per month.

IInd Cycle: Rs. 4.80 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IIIrd Cycle: Rs. 5.40 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IVth Cycle: Rs. 6.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vth Cycle: Rs. 7.720 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Each cycle comprise 36 monthly installments.

b) The market rates, determined through survey of various localities in different cities and towns carried
out by an authorized agency are taken into consideration for calculating the rental income. The renal
income is subject to revision after every three years.

c) The net rental income and share of the Corporation are calculated according to the following method

I) COST OF LAND

Total area multiplied by prescribed cost of land.

II) ESTIMATING TOTAL COST OF HOUSING UNIT

Proposed covered area of the plot multiplied by the prescribed rate of construction per squared feet.

III) ESTIMATING TOTAL COST OF HOUSING UNIT

Cost of land as at (I) above and estimated cost of construction as at (II) above.

IV) GROSS ANNUAL RENTAL INCOME

Covered area of plot multiplied by prescribed rental per square feet.

V) PROPERTY TAX

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Banking Law and Practice 5548
As leviable by the Government from time to time.

VI) NET ANNUAL RENTAL INCOME

Gross annual rental income less property tax, less maintenance allowance equal to one month gross rental
income.

VII) ANNUAL SHARE OF THE CORPORATION IN THE RENTAL INCOME

Net annual rental income multiplied by investment of the Corporation and divided by total estimated
cost.

VIII) MONTHLY SHARE

Annual share divided by twelve.

XI) MONTHLY REPAYMENT INSTALLMENTS

Principle as given at (3) (a) above plus share as given at (c) (vii).

The Corporation’s share on its investment payable by the partner varies from house to house and from
locality to locality but burden on the partner is certainly less as compared with the existing interest rates.

OTHER FEATURES
1. Investment can be made with a partner for additional construction where the property is already
mortgaged / assigned to the Corporation provided the repayment of previous loans/ investment is quite
regular and the total amount of out standing loans/ investment and the covered area do not exceed the
permissible limits.

2. In the case of house purchase, the repayment starts from the first of the month next following
registration of Assignment Deed.

3. Investment for house purchase is allowed only if the house is less than six years old from the date of
the first approved plan.

4. The monthly installment shall be repayable by the partner without regard to any loss of rental
income. If the partner makes any default in repayment of monthly installment, the Corporation shall issue
demand notice and also recover the following charges:

5. A house constructed or purchased in partnership with the Corporation shall not be eligible for re-
financing. Such a house may be disposed off with the prior permission of the Corporation provided the
price is reasonable and proportionate gain is paid to the Corporation.

6. The Corporation shall share the losses caused by natural calamities, war or civil commotion only.

REVIEW OF PROGRESS:

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Banking Law and Practice 5548
The rate of growth of loans advanced by the Corporation during the period for 1975 to 1980 was 23
percent of the total credit facilities provided by three institutions namely the Corporation, the Government
(for its employees) and the nationalized commercial banks. During the period from July 1980 to March
1981, the Corporation sanctioned loans amounting to Rs. 901.8 million. The following statement will
show the amounts of loans disbursed during the last six years:

( Rs. in million)

Year Amount of loan

1975-76 359.3

1976-77 573.3

1977-78 371.4

1978-79 525.2

1979-80 813.2

1980-81 (July-March) 901.8

ACTIVITIES:
1. The Corporation is undertaking construction of houses, particularly for Pakistani nationals
residing in foreign countries. It has already acquired land measuring 200 kanals from Lahore
Development Authority for construction of houses in Lahore under the ‘Faisal Town Scheme’.
The planning and designing initially have done. The scheme aims at constructing 350 houses
with a covered area of 2042 sqr.ft. each. This colony will have a community buildings, mosque,
primary school and shopping centre.

2. Under the directive of the President of Pakistan, the Corporation prepared a scheme of
Housing Finance on income sharing basis. Under this scheme, the Corporation makes investment
for construction and purchase of houses in partnership with the constructors/purchasers against
assignment of land and building thereon and agreement to allow the Corporation to have a share
in rental income of the property assigned to the extent of its share in investment.

3. the Corporation approved 18,272 investments to the tone of Rs. 901.8 million, during the
period from July 1980 to March 1981, with the following regional break-up:

S.No Region/Province Number of investments Amount (in million).

1. Punjab 4,106 234.8

2. Sind 1,761 115.8

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3. Baluchistan 125 8.5

4. N.W.F.P. 973 59.9

5. Azad Kashmir 149 10.2

6. Islamabad 333 25.6

7. Other than Islamabad 1,367 72.8

8. Karachi 6,207 363.5

9. Flood 3,251 10.7

Total. 18,272 901.8

HOUSE BUILDING FINANCE CORPORATION RECOVERY

UNDER HBFC MANUAL:
General:-
First of all at the time of delivery of final cheque, the partner is informed about the Account number,
monthly installment to be paid and the date of start of repayment of his investment. This information is
usually contained in the final cheque receipt to be signed by the partner and one copy is handed over to
the partner. The bank memo book duly embossed with the number of the partner’s account is also
delivered to the partner along with copy of cheque delivery receipt.

An informatory letter called advice is also issued about one month before start of repayment.

In case a borrower/partner makes default and the case is referred to the recovery staff. First of all before
initiating recovery action he should be well versed and well equipped with the following:-

1. Availability of all required data i-e up-to-date default list full and correct particulars of
the investment/loan and property.

2. Availability of required stationary i-e file covers, white sheets, ball pens etc.

3. Opening of recovery file.

4. Calculation of default.

5. Calculation of balance.

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