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CONSUMER

FINANCING IN
PAKISTAN

Term Report

Aamir Basrai
8265
What is Consumer Financing?...........................3

What are the benefits of getting finance?.........3

Types of financing options for Consumers........3

TABLE Credit Card Financing.......................................4

Credit History....................................................4

OF Mortgages Calculator........................................5

Advantages of buying home.............................6

Disadvantages of buying a home......................7


CONTENTS Consumer finance: what chances of success....9

Consumer Financing in Pakistan:....................15

Summary........................................................16

Banks behaving like cartel, fleecing depositors:


report..............................................................17
Consumer Financing in Pakistan Financial Institutions

WHAT IS CONSUMER FINANCING?

Consumer financing provides individuals the necessary financing for personal


purchases ranging from buying a car, shopping purchases to buying a house.
Most people don’t normally get access of capital through equity markets so
they would normally get access to debt finance through the established
financial institutions including banks, credit union, insurance companies etc.
This debt is usually in the form of a credit card or loan.

WHAT ARE THE BENEFITS OF GETTING FINANCE?

A loan gives you the money you need to pay for something big like a house, a
car, college tuition, or major home repairs when you don't have the cash to
cover the purchase. While small purchases can be paid for in advance with a
credit card. Most people could not afford to do these things without finance.

TYPES OF FINANCING OPTIONS FOR CONSUMERS

 Home loans

 Student loans

 Car loans

 Personal Loans

 Credit Card

 Debt Consolidation

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Consumer Financing in Pakistan Financial Institutions

CREDIT CARD FINANCING


Provides Information on Credit Card financing and their benefits and pitfalls.

WHAT IS A CREDIT CARD

A credit card is a plastic bank card with a magnified strip. Like all bankcards it
enables consumers to make purchases and withdraw money up to a limit set
by the providing financial institution. Unlike debit bankcards this provides the
convenience for the consumer to purchase products immediately and pay for
the cost of the goods later.

CREDIT CARD REPAYMENTS

Most credit cards can involve no initial interest, but the full price of the
purchase or withdrawal must be paid for within the specified period which
could be from 30 to 90 days depending on your institution. If it is not paid by
the specified date, it may require interest payments. In conjunction with this
purchase repayments there is usually an annual fee charged on most credit
card accounts for their convenience.

WHO SUPPLIES CREDIT CARDS

Financial institutions provide their own specific credit cards usually in


partnership with major providers such as VISA and MasterCard as they are
globally recognized worldwide.

CREDIT HISTORY
This area provides information about a consumer's credit history, why it is
important and the issues faced if you have had a bad one.

THE IMPORTANCE OF A GOOD CREDIT HISTORY

When consumers seek financing for their investments, mortgages and


personal expenditures all credit approvals will be adjudged on a consumer's
credit history.

All applicable financial institutions that by law are allowed to lend such as
banks use a persons credit history (which is a score compiled on a persons
previous credit) in the process for approving there loans. These financial
institutions evaluate the potential risk by providing the recipient a loan and
the probability that the they would be pay it back including mitigating the
potential loss due to the inability of loan recipients to pay back the loan.

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Consumer Financing in Pakistan Financial Institutions

In particular your credit history is a reflection of information that creditors


have reported to credit bureaus, e.g. if you had bought a car or TV from
financing options. Credit
bureaus can legally report poor payment information for about 7 years and
for bankruptcies for about 10 years.

CONSEQUENCES OF A BAD CREDIT HISTORY

A bad credit history can pose problems when trying to attain financing from
institutions that have strict credit history requirements. With a bad history
you may still be able to attain financing but at a higher interest rate which
many institutions may offer to offset the potential risk of the bad history.

MORTGAGES CALCULATOR
Provides information about Mortgages Financing including renting vs. buying,
variable vs. fixed and home loan benefits.

WHAT IS A HOME LOAN

A home loan (also called a mortgage) is a loan agreement that enables a


person to borrow money to buy a house or other property. The property is
used as security for the loan. The lender may take possession of the property
if the loan cannot be repaid. A person may obtain a mortgage any financial
institution that offers. A standard loan includes a Principal (unpaid loan
amount) and interest over a 25 year period. Depending on the loan
agreement, the home loan may come at either a variable or fix interest
amount.

As you pay off the loan initially a large portion of your loan repayment will go
towards the interest. However as the borrower pays off the loan, more of the
each monthly payment goes to the principal and less towards the interest
eventually paying off the loan.

VARIABLE VS FIXED INTEREST RATE

Variable rate depends on the official interest rate set by the central bank of
each country. This rate in conjunction with the banks spread forms the
interest rate. This variable rate can fluctuate depending on central bank
strategy, by cutting interest rates, there will be a reduction in repayments
and increasing interest rates means an increase in repayments to your
lender.

Fixed rate is a fixed interest rate set by the agreement with your financial
institution; this rate is set for the life of the loan period agreed upon with your
institution. This means you will have a set repayment to pay consistently
through the life of your loan.

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Consumer Financing in Pakistan Financial Institutions

ADVANTAGES OF BUYING HOME

Buying a house has its positive and negative aspects and so before deciding
whether to go ahead and purchase that home, look at the pros and cons in
conjunction with your situation and decision will be appropriate for you.

ADVANTAGES OF BUYING

 Build Equity. As you are making your mortgage payment, you're building
equity. Equity is the portion of the property that you actually own through
your payments, versus the portion that you still owe the mortgage lender.
The longer you stay in your home and the more mortgage payment you
make, the more equity you'll have. This may assist you in using your equity in
purchasing another property or another useful investment.

 Appreciation of housing value. Over time housing prices gradually increase


although this may fluctuate, in general housing prices consistently over a long
period go up.

 Stability and Freedom. By owning your own home you can decorate and
renovate your home whichever way you like. Also staying in a common
location for a number of years will provide a stable environment for children
growing up.

 Financial Credibility. Owning your own home helps you establish financial
credibility with banking institutions which can help if you intend to finance in
the future.

 Independence. Provides you with independence and privacy from landlords


with inspections of your home. Landlord limitations on pets, renovations etc
will not longer apply.

 Pride. A house is only a building while a home is when people living within
its walls. Owning your own home provides owners with the sense of pride and
satisfaction knowing that they created, renovated and enjoyed times within
their home.

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Consumer Financing in Pakistan Financial Institutions

DISADVANTAGES OF BUYING A HOME

Buying a house has its positive and negative aspects and it is not for everyone. Depending on your
life style and stage in your life it may or may not be the right time to buy a home.

DISADVANTAGES IN BUYING

Below are some disadvantages of buying a home.

 Larger costs then renting. Not only now will you be paying a monthly
mortgage but include the added costs of maintenance and repairs.

 Bad Area. Depending on the area you moved to could have implications on
your long term ambitions; this can require living through a period with bad
neighbors, unhelpful council and many other problems that can plague an
area. After you've bought a home, you may not have as much flexibility in
choosing a new location or job.

 Inflexible to job opportunities. After you have bought your own home there
will not be as much flexibility in choosing a new job in another location.

 Home prices fluctuations. Depending on when you bought your property


during a boom or bust period could influence the appreciation or depreciation
of your properties value. There's no guarantee that your home will increase in
value, especially if it was bought overvalued.

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Consumer Financing in Pakistan Financial Institutions

Personal Loan financing

WHAT IS A PERSONAL SECURED LOAN?

A personal loan is a loan to an individual that can be used for almost any
purchase, including purchasing cars, schoolbooks, and holidays or paying off
existing debts. The lending criteria can be structured to meet different
individual’s requirements:

 With secured and unsecured loans


 Length of loan may vary with individual requirements e.g. 1 to 5 years
 Variable vs. fixed interest rates

HOW MUCH CAN I BORROW FOR A PERSONAL LOAN?

Usually the key aspects in guiding the lending institution of the amount to
borrow can include:

 How much income do you earn per year – Providing pay slips
 How long you have been at this employment
 Good credit rating

If property is secured against the loan, is it mortgaged and if so how much?

HIGH RISK PERSONAL LOANS VS. LOW RISK LOANS

Personal loans are considered more risky than other types of loans. Borrowing
to purchase a home is considered a good business decision as well as
borrowing to invest in a newfound business. These types of borrowing tend to
convince lenders that they are of lesser risk. However personal loans can be
used for virtually any purpose and this lack of certainty in investment
decision provides lenders with higher risk of default.

WHAT IS THE DIFFERENCE BETWEEN SECURED AND UNSECURED


LOAN

A financial institution may provide a secured personal loan with the offer
lower interest rates if security is used against your house or some other
security. In case of default the lender is able to seize/claim the security.

However in most cases financial institution provide unsecured personal loans.


These are higher risk then secured personal loans because the lender is not
able to claim on a security such as your home in case of default. Note.
Depending on circumstances they may still be able to claim the amount due
in case of default.

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Consumer Financing in Pakistan Financial Institutions

Personal loan interest repayments vs. time.


The actual repayment of a personal loan depends upon the repayment
method chosen by the borrower. Monthly repayments would incur higher
repayments of interest then repayments of weekly or fortnightly.

The length of the loan affects how much interest is actually paid. The longer
the period of the loan, the more interest you would have to pay.

Disclaimer, the use of this website provides no actual advice is to be taken,


refer to your financial institution for quality advice.

CONSUMER FINANCE: WHAT CHANCES OF SUCCESS

In a generic sense, institutional arrangements that provide consumers with


financing support to enhance their consumption and, as a result thereof,
improve their standards of living, should fall within the broad definition of
consumer finance.

These could range from credit cards, to finance and operating leases, to
housing finance. But the semantics of financial markets generally tend to
exclude housing finance from this range treating it as a distinct financing
product essentially because of its long-term nature.

Admittedly, consumer finance spurs consumption and demand that is


necessary for the industry to expand its productive capacity or make fuller
use of its existing excess capacity, and succeed in cutting prices at the retail
level. It also offers the prospects of increasing employment and, possibly,
fresh investment in industrial sectors, especially those producing consumer
durables.

However, the key to sustaining the consumption-demand equation without


pushing inflation to unsustainable levels is the maintenance of the critical
balance between savings, investment and borrower’s debt-servicing ability.

There is considerable truth in the observation that lowering of interest rates


by central banks in the mid-1990s, ostensibly to spur demand and economic
activity, resulted in acquisition of excessive amounts of “easy” bank credit by
businesses and creation of over-capacity there from.

Similarly, households too acquired credit (far in excess of their capacity to


save and repay) for investing in houses, consumer durables and company
shares on visibly inflated prices. The credit boom and the demand created
there from, led to meteoric rises in prices and deluded industry into over-
investing in capacity building. Eventually, unsustainable burden of debt-
servicing forced businesses to crash, and households ended up with negative
equities.

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Consumer Financing in Pakistan Financial Institutions

Maintaining the critical balance between savings, investment and borrower’s


debt-servicing ability is possible if input prices remain stable affording
businesses to sustain their profitability, and interest rates too remain stable
to ensure that, in the medium term, debt-servicing burden remains affordable
for both consumers and manufacturers.

Unless the system can ensure the maintenance of this delicate balance,
economic instability will remain a strong possibility. Countries that tried to
achieve an over-kill in spurring domestic demand sometimes overlooked the
importance of maintaining this critical balance.

We too are trying to achieve the same objective but regulators must ensure
that we don't fall in that dangerous trap. Pakistan's economy, already
rendered fragile by industrial sector loan losses, simply cannot live through
another major upheaval caused by pervasive delinquency of consumer loans.

For the past 55 years, commercial banks in Pakistan had completely ignored
consumer financing as an activity. There was scant realization of the fact that
the hallmark of healthy economies is not unrealistically high dependence on
exports but on domestic demand, and development of indigenous resource
and industrial bases that support domestic consumption.

Until the early 1990s, even credit cards were offered to a select band of
customers who needed them not by way of financial support but as a
convenience for paying their bills while traveling abroad, realizing little that in
developed economies this mode of financing supported consumption to
sustain steady growth in domestic demand which, in turn, prompted
investment and industrialization.

Even now, the sudden urge for promoting consumer finance has less to do
with accepting this reality; it was spurred largely by a depressed investment
climate in which reduced borrowing by industrial and commercial sectors
coincided with excess liquidity in banks, thanks to 9/11. Lumbered with
liquidity that is nearing unmanageable proportions, banks are now
aggressively promoting consumer financing.

The big attraction in extending financing facilities to the passive consumer


segment is the prospect of earning high interest rate spreads because
consumers are soft targets as far as haggling over interest rates chargeable
to them are concerned. They are much more likely to borrow at unrealistically
high rates - a convenience that is no longer available on lending to industrial
and commercial borrowers who insist on the finest possible loan rates.

But in pricing consumer loans unrealistically high, banks would be making a


serious mistake because "they cannot charge a high enough loan rate that
could compensate for the loss arising out of an irrecoverable loan." More
importantly, if consumer finance has to pick-up as a truly helpful mechanism
for spurring domestic demand, it must be ensured that it remains within the

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Consumer Financing in Pakistan Financial Institutions

consumers' capacity to repay their loans on time, and they feel confident
about borrowing again and again.

As it is ordinary consumers capacity to borrow and repay loans out of their


savings has been rendered precarious by decade’s long cycle of inept
economic policies that have made the poor even poorer.

Low rise in per capita incomes (whose impact was compounded by falling
their purchasing power due to rapid depreciation of the Rupee) caused
savings to fall and poverty to rise. This combination steadily depressed
demand even for the less expensive consumer durables.

The sustained trend of depressed demand prevented the development of a


sizable industrial base and marginalized the opportunities for investment and
employment. In the last two years, steady reductions in returns on savings
have further diminished consumer’s capacity to repay loans.

It would therefore be unwise to assume that ordinary consumers will have the
capacity to re-pay loans out of their savings. Even in good times, ordinary
Pakistanis were unable to save more than 14 per cent of their disposable
incomes. In the current scenario, capacity of the lower middle class - current
target of the banks - to save has only worsened.

Banks are belatedly trying to redress this enormous macroeconomic


structural imbalance but given the historic pattern of economic
developments, they will be handicapped in their efforts to promote consumer
finance. Signs are that lower interest rates have enhanced the capacity of the
middle and upper middle class to borrow and service consumer loans, but not
the lower middle class.

The demand-pull is pushing prices of consumer durables to unrealistic levels.


Take, for example, automobiles. Strengthening of the Rupee and substantially
lower interest rates should have lowered their prices.

The expectation wasn't met because rise in demand (purposely prevented


from being met with assemblers trying to avoid production in two shifts
instead of one shift) created a distortion that allowed assemblers not only to
keep prices high but also to create a roaring black market in this sector.

With banks now offering liberal consumer finance facilities for acquiring home
appliances, their prices too are on the rise although excess manufacturing
capacity in this sector may encourage the less greedy manufacturers to
concentrate more on stretching demand by refraining from pushing up prices.

Many observers argue that this distortion is a temporary phase, which will
soon become history as production capacities increase to fill the large supply
gap. May be so, but going by the example set by the automobile industry (in
which, so far, only one assembler has announced a "plan" to double its
output) this lag may not be as temporary as optimistic observers make it out
to be.

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Consumer Financing in Pakistan Financial Institutions

Banks providing cheap credit to business and industry at the expense of their
depositors can exercise a powerful influence on the manufacturing sector to
push the case for compensating savers through lower prices. Unfortunately,
however, lack of social responsibility in the corporate sector is too pervasive
to bring home this realization to the market players.

Aside from the macroeconomic distortions that suppress consumer demand,


there are other delicate issues that require focused attention of commercial
banks intending to launch a major thrust in consumer finance. The first is the
lack of institutional arrangements and practices that hamper the assessment
of consumer’s re-payment risk.

Ideally, risk assessment of employed individuals should not pose as much of a


problem as in the case of self-employed individuals because employers could
help in providing a basis for establishing their employee’s repayment
capacity. That, unfortunately, is not yet the case. Employers appear averse to
taking even the feeblest responsibility on account of their employees.

Many employers either don't certify, or certify very inadequately, the financial
status of their employees intending to avail a consumer finance facility from a
bank. Unless provisions are made in relevant labor laws, employers will not
provide even this information about their employees, which they should
morally feel bound to provide.

Fewer among them are prepared to confirm to the financing institution that
they have placed on their records the fact that their employee has availed a
financing facility. Fewer still are prepared to accept the responsibility of
informing the financing institution in the event the finance-availing employee
leaves the employer, or is asked by the employer to leave.

In the case of the self-employed, the problems are complicated further


because many potential consumers do not keep credible records of the
stream of earnings from their vocations or businesses to permit financing
banks a reliable assessment of their future re-payment capacity. Many
consumers don't have even utility service connections in their names. Given
these handicaps, credibly verifying consumers' repayment sources will remain
a stumbling block.

Unless insurance companies lend a helping hand in this effort by providing


loan re-payment guarantees to the lending banks, the prospects of expanding
the consumer finance market remain dim. Bankers will have to rely largely on
their own credit judgment, which may not always be correct. Given Pakistani
banker’s track record in lending, such a possibility will always be there.

A factor that will further complicate extending consumer finance facilities


along sound lines are the continuing inadequacies of our legal system that
make it cumbersome for borrowers to collateralize their existing
unencumbered assets for the satisfaction of the lending bankers. Another
thorny issue is the re-possession of financed assets.

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Consumer Financing in Pakistan Financial Institutions

While re-possessing vehicles doesn’t pose too serious a problem, re-


possessing assets such as air-conditioners, refrigerators, and televisions sets,
and similar other appliances from households will not be easy. It could be
both painful and embarrassing for the lending institutions. Even if these items
could be repossessed, re-selling them to recover book values of outstanding
consumer liabilities holds out a challenging prospect.

Resorting to short-cuts in risk assessment may therefore lumber banks with


thousands of small delinquent loans. In most cases, it may eventually be
cheaper to write them off rather than go for re-possession and sale of used
assets, or initiate court action to recover loans from defaulting consumers.

Consumer finance is a risky ball game. The infamous yellow cabs scheme was
the only big experiment in consumer finance, which was undoubtedly a bad
experience for most banks that took part in it. Admittedly, political twists
played a big role in the failure of the scheme but operational inadequacies of
banks played a bigger role in this monumental failure.

A major factor in that failure was the operational deficiencies in banks,


particularly in assessing an individual’s future repayment capacity keeping in
view his or her changing circumstances. Foreseeing impending changes in the
circumstances of individuals is not the same as sensing the impact of
changing business cycles on major borrowers placed in various economic
sectors.

Little is available in terms of authentic statistics on this huge customer


category. Pakistan Integrated Household Survey (PINS) is a new report, and
could prove very helpful to banks in devising consumer finance strategies but
its timely release cannot be assured because it may report changes in
politically sensitive indicators.

Given the absence of credible sources and bases for assessing risk, dealing
with thousands of small borrowers makes consumer finance a manpower
intensive business. Retail banks with large branch networks have the
potential for succeeding in this business but it will require making alterations
in bank’s infrastructure and a change in the focus on investigative effort for
risk assessment.

The organization must be pro-active and sufficient in terms of manpower and


management information systems to ensure a reaction speed that is
commensurate with the size of the customer base. In this regard it will be
crucially important to ensure that administrative resources are matched with
the size of customer base on a continuing basis.

Until recently, oblivious to the emerging possibility of creating a large


consumer finance market, banks were closing down branches and lying-off
employees. Admittedly, there was a need for pruning the banks of deadwood
but voluntary retirement schemes led to separation of many experienced
hands that could have been re-deployed in consumer finance units because
they knew the essentials of risk assessment. Banks will now have to inject
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Consumer Financing in Pakistan Financial Institutions

fresh (and inexperienced) blood in their organizations to support their


consumer finance operations.

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Consumer Financing in Pakistan Financial Institutions

CONSUMER FINANCING IN PAKISTAN:


In Pakistan, more or less all the major banks are providing consumer
financing. The industry is highly competitive, fairly efficient and has a high
potential of future development. Generally banks provide the same kind of
options in terms of consumer financing. In this report, the following 5 banks
and their consumer financing has been explained.

 Bank Alfalah Limited

 Bank Al-Habib Limited

 Muslim Commercial Bank Limited (MCB)

 United Bank Limited

 Habib Metropolitan Bank Limited

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SUMMARY

S.N AUTO FINANCE HOME FINANCE EDUCATION LOAN


BANKS Duratio Duratio Amoun Marku
O Amount Markup Amount Markup
n n t p
2,00,000 3,500,00
Bank Alfalah to 14% to 3 to 20 0 14% to 1 to 5
1. - -
Limited 2,000,00 17% years maximu 15% years
0 m
2,50,000 2,500,00
Bank Al-Habib to 10% to 7 to 20 0 to 13% to 5 to 7
2. - -
Limited 2,500,00 20% years 10,000,0 14% years
0 00
Upto Upto
Muslim Commercial Upto 10% 2 to 20 13.5% to 1 to 7
3. 2,000,00 20,000,0 - -
Bank Limited (MCB) only years 14% years
0 00
Upto
3 to 20 Minimum 12% to Upto 5
4. United Bank Limited 2,000,00 Upto 15% - -
years 5,00,000 16.5% years
0
1,00,000 25,000
Habib Metropolitan to 14.5% to to
5. - - - - 13.5%
Bank Limited 3,000,00 16.5% 1,00,00
0 0
BANKS BEHAVING LIKE CARTEL, FLEECING DEPOSITORS:
REPORT

Banks in Pakistan are earning windfall profits by taking undue advantage of


the weak regulatory framework and are behaving like a cartel within the
policy space provided to them by the State Bank.

This has been stated in a report, Consumer financing in Pakistan: issues,


challenges and way forwarded, launched by the Consumer Rights Commission
of Pakistan (CRCP) and the Asia Foundation on Friday.

According to the report, consumer financing has significantly contributed to


the economic turnaround of the country by stimulating consumption and
investments. There has been a phenomenal increase in the private sector due
to easy availability of credit.

However, the report said, the manner in which consumer financing was being
delivered had seriously jeopardized the competitiveness in economy.

The most important issue is that Pakistan has one of the highest interest rate
spreads in the world, Hamid Siraj of the CRCP said while explaining details of
the report.

He said that an analysis of the interest rate behavior in Pakistan showed that
the spread had vacillated between 5.95 and 9.58 per cent during the period
from 1990 to 2005. In recent years, the spread has exceeded seven per cent
on an average.

The report says the high interest rate spread indicates that competitiveness
in the banking sector in Pakistan is either absent or very poor. This issue is
largely attributed to weak regulation of interest rates despite the fact that the
SBP has powers to control the spread through monetary policy. While non-
operating loans and high administrative costs could be considered as major
reasons in countries where the spread is high, these cannot be said to be true
of Pakistan because banks are earning huge profits at the cost of savings of
depositors. High interest rate spread is damaging the competitiveness in the
economy in general and in the financial sector in particular.

The report says the State Bank should exercise its powers to determine a
reasonable rate of returns for banks as well as depositors. As a matter of
priority, the interest rate spread should be reduced, at least, to the level of
average spread in the South Asian region.

The banking sector is earning record profits by charging unrealistic and


exceptionally high interest rates. As a result, despite considerable ratio of
nonperforming loans, the annual profitability of banks has reached 76 per
cent on an annual basis over the past few years. This is evident from the pre-
tax annual profit of all banks, which was Rs7 billion in 2000, but jumped to
Rs123.4 billion in 2006. In recent months, deceleration trends are on the rise
Consumer Financing in Pakistan Financial Institutions

in consumer financing due to increasing loan default and use of credit


worthiness information by the banks.

The report says that another critical issue is that almost all consumer loans
are on the basis of variable mark-up, which has reduced the loan-servicing
capacity of borrowers due to progressive increase in the rates. In addition,
the growth in consumer financing has put great inflationary pressure on
economy.

CONSUMER PERSPECTIVE: Acquisition of easy bank credit by household


consumers has spurred the demand for many essential and luxury items.
Ultimately, the increase in demand has not only escalated the prices of
essential items, but has also stimulated hoarding and black-marketing, thus
multiplying the problems for poor consumers. In fact, proliferation of loans
has given rise to new development challenges. Citing an instance, the report
says the need of new roads in metropolitan cities is directly linked with
growth in auto loans provided by the banks.

From a consumer perspective, consumer financing has been helpful in


improving the quality of life of the people who have the capacity of servicing
the loans. However, there is mounting evidence that this capacity is
deteriorating due to high spread and variable interest rates on loans.
Depositors are not getting due returns because of the high difference
between lending and deposit interest rates. Further, the volume of consumer
complaints is rising day by day due to processing delays, service
inefficiencies, hidden charges and poor disclosure practices.

Lack of consumer education on banking terms and conditions, policies, rules


and regulations is also a critical factor in securing financial rights. As the
consumer financing portfolio is increasing, quality of related banking services
is becoming a serious issue.

Processing delays, service inefficiencies, unauthorized debits and non-


compliance with requirement of providing monthly bank statements are few
examples of poor quality of banking services. For example, in the first eight
months of the operation of banking ombudsman in 2005, about 40 per cent
complaints filed with the ombudsman related to consumer products, 30 per
cent of which were related to credit cards alone.

CONSUMER AWARENESS: The study presents a critical analysis of the


regulatory framework for consumer financing, emerging issues from micro
and macro standpoints and the nature and magnitude of consumer
grievances.

Drawing on secondary data sources and user surveys, the study covers all
main consumer financing products, including credit cards, car financing and
leasing, personal loans and house financing. It provides evidence-based
proposals for designing and implementing strategic and practical
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interventions to strengthen the regulatory mechanism and consumer


financing sector in the country.

The study also concentrates on issues in consumer awareness on banking


terms and conditions, policies, rules and regulations as a critical factor in
securing financial rights. It says that as the consumer financing portfolio is
increasing, unsolicited banking, processing delays, service inefficiencies,
unauthorized debits, etc., are emerging as main problems for the users of
consumer financing products.s

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