The House Building Finance Corporation (Hbfc) - Pakistan: An Institutional Turnaround Spanning 2005 to 2007

Housing Finance InternationalVol. 22 Nbr. 3, March 2008

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Summary


The House Building Finance Corp (HBFC) was set up under the Government Act (titled "HBFC Act-1952") as a public sector enterprise soon after Pakistan's independence in 1947. Thus HBFC, established in 1952, became the country's first specialized housing finance institution and is currently ranked amongst the oldest housing finance institutions in Asia-Pacific region. In January 2005, the Government of Pakistan appointed a professional banker from the private sector as the new Chairman and Managing Director at HBFC. In order to prepare the organization to play a much bigger role, in a more prudent and efficient manner, a comprehensive Reforms & Restructuring Program was designed in 2005 and immediately put into action. The case of HBFC is a candid example wherein by inducting professional management, and with commitment of the Board and the stakeholders, such institutions could be prepared to effectively serve their mission.

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The House Building Finance Corporation (Hbfc) - Pakistan: An Institutional Turnaround Spanning 2005 to 2007

BACKGROUND

The House Building Finance Corporation (HBFC) was set up under the Government Act (titled "HBFC Act-1952") as a public sector enterprise soon after Pakistan's independence in 1947. Thus HBFC (the Corporation), established in 1952, became the country's first specialized housing finance institution and is currently ranked amongst the oldest housing finance institutions in Asia-Pacific region.

During the partition between India and Pakistan, there was a large influx of refugees crossing the border into Pakistan to settle mainly in the larger cities of Karachi and Lahore. Rehabilitation of these refugees, encompassing the provisioning of housing and employment, became the foremost issue facing the leadership of the new born state. In order to economically empower the people for housing and gainful employment, two institutions were created by the founding fathers of the country:

(i) The Refugees Rehabilitation Corporation, and

(ii) The House Building Finance Corporation.

With this purview, HBFC was created as a State Enterprise and by default, being in public sector became victim of the:

* Pros and cons inherent to a Public sector Enterprise within a developing country.

* Over the years it became an administrative arm of government's Social Service program and got plagued with inefficiency, corruption, political influences, and poor market perceptions.

* Nearly its entire loan portfolio was declared as either Non-Performing Loans (NPLs) or potential NPLs raising the fundamental question of its commercial viability and sustainability.

WORLD BANK ASSESSMENT

A World Bank Report in June, 7 2002 "A Housing Finance System for Pakistan Issues & Options" carried out a detailed review of HBFC and commented:

"Given the low rate of provisioning, HBFC may be in a situation economically equivalent to bankruptcy". "(P-2)"

Furthermore, it also observed that:

"Given its legacy as a Development Finance Institution (DFI), attempts to restructure HBFC as a commercially operating housing finance institution are not provisioning. Rather HBFC might focus on becoming an efficient manager of Government programs of social ...

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