Fifteen articles of consumer financing in Pakistan

1. Consumer financing - blessing or a curse (I) By Ismat Sabir During the last seven years - 2000-07 - the consumer financing in Pakistan has seen a boom and the factors responsible were liberal economic policies, free market economy and huge liquidity available to the banks after the incident of 9/11. The banks introduced a variety of products such as credit cards, auto loans, housing finance and personal loans, etc. The banking sector has started consumer financing during the tenure of previous government. It was a new phenomenon in Pakistan; therefore, people welcome it and purchased vehicles like car, motorcycles, tractors, busses and vans, home appliances such as air conditioners, TV sets, deep freezers, fridges etc. This situation not only gave an unprecedented boost to the industries of these products but related industries also flourished, besides creating job opportunities. Personal loans also played important role in purchasing consumer items and housing loans boosted the property sector. Especially, these financing facilities became the blessings for the middle class, who have started utilising these services for improving their standard of living. Surprisingly, the default rate was quite low. For instance, in the auto financing sector the recovery rate was around 97 percent, because financial institutions were empowered to foreclose ones property. Consumer finance is defined as a lending to individuals by formal financial institutions for meeting their personal needs. The financing is provided to the salaried and self-employed persons, especially to those people who can prove ability to pay the loan facility in line with their documented cash flows. The main players in this sector include commercial banks, DFIs, leasing companies and Modarabas. All sectors of consumer financing from credit card to car purchasing has shown a sharp decline during the fiscal year 2009-10. Commercial banks extended Rs331 billion loans, as against Rs 418.93 billion in the last year. The State Bank of Pakistan figures indicated that in the first eight months of 2009-10, total loan disbursement by the banks was Rs 5,590.50 billion, as against the previous years Rs 5,012.57 billion. The economic recession has badly affected the banking sector and the commercial banks, for minimising losses, were reluctant to increase their consumer-financing portfolio. Higher volume of loans given under the consumer financing was of personal loans, which also sharply declined. The personal loans reduced to Rs 94 billion in 2009-10 from Rs 115 billion in 2008-09. In 200708 it was Rs 140 billion. The private sector performed far below the expectation in 2009-10 because the overall economy remained under pressure owing to rising inflation, higher cost of production and with harsh condition agreements with the International Monetary Fund. Historically, after 9/11, due to huge inflow of remittances into the country the liquidity in banks piled up, therefore, the banks entered into this business in a big way and showed an unprecedented growth rate. The consumer loans reached Rs 325 billion during 2006 that further increased to Rs 354.4 billion by June 2007. The loans further extended to Rs 331 billion in 2009 as against Rs 418.93 billion in the year current year 2008.

Banks share in consumer financing, in overall credit of the banks, had risen to 13.8 percent by the end of CY07 that declined to 12 percent by CY08, which was constituting 3.6 percent of the gross domestic product. Consumer durables were the poorest among the different segments of consumer financing as loans amounts were just Rs 211 million in 2009-10 as against Rs 420 million in 2008-09 and Rs 499 million in FY07-08. Access to, and growth in, consumer finance has social and economic impacts on the whole economy. When the banks have not introduced such products people have to borrow money from lenders in the informal sector at very high interest rates. Now banks have facilitated them in acquiring the necessities of life by providing credit against their future incomes and cash flows, at a far lower rate than the informal sector. The consumer finance is quite labour-intensive activity and demand for this product has resulted to employ more people, both on full time and part time, it also benefited banks from the diversification of their credit portfolio. It also saved capital under the Basel II regime, and consumer finance has brought much higher returns and stability in earnings. The activities of consumer financing started declining since 2008, as the total outstanding amount of the banks has come down to Rs 225 billion from Rs 255 billion during the next two years. However, the growing demand and increasing interest rate for consumer finance is not only the phenomenon of Pakistan, as many of the emerging economies have seen a similar shift in their respective credit portfolios. The SBP has started tightening monetary policy since CY07. The banks have also become cautious in offering consumer loans and due to the experience of growing of non-performing advances in corporate and SME sectors, financing reduced during FY10. The share of agriculture sector was Rs 2.1 billion in non-performing loans (NPLs), compared to a fall of Rs 0.5 billion in FY09. NPLs in the consumer sector have also shown an increase of Rs 9.8 billion in FY10, owing to the lower real income. The NPLs to loan ratio for the consumer sector increased from 9.1 percent in FY09 to 14.6 percent in FY10. This rise in NPLs to loan ratio was the result of a decline in advances to the consumer sector. Almost half of the total increase of Rs 9.8 billion in NPLs of the consumer sector has shown in the subhead of mortgage loans. This was mainly the result of rising inflation and reduced the real personal income of the individuals. However, this concentrated in eight banks having the major share in consumer sectors NPLs increased to 83.7 percent in FY10 from 80.5 percent in FY09. In contrast to the textile industry, the automobile industry showed a declining trend of Rs 2.5 billion in NPLs; may be due to increase in earnings on account of increase in production and higher sales at high prices in agricultural products, during FY10. However, advances fell sharply and superseded the pace of fall in NPLs. The NPLs to loan ratio for this sector deteriorated to 19 percent at the end of June 2010, from 17.7 percent a year ago. 2. LAHORE: The consumer financing by the commercial banks has dropped by more than Rs46 billion during the first eight months of the current fiscal against the similar period last year, SBP data said. According to figures posted on the website of the State Bank of Pakistan, commercial banks extended Rs331 billion worth of consumer loans, as compared with Rs418.93bn issued in the corresponding period of last year. According to the State Bank of Pakistan, in the first eight months of the fiscal year, total loan disbursement by the banks stood at Rs5,590.50bn, which is Rs5bn more than last years Rs5,012.57bn. The economic recession has adversely affected the banking sector and the commercial banks, in order to minimize losses, are reluctant to increase their consumer financing portfolio, bank executives told The

News. According to the State Bank of Pakistan (SBP) figures commercial banks had issued Rs74.49 billion worth of personal loans to their employees on low mark-up and disbursed Rs256.51 billion worth of consumer financing on 17 to 22 per cent interest rate. Out of Rs256.51bn, Rs56.55bn were issued as housing loans, Rs65.27bn as car loans, Rs30.33bn against credit cards, Rs100.9bn as personal loans to general public, and Rs3.2bn as miscellaneous consumer financing. The SBP figures show that the commercial banks had issued Rs2,203.19bn worth of loans to the government and its functionaries and Rs3,387.3bn to the private sector. The commercial banks in the said period of the last year had loaned Rs1,837.14bn to the government and its functionaries and Rs3,175.43bn to the private sector. Increase in the loans to the corporate and public sectors show that the banks are avoiding consumer finance exposures. The government borrowing is also on the rise in the current fiscal, as it had directly borrowed Rs99.40bn from the central bank, Rs8.15bn under miscellaneous head and Rs290.35bn from commercial banks against Rs21.92bn, Rs8.15bn and Rs144.36bn, respectively borrowed in the past fiscal. The government deposits with commercial banks stand at Rs89.12bn and Rs514.89bn with the central bank. The sector wise breakup shows that commercial banks extended loans worth Rs168.58bn to agriculture sector, Rs1324.11bn to manufacturing sector, Rs22.87bn to mining industry, Rs193.14bn to electricity, gas and water supply, Rs63.39bn to construction industry, Rs229.30bn to commerce and trade, Rs14.44bn to hotel, restaurants and clubs, Rs97.13bn to transport, storages and communication sectors, Rs108.97bn to real estate industry, Rs6.31bn to education sector, Rs5.44bn to health and social work sectors, and Rs43bn in miscellaneous heads. 3. Consumer Financing: Credit Card in Focus by Tariq Ahmed Saeedi While consumer after the advent of relaxed rules in consumer financing has gotten unnecessary involved in credit net of banks, this does not give a free space to commercial banks to deal arbitrarily with the consumer loan holders. Howsoever apparently calm prevails in the thunderous barging in consumers privacy by loan recovery staff following the hue and cry despising such practices as illegal and banks setting strict criteria for loans approval and thus squeezing credit base, eccentric consumer financing practices are still drifting stability in the market away. On one side, credit exploiters have come in to action to add on non perfuming loans and on the other banks are treating all and a sundry, be genuine consumer or not, with a same stick. What happens in subsequent effect is that an unorganized a outlook of financial sector would start surfacing, supporting the critics that consumer financing would fail in multifaceted problematic society of Pakistan; in contrast to financial result that shows a different picture according to which credit in consumer financing is growing at a stable density year on year. Till May this year, disbursement of banks credit in only credit card category of consumer financing was over Rs. 44 billion, out of total Rs. 3 trillion consumer financing for personal, auto, consumer durable loans, etc. As compared to other modes of bank credit, credit card is considered unsecured because of having no security from borrower. And, this is why credit card has been recording highest default and embezzlement rates since its arrival. Instead, at the beginning online fraud of credit card was very high due to weak financial structure and no legal parameters in the country; where as that time, credit card approval had to undergo stringent application assessment by the issuer. As not many banks, perhaps except one or two foreign banks, were permitted to issue credit card, the market was niche. The expansion of market occurred once after deregulation regime introduction in financial sector. There on, numerous banks set on enlisting credit card on top of financial solutions. Barring Islamic banks, now almost every commercial banks in Pakistan offer credit card.

Credit card in all over the world is recognized for its giving immediate monetary solution to its holder. In developed countries, people like to have associations with banks to meet their pecuniary needs through consumer loans because they are sure of prowess of financial laws. In Pakistan, the situation is quite reversed firstly since per capita income of the country fellows suffices barely to fulfill basic needs, leaving no vacuum for saving to waste on principal plus high interest against loans. Secondly, illiteracy rate in the country is drastically low, and since bank-consumer relationship, based on complicated legal epithets, requires education and literate consumers, parity in it is difficult to maintain. Basically, two different kinds of people suffer into banking disputes associated with the consumer loans; people with out awareness, and people with having intention to exploit consumer loans, Recently, credit card conflicts appeared in public, some times representing kindred sprits of later set of people those who even without befitting source of monthly income indulged in out of pockets credits. Possessing two credit cards at a time can never match person of low income bracket. This is what normally in practice in the country where people get hold of plastic money to make expenditures in excess of their income ability. Resultantly, they fall into debt insolvency. Their ulterior motive behind holding credit cards disintegrates the legal rights of genuine insolvents of availing write-offs. Banks can not be absolved from the responsibility of aggravating consumer loans default and frauds since to increase numbers they cajole consumers into credit net indiscriminately. Even to those for whom credit card is luxurious facility and beyond their ability to hold. It seems that banks are complacent in scratching back loans from borrower. And why not, they have trained professional taskforce to tackle with late or no payments by threatening and defaming borrowers publicly. Getting out of banks clutches is also not an easy game. If one applies to surrender his credit card, he has to go to pillar to post for this. First of all, no clear and precise guidelines are provided by the banks for those who intend to surrender their credit cards. Second in spite of received all outstanding amounts, banks often play delaying tactics in issuing no objection certificate that confirms payment received. Probably not to giving in charging opportunity. As charges on credit card bill is in decimal, figure mentioned after decimal and which can not be scribed in cheque may stop cutting off relation completely with the bank until full payments is made. While bank delivers bill on time at holders doorstep, they avoid keep in correspondence with him for this matter. LOW PROFILED BANKING MOHTASIB To reconcile conflict of interest between consumer and bank, government has long constituted conciliatory institution but sarcastically little awareness in public is raised about this. Even educated and literate people can not recourse to legal supports due to low profiled working of this and few similar platforms. One such institution is Banking Mohtasib that was established under the provision of Banking Companies Ordinance 1962 and stated functioning in May, 2005. The purpose of this body was to resolve customer banker disputes. It has been granted wide power under the provisions of law by GOP. Any person not satisfied with the resolution provided by his bank can lodge complaint with Banking Mohtasib, which provides free of cost service. Besides, prudential regulation of State Bank bound all banks (foreign or local) to have separate consumer complaint center and redress consumer grievances with 45 days of conversance. After the deregulation of banking and financial system in Pakistan, numbers of banking consumers is rising day by day, and so do the counts in complaints. As consumer financing is expanding more rapidly than any other financial services, it has become more prone to fall to financial aberration owing to being passed through, perhaps, an evolutionary stage. This is not denying the fact that regulatory frameworks to curb unscrupulous financial market practices are absolutely in place in the country, but their capacity to ensure safety parameters for halting market

manipulation is question able. Had the monitoring and regulatory frameworks been capable to keep an eye on aberration and enforce prudential regulations accordingly, until now banks eccentric acts and exploitation in consumer loans would have been controlled. Again, there arises need of consumer court, which is specialized in presenting resolution to consumerrelated issues; instead it provides protective shield to consumer rights and pre-empts curb on law violation. In this relation, province of Punjab presents a workable model for establishing consumer courts in all provinces. Such consumer courts must be activated in the wake of growing consumerism in financial sector.

4. Consumer financing losing lustre in Pakistan July 28, 2010, 7:39 am Internews Report KARACHI: Every segment of consumer financing from credit card to car purchasing in Pakistan has witnessed a sharp contraction during the last fiscal year 2009-10 that ended June 30, according to the latest data from the State Bank of Pakistan. The overall consumer financing plunged by Rs50 billion, or 17 per cent, during the year under review over the previous fiscal year. The outstanding stock of consumer loans fell to Rs244 billion in 2009-10 against the Rs294 billion in 2008-09. The data showed that well-advertised credit card business also shrank significantly. The loans under the credit card had fallen to Rs28 billion from Rs35 billion the previous year. The lucrative credit card business, which has a great influence in developed and developing economies, failed to get significant space in the domestic market. Most of large domestic banks and foreign banks had been involved in this business, however, a report recently issued by Banking Ombudsman showed that the highest number of complaints were against the credit card business. Analysts believe that low quality performance of banks in case of credit card is the real hurdle in promotion of plastic money business. The car purchasing was the second highest attraction for the consumers but the outstanding loans in this particular sector showed steep fall during the last couple of years. The outstanding loans for car purchasing fell to Rs64 billion till June 30, 2010. The same was Rs78 billion in 2009 and Rs105 billion in 2008. Despite fall in the loans for car purchasing, the prices of cars went up due to high demand and short supply, a policy adopted by the local car producers due to their monopolistic domination in the market. Some reports also indicate that purchasing of cars on cash has increased mainly due to higher liquidity in agriculture sector as growers got much higher prices for their cash crops like sugarcane, wheat and rice during last couple of years. Higher volume of loans given under the consumer financing was of personal loans which also witnessed sharp decline. The stock of personal loans reduced to Rs94 billion in 2009-10 from Rs115 billion in 200809. In 2007-08 it was Rs140 billion. Loans for house building under the consumer financing dropped to Rs54.5 billion from Rs61 billion the previous year. In FY2008, it was Rs66 billion.

Consumer durables were the poorest among the different segments of consumer financing as the outstanding loans were just Rs211 million in 2009-10 as against Rs420 million in 2008-09 and Rs499 million in 2007-08. The private sector performed much below the expectation in the last fiscal year while the overall economy remained under pressure owing to rising inflation, higher cost of production and unpopular agreement with the IMF. 5. consumer banking in Pakistan Author: saadia tahir | Posted at: 8:26 AM | hey guys..although this isn't "really" related to marketing but thought i share it this article with u! its on consumer baking n Pakistan and how it has increased over time .. Over the last 5 years, Pakistan witnessed a phenomenal growth of consumer banking. This unprecedented development has followed privatization of nationalized banks, banking reforms brought about by the State Bank of Pakistan and an increasingly marketing-oriented approach primarily aimed by banks at a large urban consumer base. Be they large or small bank, multinational or local, each one of them is geared towards making its mark in an already competitive environment that is the outcome of consumer banking. Multinational banks such as ABN AMRO, Citibank and Standard Chartered have the support of the knowledge base and funds of their foreign principals which made them first to introduce products, services and innovative technologies to their consumer base. Hot on the heels were the newly privatized banks, UBL, HBL and MCB which have embarked in consumer financing activities in not just big cities but smaller ones too, by virtue of their huge branch network. In doing so, they have generated huge volumes of business while at the same time driving down the prices of the products they offer. For instance, in 2002, HBLs consumer banking portfolio was worth less than a billion rupees. By the end of 2004, it is worth Rs. 17 billion. Similarly, since 2003 when it was privatized, UBL has launched 12 to 14 new products and according to its Deputy Chief Executive M.A.Mannan, each one of them has been a market leader on month-to-month acquisition volume. And where the local banks such as Soneri, Askari and Union lack in technology, they make up by offering similar services at a much lower costs in our urban centers. While the foreign banks have played the pipers role when it comes to introducing new products, they have targeted the same segment which may be one of their limitations in this area. On the other hand, industry experts predict that the real growth will come from local giants such as the UBL, HBL and MCB which have the necessary experience and knowledge of customizing products to specific local preferences. Prodigious Advertising One factor that has led to an incredible upsurge of consumer financing products has been the drastic reduction in the qualification benchmarks for premium products such as credit cards. For instance, back in the 1990s when consumer banking was still in its undeveloped phase, only three banks were offering credit cards and they were all multinational concerns. That was the time when the size of the total portfolio was a mere 200,000 cards. The scene all of a sudden changed when Bank Al Falah launched a no fee credit card and its consumer base ballooned to 100,000 new consumers. The success of no fee credit card was followed by low interest packages on automobile loans and home loans. Things would never be the same again. Today, by investing prodigiously on advertising and sales promotion efforts, banks have created awareness about their product menus in a huge way. Now personal loans have longer tenures and posses easy payment options, along with many other inducements. Yet with so many banks offering the same product, how does one bank differentiate its portfolio from its competitors? The answer lies in differentiation, which in turn is created by continuous innovation and of course a deep insight of consumer needs and requirements be the advertising is BTL or ATL. Apart from that, customer relationship management is one area in which the banks need to raise their bar especially when loyalty thresholds are low. Many consumers have expressed their reservations about the low level of service and dont think twice when it comes to switching over to other banks. The lesson: Never trust a bank on face value or simply what they boast in ads.

The Image Factor When all is said and done, banks still have to concentrate on continuous product development to retain their customers. The logic is simple: While advertising helps to build the image, it is the product that sustains that particular image. Banks also need to remember that while advertising works big time to attract both old and new customers, word-of-mouth remains the most effective way of communication for their products and offerings. So while big names continue to spend their huge advertising budget to promote their products, they also face competition from smaller banks (with less advertising budget) whose terms and conditions may turn out to be more attractive especially for consumers with less money. At the end of the day, however, it is the quality of service and quick turnaround time that will make the consumer an ardent customer of any banks products and services. It has been nearly five years since banks started emphasizing on consumer financing and although majority of our population do not have the means to cash in on this development, there are many and especially the rising middle class who have started utilizing their services for improving their lifestyle. Currently, the default rate is low. For instance, in the auto-financing sector, the recovery rate is around 97% and even if the customer is unable to pay up, with a mortgage the bank can always foreclose ones property. Some industry experts, however, say that the real test of default will come once the products started ageing and people will start getting tired of long loan repayments. Now what does the future hold for consumer financing? Have the banks done enough homework to create awareness about their products through right strategies? Some top notch banks continue to hire professionals who have worked laboriously on brand development and building identities for their products. And to a great extent they have succeeded, although the sky remains the limit when it comes to exploring the full potential of consumer banking because a large portion of urban Pakistan still remains untapped. Aggressive marketing along with an effective and innovative mix of ATL and BTL has to continue at an impressive enough pace. The best, however, is yet to come. 6. Consumer perception and attitude towards credit card usage: a study of Pakistani consumers by Afshan Ahmed, Ayesha Amanullah, Madiha Hamid Consumer financing have become increasingly important in the private sector of Pakistan for the last two decades. With the new reforms in the banking sector, the marketing of financial products has become very competitive, creating a need for strategizing the marketing efforts. This study investigates the shift of Pakistani consumers towards the use of plastic money, with emphasis on credit cards. A survey of consumers holding (at least) one or no credit card were used for data collection. Variables related to demographics such as age, income level and gender have also been taken into consideration. This study makes (the) use of descriptive variables in terms of analyzing the general attitude about the use of credit cards and the factors contributing towards the selection of (a) one particular credit card over the other. A positive relationship has been found between the income level of a person and his/her possession of the credit card. While making the choice of a credit card the trust in a particular brand name seems to hold a very significant importance in the selection of a credit card, instead of the logo of Visa or Master card. The profession of the person seems to play a very interesting role with their behavior towards credit cards. Our study shows that the bankers hold negative attitude towards the use of a credit card. The moderating variables include the marketing campaign of a particular bank, sales teams support, openness from retailers for accepting credit card instead of cash, knowledge about the true interest rate imposed by the banks and the concept of Islamic mode of financing, etc. Based on our observations, suggestions have also been made for managers to refine the target market. The credit card penetration rate in Pakistan has been slow considering that it is in the market for over 20 years. One of the reasons for the initial slow growth rate was that the product was targeted to the elite class which comprised of less than 10% of the population. But today the market presents a different picture. With increased liquidity of banks, there has been an overall push towards the supply of consumer finance that includes personal loan, house mortgage, credit cards and auto loans. Today, consumer financing forms more than 25% of the total private sector credit (Economic survey, 2006-2007) in Pakistan.

In Pakistan since the year 2000, there has been a massive reform in the financial sectors by privatization and the restructuring of banks and financial institutions. According to the Economic Survey of Pakistan 2007, the financial and insurance sector has seen a startling growth of 18.2% despite the fact that government raised the interest rates over the last two to three years to control the rising inflation in the country. In addition, State Bank of Pakistan (SBP) has laid out stringent requirements for banks to get formal approval of those given credit and from the Credit Information Bureau to keep a check on non performing loans. However, SBP holds no strict regulation for the issuance of credit cards in the prudential regulations as compared to the disbursement of personal loans, auto loans and house mortgages. The limit of credit cards can be extended to two million rupees in case of a privileged customer. The importance of credit cards, both as a payment and short-term financing medium to today's consumers, is no longer debatable (Chakravorti and Emmons 2001; Hayhoe et al. 2000). The unsecured loans, in the form of credit cards, are increasing at a high rate. According to the Economic Survey of Pakistan 2006-2007 the credit card holders are increasing at the rate of 50% annually. In December 2006, the total credit card amount outstanding was Rs. 39198 Million (a substantial increase from Rs. 19340 Million in June 2005. Yet the market remains unsaturated and a low number of cardholders exist as compared to other developing countries. Competition in the financial industry has forced many players in the market to offer similar prices on deposits and loans. The financial institutions seek new, non-price factors to market their products. These can then be used as a means of differentiation to achieve higher revenues and improve market share (Worington 2005). On the consumer's side, consumers generally have different motives for holding cards. They also have different incentives to incur the time and psychological costs of searching for lower interest rate terms (Kim, F. Dunn, and E. Mumy 2005). But for a Pakistani consumer, who is slowly and gradually accepting the use of plastic money, there is a need for proper segmentation, as there are different explanations for the use of credit card. On the other side the gap between the consumption and saving is widening up at the expense of financially insecure customers, who are unable to make the payments and have to pay more penalties in return. The highest default within the consumer portfolio has been increased from 1.4 percent in December, 2006 to 3.7 percent in March, 2007.(Ghani 2007). Since credit card debt is clean and non-secured loans, where no collateral is required, Banks are exposing themselves to higher risks and covering the cost from the end consumers in return. In terms of growth, the mortgage loans and credit card debts have the highest growth during the last couple of years (H.Kazmi 2007). Now, all the banks are competing for the same pocket of consumers in terms of credit cards, and the majority carry multiple credit cards. We have seen new trends in the credit cards market in terms of customization of credit cards (introduced by UBL to allow a customized picture on the credit card), Awami card (introduced by Askari Commercial Bank) and Co branding of cards (e.g Abn amro Bank and U-lone), and so on. Yet there is a need to refine the credit card strategies by understanding the perception and attitude of potential and existing customers. This study attempts to observe the general behavior and attitude of the Pakistani consumers in the credit card market. Credit cards, including store cards and bankcards, serve two distinct functions for consumers: a means of payment and a source of credit (Ausubel 1991; Chakravorti 1997, 2000; Chakravorti and Emmons 2001; Slocum and Matthews 1970; Stavins 2000). Based on the main use of credit cards and the benefits sought, credit card users can be segmented into two groups: convenience users and revolvers (Lee and Hogarth 1999). Convenience users tend to employ credit cards as an easy mode of payment; typically pay their balance in full upon receiving the statement. Revolvers, on the other hand, use the card principally as a mode of financing and chose to pay interest charges on the unpaid balance. According to the consumer behavior literature, consumer usage behavior and the benefits sought from a product or a

service are one of the best predictors to explain consumer purchase behavior (Peter and Olson 1999). Credit cards also serve as an open-ended, easily available credit source ( Lee and Kwon 2002). When consumers use credit cards as a mode of financing, credit cards compete with bank loans and other forms of financing (Brito and Hartley 1995). Credit cards allow consumers to borrow within their credit limit without transaction costs, which includes all the time and effort involved with obtaining a loan from a financial institution. This convenience attracts many consumers to pay high interest on outstanding credit card balances, rather than taking the time to apply for a loan with a lower interest rate. As a result, credit cards account for a substantial and growing share of consumers' debt (Canner and Luckett 1992). The popularity of credit cards as a payment medium has been attributed to the convenience of not carrying cash and checks, the limited liability of lost/ stolen cards, and additional enhancements, such as dispute resolution services and perks (i.e., frequent-use awards programs) (Chakravorti 1997, 2000; Chakravorti and Emmons 2001; Whitesell 1992). They are frequently used for convenience, telephone and Internet transactions.

7. Consumer financing: an emerging dimension of financial sector by Jamil A. Siddiqui

At long last, the banking sector has thought of during something positive for the common consumer of Pakistan. So far, banks have hardly cared for the consumer except as the cheap source of funds for diversion to the powerful and influential with inter-linkage to the establishment, engaged in trade industry farming or service sector. The savings of small earners or of middle-class, anxious to save for rainy days, constitute the bulk of bank deposits. Banking has been one of the instruments of the exploitative structure that goes by the name of politico-economic order in this country where politics has always dictated economics, aqueezing the shrimps to feed and fatten the sharks. Initiation and promotion of consumer financing is a very welcome development, as a potential source of contribution to socio-economic stability and towards growth of middle class envisaged to be the back bone of democracy. As a corollary to the absence of active and effective movement to protect consumers' interests, consumers' needs for loans by the money market have merited scant attention of the banking system in Pakistan over the past decades. As such consumer credits launch by the banking and financial services sector can be billed as a positive measure macro-economically. Advanced and progressive economies striving to attain socio-economic equilibrium, are known for offering opportunities, both for producers and consumers, resorting to the lending system to meet their requirements for cash on loan. One of the reason for socio-economic stability and the promotion of democracy in these countries can be traced to this arrangement. After all, the prime function of a socio-economic order is to create conducive conditions where individual citizens can seek improvement in the material conditions of human existence. Given

effective legal safeguards and protection, both for the lenders and the borrowers, equity and fair play in the conduct of transactions as well as full information and transparency, consumer financing in a country like ours, can go a long way to blunt the bite of deprivation among the middle and lower income classes by exercising a tolerable degree of financial self-discipline, and can also assure commercial viability of the venture for lenders. Given the reliable flow of income, one has the possibility to enjoy the benefits of larger range of goods and facilities financed through credit than going in for their one-shot out of-pocket purchase. In rich economies, where this arrangement is a common practice, it has also greatly contributed to their economic dynamic. To consume something, first needs to be produced, consumption by one, is the production by other this is how modern productive system operates. The current consumer finance scenario in Asia is rather interesting and insightful. The 1997-98 financial crisis hitting all the economics of South East Asia, and its reverberations impacting the economies beyond Asia, seems to have caused a sea-change as far as the consumer financing sector in these countries is concerned. While this spelt, to a great extent, end of cronyism, protectionism and government regulation, it marked the beginning of political, social and economic reform and change. Still the economics of East and South East Asia, excepting China and Hong Kong, as per published figures, showed their per capita GDP lower in 2002 than in 1996. At the core of the crisis, were non-performing loans granted to politically super-connected, with the management of the banking system being under political pressure as well as part of the establishment, and thus ignoring the professional criteria of bankability of loans in the form of collaterals and the credibility of the borrower. Thus once the reforms set in, banking system in these countries was their first target. This called for sorting out non-performing or bad loans and to pre-empt a re-run of the same in future. With post-crisis economic recovery asserting itself, improving balance of trade and the caution by the banking system to avoid cronyism and pitfalls of the past, resulted in liquidity available with the banking and financial services sector for consumer financing. For banks the consumer is more than the cheap source of funds, he is, in equal measure, the source of the future profits. While in 1997 loans by the East Asian banks to households amounted to 27 per cent of total lending, now hey amount to 40 per cent. Like other developed economies, consumer financing has emerged as a vital sector in Japan, promising fat profit for lenders. Since early 1990s the industry has been a rare success study in Japan's bleak financial-services market. The value of outstanding loans under this heading has risen at a double digit pace and now stands at 12 trillion yen ($100 billion). Compare this figure with estimated $1.2 trillion of non-performing loans resting with Japanese banks. Consumer loans dominate this sector that is shared in other rich countries with overdrafts and credit-card debt. The market is so lucrative that foreign groups such as Citigroup, the world's largest financial restitution, with assets estimated at $1 trillion, whose chief Sandy Weill accumulated his professional expertise, as well with consumer-finance company Commercial Credit, and GE Capital, the financial arm of General Electric, whose last GEO/Chairman Jack Welsh was adjudged as the most successful and respected corporate chief worldwide, have been buying into Japan's personal-loan market. Citigroup is stated to have 8 per cent of the

outstanding loans in this category. In the absence of a national credit register, the top consumer finance firms have developed sophisticated risk management systems that has greatly added to their success. How lucrative consumer finance market in Japan is, can be judged from the fact that while the average financing costs for the banks around 2 per cent, consumer finance firms charged up to 40 per cent, that was cut to 29 per cent in 2000. Most charge about 25 per cent and there is a move by some politicians to trim the ceiling to around 20 per cent. It sounds rather paradoxical that while consumer financing sector can throw up such high profits, still the banks in Japan are plagued by the biggest heap of non-performing loans in Asia. The apparent explanation is that every political government with vested electoral interests is shying away to take radical measures to get rid of such loans that are presently the biggest headache of the Japanese government and the prime source of economic slump besetting Japan. In our own case, end of June, 2002, the stuck-up/bad loans amounted to Rs 279 billions; in most cases being owed by the most powerful and most influential of the country to our banking system that just played to the tune set by the incumbent political powers, whether in civil or in khaki. The financial crisis of 1997-1998 in East and South East Asia amply laid bare that nonperforming loans, once having reached the level of critical mass, can cause disaster for the economy. This realization led to the restructuring, mergers as well as shutting some of banks and finance companies in the countries hard hit by the crisis. This has brought caution for both corporate borrowers and banks as lenders. The situation has resulted in lot of liquidity with banks keen to do their job of allocating capital in the economy while making a healthy return for themselves This ushered in a face where consumer financing offers a growth-promising segment in financial services, "the single most powerful theme in Asian financial services" as termed by SSB part of Citigroup. Governments are equally positive since this concerns the real economy Whether it is the construction of houses being financed by mortgages, purchase of long-life consumer goods or revolving credit-card loans and unsecured loans, they all contribute to create demand, promote production and generate employment. Post financial-crisis South Korea stands out in this regard where households debt has been rising by 25 per cent a year and now accounts for half of all bank lending. As the published data indicate, two years ago China's banks had just $6.5 billion in outstanding mortgages; today they are 5 times higher. The Bank of China, one of the more successful of the four big banks of the country, expects that in five years' time consumes will account for half of the banks loans. Consumer financing is deemed to spur the domestic demand, keeping the national productive machinery running even if their exports register decline in view of the feared slump in some of the importing countries. Developing Asia promises to be the fastest growing market for the industry GE Capital developed a highly profitable credit card business in Thailand, charging interest rates as high as 30 per cent, until the government imposed a ceiling of 18 per cent. With 5 per cent of share at $112 million in the Shanghai Pudong Development Bank. Citigroup would have its first minority stake in a Chinese bank. HSBC, 2nd biggest bank of the world, has

acquired a similar stake in Bank of Shanghai. The interest by banking and financial-services sector of USA and Europe in the consumer financing sector of Asia indicates the massive potential this segment holds for future. The recent interest by banking and financial services sector in consumer financing lit Pakistan is a healthy sign to tog on to the trends and directions emerging in Asia. While the performance of the NAB over the past years leaves a lot to be desired, it has certainly sent a shock wave for potential credit sharks that acquisition of heavy loans without intention of paying back, may prove highly unpleasant and torturing. This pressure must not be relaxed This would contribute to the liquidity of banking sector to finance households loans requirements. The State Bank has also a positive approach in this regard. What is required, is to set parameters for a total environment conducive to successful and effective consumer financing. The banks are required to set affordable mark-ups, the manufacturers of durable household goods to avoid supply of sub-standard products, the vendor/trader should not over-shoot in quest of profits and the households/consumers would have to keep up credibility while enjoying he benefits of consumer financing. The concerned state institutions would have to ensure a viable and equitable watch-dog function so that all stake-holders in the venture share the benefits. A well conceived, implemented and monitored and macro-economically organised scheme of consumer financing can be a potent contributor to lift up the economy and generate employ 8. consumer finance in pakistan August 3rd, 2010 Author: Ayesha Zara Naeem, Lahore University of Management Sciences Low-income earners in Pakistan have been offered financing opportunities for the first time, thanks to a recent surge in the activity of finance institutions (FIs). finance theoretically involves the provision of loans or other financial services to lower-incomebracket borrowers, with little or no collateral required. These borrowers are able to take out small loans from FIs to improve their businesses or living conditions. In Pakistan alone, the potential market for microfinance is an astounding US$27 million, with active borrowers and national gross loan portfolio size increasing in every financial quarter. Despite the benefits that accompany the growth of FIs, one aspect of microfinance lending that must be addressed is consumer protection, or the right of the consumer to make autonomous, well-informed decisions. In Pakistan, such protection is especially vital. Not only does almost 56 per cent of the population have no access or experience with formal finance, but the majority of the individuals targeted by these institutions have extremely low literacy levels. The lower literacy factor, be it financial or otherwise, disadvantages most consumers by obstructing their understanding of the complexities of loan transactions. This lack of understanding can lead consumers to believe that access to finance is more essential than the appropriateness of the products costs or risks. This is sharpened by the fact that, for many lower-income people in Pakistan, microfinance is the only financing option available.

The FI sector in Pakistan is highly differentiated and largely unregulated. Where some FIs have a strictly non-profit social motive such as poverty alleviation or female empowerment, others may cater to slightly higher-income-bracket individuals and thus may become for-profit organisations. The unregulated environment effectively means that FIs do not have to observe adequate financial assessment before passing on a loan. In a poorly regulated developing nation, FIs often justify higher costs by virtue of the added expense of providing individuals with basic levels of financial literacy, and the higher cost of enforcing compliance. This is often used as an excuse for not opting for responsible financial practices. For close-knit communities, such as those found in most rural areas of Pakistan, the trust factor plays a major role in decision-making. A lack of alternatives causes lower-income-bracket individuals to rely faithfully on the FIs for their financial needs. This should serve these institutions well, as often these individuals become longterm customers with the ability to make better financial decisions and fewer missteps in terms of unmanageable debt or repayment issues. This trust factor is a product of transparency in, and dependability on, the words and actions of the FIs and cannot be stressed enough. To achieve greater consumer protection within the FI industry in Pakistan, there must be greater regulation. FIs must develop transparent, unbiased, and nondiscriminatory ways of dealing with consumers. While this need could be addressed by greater governmental regulation and policies, the adoption of self-regulatory methods by the FI industry of Pakistan could better serve the institutions as well as the customers. Self-regulation means enforcing and adhering to self-proclaimed codes of ethics and practices and avoids the costs incurred due to governmental regulationwhich ultimately makes credit more costly and limits the accessibility of microfinance. Ultimately, customers are more likely to use the financial services of a trustworthy institution, while the government is less likely to have to enforce regulation on a sector which adheres to general standards of customer protection. Ayesha Zara Naeem recently graduated with a Bachelor of Science (Honours) in Economics from the Lahore University of Management Sciences.

9. Islamic Banking in Pakistan: A consumer perspective

Points of Essence: The lack of education and awareness about Islamic financial services in Pakistan triggered the consumers concerns about the compliance of the Islamic financial services with the Shariah injunctions. This had led them not adopting halal banking products for such uncertainties and also their insecurities about what will happen if credit facilities were taken away. The sharing of profits and not losses is also a major concern which researched had tried to diffuse by suggesting that taking delivery of a set rate of return without having to acquire losses are prohibited and immoral.

The top priority among customers is still the quality of services that Islamic banks offer which proved that there should be a shift in the marketing strategy beyond pulling the religious reasonings to meet the demands of sophisticated consumers across all faith and ethnicity. By Fahad Ramzan The Idea of Islamic Banking is still hot these days in Pakistan. Either completely new Islamic institute are being emerged or recent traditional banks are opening additional branches focusing in Shariah-based Financing products/services. But still consumers doubt that how much are they Islamic? Three years back, Fazal Ahmed, chief financial officer of the Islamic Investment Bank quoted that Pakistan followed Malaysia and Bahrain considered the role models of Islamic banking while it formulated its regulations, now Pakistan has the best possible framework for Islamic banking that it can. But, at the end of the day, government institutions and authorities cannot judge whether they have proved themselves or not while consumers do. Now, according to the average consumer of the Islamic banks in Pakistan they still have doubt in their mind from the scratch to the main services provided by Islamic Banks. Consumers would be open to the thought of acquire Islamic banking products and services given that the organization that is offering the service is renowned, and better customer service features such as ATM access, phone banking and so on, are offered. This provides a great prospect for Islamic financial organizations in a market that already have many other competitive existing commercial banks. If Islamic financial organizations can make on their understanding and status in the monetary world, and can offer Islamic banking products/services in non Islamic markets such as Singapore, United Kingdom, Australia, they can plan to increase an emergent consumer base of the local residents in Pakistan, some of who may have beforehand excused themselves from dealing with the usual financial organizations because of the use of interest. The consumers still also believe on the fact the lack of consciousness about some basic concepts and philosophy of Islamic banking. In Pakistan, a number of consumers would not adopt halal banking products because they feel insecure that what will happen if credit facilities were taken away. In the Islamic monetary structure money is not lent out, as an alternative it is an asset-backed scheme where monetary organizations invest in projects. Consequently, financial organizations deal in equity, not debt. To counter this inadequacy, some banks have started issuing debit cards. These cards are alike to the credit cards excluding the actuality that they use the consumers own funds as an alternative of trust on any credit. Another concern is that of sharing profits and not losses. A lot of consumers who have been using the Islamic banking services were not educated about the loss sharing concept earlier. This would designate that some economic organizations have been assuring profits. In fact, it breaches the fundamental law of Islamic financing structure that is, relating compensations to risk. Any kind of money earned on investment without risk is simply interest more willingly than profit. So, it reveals the fact that, in order to recognize how the Islamic structure makes a distinction between profit and interest, they have to look at the dissimilarities in financial beliefs. Because past experiences have already shown that the rationale of monetary and financial standing is very important for a consumer to select a particular bank. In capitalist theory, capital and entrepreneurs are taken care of as two separate identities of production where the first identity

acquires interest and the second identity is permitted to get the profit. It is implicit that interest is a fixed return to offer capital, and profit can simply be produced after allocating the fixed return to land, labor and capital. On the contrary, the Islamic monetary system does not regard as capital and entrepreneurs as separate identities of production. It accepts as true that each individual who puts in capital in the figure of money to a business enterprise assumes the risk of loss and as a result is permitted to a proportional share in the actual profit. The system is caring of the entrepreneur, who in a capitalist economy would have to make fixed interest repayments even when the venture is making a loss. Capital has a fundamental aspect of entrepreneurship, until now as the risk of the industry is apprehensive and for that reason, rather than a fixed return as interest, it develops profit. So, as much profit one earn of the business, the more return on capital. The profit would be privileged if there are no fixed interest repayments. In this fashion the profits produced by the money-making activities in the public are uniformly dispersed among those who have given capital to the organization. In this way, an integration of social responsibility and extra Islamic values in rewarding consumers needs to be worthy of ultimate consideration as it signifies an excellent and basic discrimination between Islamic and conventional banking systems, and potentially competent to push Islamic banking to better pinnacle in securing consumers gratefulness and response. Top researchers in the area of Islamic Finance have affirmed that assurance made by organizations that consumers will take delivery of a set rate of return without having to acquire losses are prohibited and immoral. Thus far, not only are financial organizations enduring the practice but government societies in Muslim nations are also contributing venture openings with certain income. Taking into consideration, that the Muslim administration is accountable for overseeing the structure in order to battle the prohibited practices of monetary institutes, by giving definite returns; the governments are seen to be overlooking the performance of the monetary organizations. Even though these proceedings may assist Islamic Banks develop in the short run, but in the long run overall cost will prevail over the profit in shape of damage to the repute and legitimacy. Such progress also offer ammunition to the detractors of the system who are previously questioning whether the structure is nothing more than an interest based system operating under the guise of profit. The most essential information discovered by the past behaviors is that consumer satisfaction over and over again is directly related to the quality of services that Islamic banks offer. The excellence of services comprises of factors like taking care of consumers with politeness and admiration; workforce capability to put across faith and self-assurance; effectiveness and efficacy in managing any operation; and well-informed and attentiveness in offering clarifications and answers relating to the products and services of an Islamic bank. As a result, Islamic bankers can no more rely only at marketing strategy of pulling religious and holy consumers towards them who might only worry about Islamicity of banking services. Some significant insights acknowledged on the bases of different thoughts of consumer banking selection criterion entails the requirement for Islamic banks to improve its quality of services which is at the present measured as an important success factor that have an effect on an institutes competitiveness. With respect to the standing of a variety of bank selection criterion, some of these would undoubtedly revolutionize accordingly of people having turn out to be extra conscious of the culture of Islamic banking. For instance, media advertising would be probable to have an extreme good impact on Muslims. The aspiration by Muslims to be compensated a

high rate of interest have to decrease. In case of non- Muslims, media advertising may turn out to be well rated accordingly of being uncovered to revealing bank promotion. Besides this, an additional considerable subject, which needs awareness, is the need to strengthen community learning and understanding towards the distinguishing features of Islamic banks and how it may beneficially go with the concern of consumers in their economic transactions. Islamic banks have latent of being advertised to different sectors of consumers who are worried with the legality of the ability from Islamic viewpoint and those who try to find for service value, handiness and well-organized business. Customer learning programs are for that reason vital if they are to amplify the level of customer consciousness about the distinctive features of Islamic banking and the range of services and products offered by it. On the whole, after consumers have been uncovered to the ethnicity of Islamic banking, it would be anticipated that consumers knowledge of what Islamic banking engages would enhance and their thoughts towards this type of banking should vary. The change would be estimated to be much bigger in local consumers. Similarly with the standing of the different banking selection criterion. Shifts would be likely, extra predominant with banking customers throughout the country.
10. Islamic Banking in Pakistan: A consumer perspective August 28, 2009 in Islamic banking | by ibfn THE Idea of Islamic Banking is still hot these days in Pakistan. Either completely new Islamic institute are being emerged or recent traditional banks are opening additional branches focusing in Shariah-based Financing products/services. But still consumers doubt that how much are they Islamic? Three years back, Fazal Ahmed, chief financial officer of the Islamic Investment Bank quoted that Pakistan followed Malaysia and Bahrain considered the role models of Islamic banking while it formulated its regulations, now Pakistan has the best possible framework for Islamic banking that it can. But, at the end of the day, government institutions and authorities cannot judge whether they have proved themselves or not while consumers do.Now, according to the average consumer of the Islamic banks in Pakistan they still have doubt in their mind from the scratch to the main services provided by Islamic Banks. Consumers would be open to the thought of acquire Islamic banking products and services given that the organization that is offering the service is renowned, and better customer service features such as ATM access, phone banking and so on, are offered. This provides a great prospect for Islamic financial organizations in a market that already have many other competitive existing commercial banks. If Islamic financial organizations can make on their understanding and status in the monetary world, and can offer Islamic banking products/services in non Islamic markets such as Singapore, United Kingdom, Australia, they can plan to increase an emergent consumer base of the local residents in Pakistan, some of who may have beforehand excused themselves from dealing with the usual financial organizations because of the use of interest. The consumers still also believe on the fact the lack of consciousness about some basic concepts and philosophy of Islamic banking. In Pakistan, a number of consumers would not adopt halal banking products because they feel insecure that what will happen if credit facilities were taken away. In the Islamic monetary structure money is not lent out, as an alternative it is an asset-backed scheme where monetary organizations invest in projects. Consequently, financial organizations deal in equity, not debt. To counter this inadequacy, some banks have started issuing debit cards. These cards are alike to the credit cards excluding the actuality that they use the consumers own funds as an alternative of trust on any credit. Another concern is that of sharing profits and not losses. A lot of consumers who have been using the Islamic banking services were not educated about the loss sharing concept earlier. This would designate that some economic organizations have been assuring profits. In fact, it breaches the fundamental law of Islamic financing structure that is, relating compensations to risk.

Any kind of money earned on investment without risk is simply interest more willingly than profit. So, it reveals the fact that, in order to recognize how the Islamic structure makes a distinction between profit and interest, they have to look at the dissimilarities in financial beliefs. Because past experiances have already shown that the rationale of monetary and financial standing is very important for a consumer to select a particular bank. In capitalist theory, capital and entrepreneurs are taken care of as two separate identities of production where the first identity acquires interest and the second identity is permitted to get the profit. It is implicit that interest is a fixed return to offer capital, and profit can simply be produced after allocating the fixed return to land, labor and capital. On the contrary, the Islamic monetary system does not regard as capital and entrepreneurs as separate identities of production. It accepts as true that each individual who puts in capital in the figure of money to a business enterprise assumes the risk of loss and as a result is permitted to a proportional share in the actual profit. The system is caring of the entrepreneur, who in a capitalist economy would have to make fixed interest repayments even when the venture is making a loss. Capital has a fundamental aspect of entrepreneurship, until now as the risk of the industry is apprehensive and for that reason, rather than a fixed return as interest, it develops profit. So, as much profit one earn of the business, the more return on capital. The profit would be privileged if there are no fixed interest repayments. In this fashion the profits produced by the money-making activities in the public are uniformly dispersed among those who have given capital to the organization. In this way, an integration of social responsibility and extra Islamic values in rewarding consumers needs to be worthy of ultimate consideration as it signifies an excellent and basic discrimination between Islamic and conventional banking systems, and potentially competent to push Islamic banking to better pinnacle in securing consumers gratefulness and response. Top researchers in the area of Islamic Finance have affirmed that assurance made by organizations that consumers will take delivery of a set rate of return without having to acquire losses are prohibited and immoral. Thus far, not only are financial organizations enduring the practice but government societies in Muslim nations are also contributing venture openings with certain income. Taking into consideration, that the Muslim administration is accountable for overseeing the structure in order to battle the prohibited practices of monetary institutes, by giving definite returns; the governments are seen to be overlooking the performance of the monetary organizations. Even though these proceedings may assist Islamic Banks develop in the short run, but in the long run overall cost will prevail over the profit in shape of damage to the repute and legitimacy. Such progress also offer ammunition to the detractors of the system who are previously questioning whether the structure is nothing more than an interest based system operating under the guise of profit. The most essential information discovered by the past behaviors is that consumer satisfaction over and over again is directly related to the quality of services that Islamic banks offer. The excellence of services comprises of factors like taking care of consumers with politeness and admiration; workforce capability to put across faith and self-assurance; effectiveness and efficacy in managing any operation; and wellinformed and attentiveness in offering clarifications and answers relating to the products and services of an Islamic bank. As a result, Islamic bankers can no more rely only at marketing strategy of pulling religious and holy consumers towards them who might only worry about Islamicity of banking services. Some significant insights acknowledged on the bases of different thoughts of consumer baking selection criterion entails the requirement for Islamic banks to improve its quality of services which is at the present measured as an important success factor that have an effect on an institutes competitiveness. With respect to the standing of a variety of bank selection criterion, some of these would undoubtedly revolutionize accordingly of people having turn out to be extra conscious of the culture of Islamic banking. For instance, media advertising would be probable to have an extreme good impact on Muslims. The aspiration by Muslims to be compensated a high rate of interest have to decrease. In case of non- Muslims, media advertising may turn out to be well rated accordingly of being uncovered to revealing bank promotion. Besides this, an additional considerable subject, which needs awareness, is the need to strengthen community learning and understanding towards the distinguishing features of Islamic banks and how it may beneficially go with the concern of consumers in their economic transactions. Islamic banks have

latent of being advertised to different sectors of consumers who are worried with the legality of the ability from Islamic viewpoint and those who try to find for service value, handiness and well-organized business. Customer learning programs are for that reason vital if they are to amplify the level of customer consciousness about the distinctive features of Islamic banking and the range of services and products offered by it. On the whole, after consumers have been uncovered to the ethnicity of Islamic banking, it would be anticipated that consumers knowledge of what Islamic banking engages would enhance and their thoughts towards this type of banking should vary. The change would be estimated to be much bigger in local consumers. Similarly with the standing of the different banking selection criterion. Shifts would be likely, extra predominant with banking customers throughout the country. (This article is contributed by Fahad Ramzan,) 11. Visible reduction in consumer finance Thursday, 29 July 2010 11:32 Weekly Updates - Editor's Pick EDITORIAL : After enjoying considerable popularity over the last few years, consumer financing by banks appears to be on the wane. According to the data released by the State Bank of Pakistan (SBP) on 26th July, overall consumer financing plunged by Rs 50 billion or 17 percent, to Rs 224 billion at the end of June, 2010 as compared to Rs 294 billion a year earlier. Every segment of consumer financing witnessed a decline during 2009-10. Outstanding loans, under the credit card business, shrank to Rs 28 billion from Rs 35 billion during the previous year. A low quality performance of banks in case of credit cards was believed to be the main hurdle in the promotion of plastic money and a report recently issued by the Banking Ombudsman revealed that the highest number of complaints submitted to it were against this business of banks. Car purchasing was the next highest attraction for consumers, but outstanding loans under this head also declined to Rs 64 billion by the close of June, 2010 as against Rs 78 billion a year earlier and Rs 105 billion at the end of June, 2008. The stock of personal loans was reduced to Rs 94 billion from Rs 115 billion in June 2009 and Rs 140 billion in June, 2008. Loans under consumer durables dropped almost by half from Rs 420 million in June, 2009 to only Rs 211 million by June, 2010, while advances for house building, under consumer financing, also declined from Rs 61 billion to Rs 54.5 billion in the same period. A sharp decline in consumer finance in the recent past could be attributed to a number of factors. Obviously, the State Bank had to implement a stringent monetary policy to contain inflationary pressures on the economy and since both the government and external sectors were expansionary, the axe had to fall on private sector credit to maintain money supply growth within reasonable limits. The fact that banks chose to reduce the level of consumer finance in this situation in order to accommodate the requirements for productive credit, in our view, was a wise move, which was in the long-term interests of the economy. Restrictive behaviour of the banks, in respect of consumer finance, was also totally in line with the general change in the mind of consumers who, in the meantime, had become wary about the sly practices of the financial institutions in this particular field of business. In most of the cases, they were not thoroughly informed about the terms of consumer loans and were harassed, often times, for the recovery of loans. A facility that was touted as a kind of blessing, therefore, turned to be a cause of misery in most of the cases. Anyhow, the recent unpopularity of consumer finance could turn out to be a positive development for all the stakeholders, including the banks, the borrowers and the economy as a whole. While banks may shed their image of being shylocks and improve their overall recovery rate, consumers temptation to borrow from the banks and purchase durables to keep up with the jones may also recede to match their consumption behaviour with their future income streams. Productive capacity of the economy could increase through diversion of resources from consumption to investment. Besides, import demand for consumer goods would decline and inflationary pressures in the economy could recede somewhat due to

preference of savings over consumption. However, it needs to be remembered that such hypothesis applies only to our present situation, where consumption, at all levels, needs to be discouraged. Hopefully, a stage may come, after a few years, when a larger part of credit may have to be diverted for consumer finance in order to keep the wheels of the economy moving. Also, the present classification of loans needs to be appropriate to support our contention. There are reports that loans obtained by farmers to increase the crop yields are also categorised as consumer financing in several cases due to certain factors. Such a flawed classification would invariably lead to inappropriate conclusions. 12. State Bank amends Prudential Regulations for Consumer Financing 06 January 2011 Thursday | 16:53:00 Karachi, State Bank of Pakistan on Thursday amended certain provisions of Prudential Regulations for Consumer Financing with immediate effect. According to a circular, SBP revised Regulation R-7 pertaining to Maximum Card Limit, under which banks/DFIs shall ensure that overall credit card and personal loan limits, both on secured as well as on unsecured basis, availed by one person from all banks/DFIs in aggregate should not exceed Rs 5,000,000/-, at any point in time, subject to condition that overall unsecured/ clean facilities on account of credit card and personal loan of that individual do not exceed Rs 2,000,000/-. Similarly, in Regulation R23, a new paragraph has been added as under: "Banks/DFIs shall ensure that overall personal loan limits and credit card limits, both on secured as well as on unsecured basis, availed by one person from all banks/DFIs in aggregate should not exceed Rs 5,000,000/-, at any point in time, subject to condition that overall unsecured/ clean facilities on account of personal loan and credit card of that individual do not exceed Rs 2,000,000." Following above-mentioned amendment, instruction concerning secured personal loans (other than secured against liquid assets) mentioned in Regulation R-23 stands withdrawn, circular added. SBP also amended Regulation R-3 by adding a new provision which states as under: "Banks/DFIs may waive the requirement of 50% Debt Burden in case a Credit Card and Personal loan is properly secured through liquid assets (as defined in prudential regulations) with minimum 30% margin." With regard to Regulation R-1 pertaining to Facilities to Related Persons, SBP has replaced first paragraph of the said regulation with following paragraph: "This condition shall not apply to consumer financing allowed by banks/DFIs to their employees as part of compensation package provided detailed terms and conditions of benefits which banks/DFIs want to give to their employees are specifically mentioned in Employees Service Rules/HR Policy. These employees Service Rules/HR policy should be duly approved by the Board of Directors. Further, such consumer financing to employees should be treated as staff loans and not as general consumer loans."

13.how to start a lifetime financial plan

Most of us have budgets of some kind, and have an idea of where our money goes every month. However, sometimes budgets just don't work. Why? Because there is usually more than just one person involved in the family budget and personal priorities and outlooks on spending money can vary greatly.
Toss in the odd personal lifechange such as job loss, unexpected pregnancy, illness, or injury, and you can have instant financial chaos. Planning ahead and looking strategically at spending can reduce the stress around your family budget. You probably know couples who have comparable salaries but have substantially different assets and spending patterns. The difference? If you want to have financial security, you need to have a plan of action. It should be updated every time your circumstances change and every time you look at purchasing a large ticket item. Knowing where you are going financially and choosing your course of action will make a big difference in how you can plan for your future and your retirement. Would you take a trip to a new destination without a map? Would you just hop in the car and hope that you get there eventually? Think of your financial plan as a financial road map, with the ups and downs of life's financial challenges as detours or freeways, depending on what's ahead. Some planning basics require that you find out what your financial goals are. Where do you want to be financially next year, five years from now, etc. List your priorities. What is really important to you? For some, it might be a nice home, and their priority would be to allocate top dollar to buying an attractive home in a nice area. For others, cars, recreational property, or entertainment might be most important There is no right answer, just the right choice for you. This is the time to sit down with your partner, and discover your financial direction and priorities together. You can't do it alone. Unless couples work together to establish financial priorities, relationships can suffer badly. How many people have argued about joint chequing accounts, or purchases where both weren't involved in the spending decision. How about budget sabotage? Sound familiar? List your priorities and how much money you will need. Understand your income, not what you'd like to make or your gross, but your after-tax paycheque. Look at your assets and debts, how can you work with these creatively? Need advice? There are many reputable financial planners, debt counselling agencies, bank officers, who will help you develop your personal lifetime financial plan.

Article by Marg Spina

14.spend a little time to save money

"You gotta shop around"......More truth than fiction, the old tune could make a big difference for you in the long run. How do you get the best value for your dollar without using up all your spare time? How can you make decisions about consumer transactions, and not spend hours or days researching the purchase?
Consider the purchase ... what will you be expecting of it? Make a list of the uses it will be put to. For example, a vehicle purchase for a small home based business would probably have different uses than a family car used for ferrying children around. Tie the research time to the dollar value. You need to spend much more time researching a large purchase, such as a car or house, than you would a small appliance. Know where to look for the information you need. Check with friends, or neighbours, and find out what their experience has been? This is an especially good idea with vehicles. You'll find even strangers are willing to share how they have liked/not liked their purchase whether its a vehicle, appliance, or other item. Your findings may surprise you. Check auto publications, and consumer annual reviews such as Phil Edmonstuns "Lemonaid". The public library is also an incredible source of information. They have consumer buying reports, consumer reports, vehicle and tire recall lists, to name but a few publications. Add them to your list. Sometimes in smaller, less busy libraries, they will do the research for you and you just have to pay the photocopying fee. Why bother? Because in most provinces, the seller of goods may choose to repair, replace or refund your money ... at his/her option. Where does that leave you if you've managed to choose a lemon and signed your life away on a loan to finance it? Take the time to research your purchase and ther is a good chance you will be satisfied. Financing? Do your shopping around for financing before you go looking for the item you need to finance. You'll know how much you can spend, and get a better interest rate too. Feel intimidated about asking for a loan? Do your homework, bring proof of income and assets to the interview, and prepare a monthly budget so the loans officer can see your professional approach. Negotiate the interest rate if you can. Don't forget the market is very competitive for your business.

Article by Marg Spina

15. By Faseeh Mangi Published: June 16, 2011 KARACHI: Bank Alfalah, the bank that was at the forefront of the massive expansion of consumer lending in Pakistan in the 2000s, has effectively sidelined the product, with top leaders describing it as not being part of mainstream banking in Pakistan anymore. The peak of consumer financing is behind us, said Bank Alfalah CEO Sirajuddin Aziz. It cant be a mainstream product anymore. The statement comes from the head of the bank that made its name as being one of the leaders of consumer lending in Pakistan. While many of the consumer banking products known to customers today credit cards, personal loans, etc were introduced by Citibank Pakistan in the early 1990s, Bank Alfalah became the first bank to have consumer lending as one of its key business lines in the early part of the last decade. It became the seventh largest bank in Pakistan by assets in just ten years entirely organically through its aggressive growth strategy. We were lucky to come in 2001 and grab a large market then, said the head of the Abu Dhabi Group bank in an interview with The Express Tribune. Massive car and domestic appliance loans were given between 2002 and 2005 but it started taking its toll as non-performing loans swelled in 2007 onwards and the entire industry tightened its policy. The significant write-downs taken by most banks during the financial crisis of 2008 caused a culture of cautiousness to creep into the banking system. Nevertheless, while the industry has recovered since that time, most banks are unwilling to lend to consumers. Dynamics have changed as most of the dealings are now with the government in the form of treasury bills. Lending to the government rose by nearly 95% in financial year 2011, compared with last year, to reach Rs488 billion by June 4. Lending to the government is an easy, high-return business and involves far less paperwork than lending to businesses and consumers. Buying treasury bills requires only a few staff members, as opposed to the army of bank employees who must vet any loan application by a business. The rates are high, the risk is low. Its a good business, said Aziz. The low risk strategy seems

to be working for Bank Alfalah. Profits were up 58.5% in the first quarter of 2011 and, at Rs930 million, nearly equalled the full-year profits of Rs968 million in 2010. Bank Alfalah, however, seems to be one of the few bright spots in the Abu Dhabi Groups Pakistan portfolio. The group which has stakes in financial services and telecommunications in Pakistan recently restructured its Pakistan business and appointed Atif Bajwa, former CEO of MCB Bank, its head in a bid to grow the groups operations in the country. Aziz doubted that the groups Pakistan division can stand on its own feet as the groups investments in the telecom sector were swamped with losses. He agreed that capital injections are needed to keep operations running in the short run, adding that in the long run the group will reap benefits after the struggle. One of the areas the bank is exploring synergies with the groups technology investments is to introduce branchless banking, using more integrated technology solutions to expand its financial services and break into the top 5 banks in the country, one of its long-term strategic goals.