Client Name

Pakistan Mortgage Refinance Company (PMRC)

Faculty Advisor

Ms. Madeeha Omer Lakhani

SBS Thought Leadership Areas

Islamic Business and Finance

SBS Thought Leadership Area Justification

Islamic finance is not an add-on to the report but rather part of the solution as a structure. The proposed Green Housing Finance Framework is based on a green sukuk of PKR 2-5 billion issued by PMRC that is aligned with Pakistan Green Taxonomy (2025). It requires Shariah compliant green home finance products in the light of Islamic finance contracts of Diminishing Musharaka and Ijarah in the institutions like Meezan Bank and Bank Islami, which is a big opportunity since Islamic banking assets account for approximately one-third of the total banking assets in Pakistan. 

Aligned SDGs

GOAL 11: Sustainable Cities and Communities

Aligned SDGs Justification

This is the most straight forward alignment. The report covers the 10.3 million unit housing shortage faced by Pakistan and the informal settlements in which more than 47% of the urban population lives, without climate resilience. The Green Housing Finance Framework will focus mortgage refinancing on flood-prone cities in Sindh and high heat-island cities like Karachi and Lahore where vegetation loss and surface temperatures reached as high as 34.45°C was observed through satellite-based analysis. This will encourage the creation of a safer and more resilient urban housing stock at scale by incorporating green eligibility criteria (compliance to ECBC-2023) to the mortgage financing.

NDA

No

Abstract

The housing and climate crisis in Pakistan is twofold. The structural housing deficit of 10.3 million, the low mortgage-to-GDP ratio of 0.44% and the position of the country as one of the ten most climate-vulnerable countries in the world make the financing intervention for both issues simultaneously a pressing matter. The report, commissioned by the Pakistan Mortgage Refinance Company (PMRC), explores the potential of green and climate-resilient housing in Pakistan and recommends a financing framework through which PMRC can take a leading role in the growth of such housing in Pakistan.

A mixed methods research design is used for this research work. A thorough literature review of the academic and institutional and regulatory literature was completed along with the satellite mapping of flood vulnerability, urban heat and vegetation cover using Google Earth Engine for major cities in Pakistan. Cost benchmarking was conducted on construction costs, sourced from industry and development finance institutions. A primary survey of 260 consumers was conducted in a structured way across Pakistan to collect consumers' awareness, preferences and financing openness. The expert interview was performed to gain depth-level validation of the costs and feasibility of green design in the Pakistani construction context from the point of view of an expert in the field. PMRC's proposed framework was based on case studies from international institutions in Malaysia, Indonesia, Mexico, India, and South Africa.

The results create a solid quantitative and demand side argument for green housing finance. The cost premium of green construction in Pakistan is between 5–15% on initial investment as compared to conventional construction, and the upfront cost is recovered in 3-5 years due to energy and water savings. Satellite analysis reveals about 36,725 sq km of Sindh area is flood prone and the loss of urban vegetation cover is creating considerable heat island effect in Karachi, Lahore and other key cities. Consumers' demand is significant: 84% would pay a slight premium for a green home; 37% have already invested in solar panels; 58% are familiar with green housing concepts. The main challenge is not a lack of desire, but of access to affordable financing, certified construction knowledge, and knowledge of available financing options.

The report concludes that PMRC is an ideal institutional fit for the green housing finance ecosystem in Pakistan. The Green Housing Finance Framework (proposal) suggests that PMRC set up a specific green refinancing line at 50-100 basis points lower than its conventional rate that will be available only for banks who originate mortgages on green buildings that comply with the criteria of the ECBC-2023. The cost of capital needs to be brought down to commercially viable levels using a blended finance, such as multi-lateral concessional funding from IFC, ADB and World Bank Climate Investment Funds. The implementation is suggested to be in three phases: first, a pilot of 500 units to be implemented in three cities. Second, scaling up to a nationwide rollout, and third, scaling up to a global rollout. The risk-weighting framework of the SBP, the net billing policy reform, issuance of green sukuk, EDGE certification infrastructure and public awareness are addressed under supporting recommendations. Green housing is not a high quality product it is a risk management instrument of the mortgage market in Pakistan and a structural solution of the biggest development issue that Pakistan is facing.

Document Type

Restricted Access

Document Name for Citation

Experiential Learning Project

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