State Bank of Pakistan (SBP) Governor Raza Baqir is indeed a very proactive head of the monetary sector and he’s been quite admirable in his efforts to make sure that the central bank stood shoulder to shoulder with fiscal authorities as they tried to face the worst of the pandemic and the lockdown. Now he’s doing what he can to get the banking sector to play along with the prime minister’s idea of stimulating the construction industry because it has been known to drag a good 30-40 sectors along with it whenever it really gets going. Since all that means more production and more employment, it’s a win-win situation for the government. The only problem is that for the longest time Pakistan has been without proper foreclosure laws that can enable banks to lend for housing without having to worry about the possibility of default on principal. And, quite shockingly, financial institutions were stripped of powers to hedge against risk when lending for housing as a result of a decision of the Supreme Court, no less, not long after the Musharraf government worked on an idea not very dissimilar from Prime Minister Imran Khan’s smart idea now. The government should thank its stars, at the very least, that the judiciary has better things to look into at this point in time. Yet for all the advances it seems banks are still reluctant to lend to people looking to make new houses. They are still not clear about their risk management matrix. That is why SBP is going the extra mile and giving commercial banks the opportunity to maintain reduced Cash Reserve Requirement (CRR) with SBP in the next quarter in case they make progress towards housing loans, or be ready to face penalties if they fall short of their targets. All this is fine and most probably the right thing to do but it still raises questions about the real reasons that banks are having second thoughts even about a program that has support all the way to the very top office in the land. Hopefully this is not one of those proposals that is just shoved down everybody’s throat just because the orders from the top said so. In that case it will not only fail to do much about the construction sector or the PM’s dream of providing low cost housing to poor people, but also do much damage to the banking sector. The government needs to sort this out rather quickly. At least it won’t have to worry about help from the state bank. *