HBFCL – A Success Turnout Story



Azhar Jaffry, Ex-Chairman of House Building Finance Company Limited (HBFCL) spoke to IBEX before leaving HBFCL and talked about the transformation of the organization.

Azhar Jaffry is a U.S. qualified MBA with specialization in International Business and Marketing. His career started by joining American Express in Pakistan and has now spanned over almost 35 years in the financial and banking sector in countries such as Singapore, Malaysia, Indonesia, Saudi Arabia as well as in the far east region. His affiliation with financial institutions was also through flagship names like Hong Kong Shanghai Banking Corporation, Saudi British Bank, Citibank, Standard Chartered and Master Card International. Upon his return to Pakistan, he started working as the Senior Executive Vice President (SEVP) in one of the top 5 local banks. He later on joined House Building Finance Corporation as the CEO/Managing Director and soon was appointed the chairman by the board of directors.

The most interesting realization upon his joining HBFCL came in the form that the company neither had a previous chairman, a full time CEO nor a functioning board. After understanding the functioning of the institution in a very short period of time, Mr. Jaffry took the initiative to reactivate the board after the lapse of almost 16 months. The lack of expert staff and professionalism posed great challenges and hindrance in the running of the company. Previously, promotions were done on the basis of time spent in the organization rather than the contribution by  individual and job expertise. The first decision taken by the board under Mr. Jaffry’s leadership was to recruit professional technocrats to effectively manage the organization.

Previous Situation of the Company

In HBFCL, not only the employees were unaware of basic and fundamental financial concepts of credit, the organization was also suffering from a strict hierarchal and bureaucratic structure which prevented any healthy flow of communication and interaction between the management and the executive/staff. The organization was also a major victim to nepotism, favoritism, internal politics and vested interests, with appointment of the top management based on purely political schemas rather than prior experience in the related industry.

There was a lack of basic understanding in the financial sector regarding credit and organizational structures. Also, the treasury department suffered a similar fate due to vested interests and favoritism. The organization lacked professionalism in the legal department. The individuals working did not have related academic and professional experience.

The new energized legal department of the company designed a VSS document for the organization and this work can be credited by the fact that it is the only document of its nature to have never been legally challenged in the country. It serves as one of the biggest strengths for HBFCL. In 2009, the company was facing more than five thousand lawsuits. An extensive research based on case to case, jurisdiction to jurisdiction, and proactive approach at problem solving allowed the legal department to shortlist thirty main causes which caused the company to be repeatedly summoned by the courts since 1952. Keeping these 30 pertaining issues in mind, the entire customer documentation method was redesigned. This helped clear pending issues for the company to make way for future growth and enhanced productivity.

Challenges Faced in Transformation

The biggest resistance faced in the transformation of the company was from the internal staff. Before the new management initiated transformation, HBFCL was purely run as a government bureaucratic institution, based on the Act of 1954 which enabled all employees to be government servants with permanent jobs. As we wanted to make it a Company Ltd, the cover provided to the employees by the 1954 act served as the biggest impediment because it meant not only the employees will be non government servants but their promotions and benefits will also be accountable.  HBFCL is now governed by State Bank of Pakistan and Securities and Exchange Commission of Pakistan (SECP). The formal name of this institution was changed from HBFC to HBFCL in 2011. It took 5 years to make this change due to internal resistance and politics.

It was only the internal documentation of the organization which needed to be amended and not the initial charter. The functioning was similar to what it was earlier except changes in the legal framework and strategies. Efforts were made to market the company and build a new image for it. The legal formalities were relatively easier to address compared to the internal culture which had to be addressed at all levels due to vested interests.

The purpose of the transformation exercise was to take HBFCL from a statutory to a non statutory institution by bringing in strategic private investors and getting HBFCL eventually listed in the stock market, which was the intent of the legislature when they transformed HBFC into HBFCL and wanted to make it private, profitable and independent institution. We have examples of PTCL, HBL, ABL and UBL which were privatized and now they are running profitably and successfully. All the State Owned Enterprises (SOEs) which are proving to be a burden on the government should be privatized. This means that there will be a Rs. 400 billion reduction in the loss which the government annually has to absorb from the failed SOE’s.

Challenges Faced in Removing Corruption

When the new management took over the company, it had total cash reserves of Rs. 1.9 billion out of which Rs. 1.5 billion were borrowed from the market at extremely high interest rates. This meant that the company had only Rs. 400 million to keep it afloat. With operating expenses of over Rs. 1.3 billion rupees, the new management inherited the company almost a hair distance away from bankruptcy. The company’s annual lending was about Rs. 4 billion with a default rate of over 50%. The previous management, instead of improving the working and operations of the company were simply waiting for the government to inject more cash into the company.

As the entire internal functioning and structure of the organization was redone to ensure effective allocation of future funds, this was met with unwillingness and resentment by internal vested interest. Documentation was weak from the customers and in terms of their salary and also the property values, which were causing huge credit losses to the institution.


When the new management took over, most of the valuation and verification operations were outsourced to State Bank approved companies. A new credit policy was introduced based on the best practices in view of the previous poor experience in recoveries. Not only this, but these basic services were provided free of cost. The credit policy was also adapted keeping in mind the previous record where if Rs. 4 billion was being lent; about 10% of the given amount was done illegally.

It was owing to these tight accountability measures that the company is proud of having Rs. 9 billion in cash on its books today after having paid over Rs. 1 billion on account of its borrowings from the market.


It was extremely important for the company to reduce its overall cost and also have a well trained effective organization structure for maximizing its return in investment. Owing to this, the workforce was cut down from 1400 plus personnel to almost 820. All the stakeholders including the union, staff officers and Ministry of Finance were in loop while introducing attractive Voluntary Separation Scheme (VSS), which was first offered to officers. The legal contract made it virtually impossible for the organization to be sued and it served as a huge legal advantage for the institution.

Competition with Commercial Banks

It is extremely difficult for HBFCL to compete with commercial banks when their cost of funding is around 3-4% while HBFCL’s is almost 12% because they are borrowing from the State Bank. HBFCL is the only institution which is catering to lower income groups in Pakistan and has a market share of nearly 80% in terms of number of loans for housing to the lower income strata. These are the individuals whose needs are not met by commercial banks. It is an extremely high risk area which we operate in however, it is possible to recover the risk by thorough background checking and dealing with genuine customers and strictly following the credit policy. If government does not take some tough decisions soon for HBFCL; in less than 5 years, the 9 billion rupees cash portfolio will disappear from this organization.

A Successful Marketing Campaign

Our management realized the importance of having a reliable brand image and how it can be helpful to be a sustainable core competency for the company especially in attracting new business and competing with the commercial banks. We took an almost forlorn image of HBFCL and with new marketing and advertising campaigns re launched the company brand with a more fresh humorous appeal. Our ads were specifically designed to speak to each type of customer individually. The campaign was reflective of the traditional joint family units in the country and illustrations were used rather than pictures so that no customer feels alienated by the campaign. Not only did we achieve our objectives through this but also managed to bag the prestigious APNS marketing campaign of the year award for our organization for the first in the history of HBFCL.

Present Situation of the Housing Sector of Pakistan

The present situation of the housing sector of Pakistan is bleak. HBFCL was established soon after the Indo Pak partition to accommodate the thousands of Indian Muslim Refugees residing in the western side of Pakistan. India also launched a similar company by the name of HDFC (Housing Development Finance Corporation) after a few years. The model which the Indian company adapted was derived from the one used in Pakistan, yet India managed to successfully implement it while we digressed from the main goal. Today, HDFC in India is known as a bank with a mortgage portfolio crossing Rs. 1 trillion. The HBFCL mortgage portfolio stands only at Rs.15- 16 billion whereas it should have been around Rs.500 billion. The portfolio of Pakistan is less than 0.5% of the GDP collectively (approximately Rs. 50 billion) whereas the Bangladesh counterpart has 7% and India has about 15% of their annual GDP respectively. In comparison to developing or emerging economies, developed countries generally tend to have their portfolio in access of 50% of their GDPs.

The fact that our housing sector is so stagnant may seem an odd idea to many people especially given that many private housing schemes have escalated in the country in the recent years. These are contributing to the industry in a small way. The shortage of houses in Pakistan is around 9 to 10 million, which is increasing by approximately 300,000 every year and thus the gap seems to be widening each year. As a nation, we have failed to provide affordable housing schemes to the lower income strata of Pakistan.

Successful Development of the Sector

The most important factor hindering the growth of the housing sector in Pakistan is the interest rate. It is very difficult for any salaried person to afford interest rates higher than 10%. The State Bank of Pakistan has a subsidized interest rate (around 5-6%) for the agriculture sector. In my view, housing is as important for an economy as agriculture. The State Bank should take a similar initiative for the revival of the housing sector and bring the rates down .  Making the housing sector an affordable investment will have a tremendous multiplier effect in the economy because there are almost 70 plus different industries which are linked to the housing sector, in addition to the labor intensive nature of the construction industry. This means nearly 70 related industries will expand eventually helping to combat unemployment. It is sad that there is no focus on lowering interest rates in this highly important and critical sector of the economy.

If only housing sector in addition to agriculture sector is supported by the government in terms of subsidized interest rates and regulatory framework, then unemployment in Pakistan can be reduced significantly.

Taking the example of the world’s largest economy, America, the change of interest rates by even 1% has a significant impact on the housing sector and the overall economy. Even after the difficult economic period, the mortgage portfolio of United States is still at around 8 trillion dollars.  The housing sector seems to be once again picking up in the US. Besides the US, there are other examples such as India, Singapore, Malaysia, China, Thailand etc. where economies are highly dependent on housing and construction.

Suggestions to SOEs

The most important factor for any organization regardless of what sector it belongs to is professionalism and integrity of its employees. For this purpose, recruitment must be done on merit and professionalism by ensuring that only professionals with the required skill set and related academic knowledge are recruited. For governmental organizations, hiring of individuals from multinationals and well managed local blue chip companies is the only option because these professionals make the organization competitive without compromising on quality and merit. It is also important for the government to realize that it cannot and should not micromanage every company affiliated with its institution. The governmental focus should be policy making and providing a favorable environment. Also, we strongly feel that all State Owned Enterprises should be privatized as soon as possible for the benefit of the country and its citizens. It is proven worldwide that Government is not in the business of running institutions. Companies like PTCL, UBL, ABL and HBL are great examples. Not only will the government have the option of becoming a stakeholder in the newly privatized company but it can also use the money that it unnecessarily has to inject into failing SOE’s into developmental projects within the country.


The Secret to Profitability

Achievement of profitability is not a magical solution nor is it rocket science. The most crucial ingredient in order to achieve a set of objectives is to remain committed to the strategy and objectives established, supported by a team of professionals with diversified business background and experiences. Professionalism, merit and integrity is the key to success.


Future Plans:

Although we are very proud of the transformational success of the company, the process we started in 2009 is still a long way from completion. We have submitted a strategic plan to the Ministry of Finance and State Bank of Pakistan, who are also shareholders in the company, and now HBFCL are just waiting for the green signal from them. We have been very grateful to State Bank for their constant support throughout the years. Bringing IFC as a shareholder into HBFCL is also a good option ad fits well in the overall future strategic plan. Also, strategic investors should be invited form Pakistan and the overseas as shareholders to run this institution and to take it to the next level.


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