Preface

The study is about the Present scenario of consumer credit in Bangladesh. To know about it we have to know what consumer and loan is. Consumer in a broad label refers to any individuals or households that use goods and services generated within the economy. The concept of a consumer is used in different contexts, so that the usage and significance of the term may vary. A loan is a type of debt. Like all debt instruments, a loan entails the redistribution of financial assets over time, between the lender and the borrower. So in a universal sense, loan or credit taken by any person or institution for their different use by fulfilling some terms and considerations is called consumer loan. Acting as a provider of loans is one of the principal tasks for financial institutions. In our country the main source of consumer loan is the banking sector of our country. The number of banks in all now stands at 49 in Bangladesh. Out of the 49 banks, four are Nationalized Commercial Banks, 28 local private commercial banks, 12 foreign banks and the rest five are Development Financial Institutions. Bangladesh Bank (BB) regulates and supervises the activities of all banks. The BB is now carrying out a reform program to ensure quality services by the banks. In the next discussion we are trying to know about the consumer loan and the present scenario of consumer credit in Bangladesh by answering some question.

Question #01: (a) Define consumer loan. (b) Discuss characteristics of different types of consumer loan exist in Bangladesh. (c) Classify consumer loan by a diagram. Answer (a): Definition:
Money loaned to individuals (usually on non-secured basis) for personal, family, or household purposes; as opposed to business or commercial lending. Consumer loans are monitored by government regulatory agencies for their compliance with consumer protection regulations such as the truth in lending law. Consumer loan also known as consumer credit or consumer lending. --- The Oxford Learners Dictionary The lending of a sum of money by a borrower repaid with a certain amount of interest after a certain period of time. --- Banking & finance Dictionary Formal agreement between a bank and borrower to provide a fixed amount of credit for a specific period. --- Timothy W koch When a bank makes an advance to a customer whether by over-draft or loan account is called consumer credit. --- Hanson Consumer lending (also called retail lending) refers to making a wide range of secured and unsecured loans to consumers for consumable items such as a car, boat, manufactured home, home equity loan, home equity line of credit, signature loan, signature line of credit, recreational vehicle. --- Wikipedia.com

Answer (b): Characteristics of Consumer Loans:

It is important to understand that different consumer loans have different characteristicsthere isnt just one type of consumer loan. Some of the different types of loans, which we will compare and discuss in the following paragraphs, include single-payment and installment loans, secured and unsecured loans, variable-rate and fixed-rate loans, and convertible loans. The following is a list of different types of consumer loans and their characteristics: Single-payment loans: Single-payment loans are known as balloon loans. Normally, these loans are used for short-term lending of one year or less. They may also be used to temporarily finance a purchase until permanent, long-term financing can be arranged; this is why these loans are sometimes called bridge loans or interim loans. This type of loan is repaid in one lump sum, including interest, at the end of the specified termfor example, at the end of one year. Installment loans: Installment loans are loans that are repaid at regular intervalsfor example, every month. Each payment includes part of the principal and some interest. An installment loan amortizes over the length of the loan, which means that with each monthly payment you make, more of your payment goes toward paying off the principal and less goes toward paying for interest. The amount of interest that you pay each month is calculated based on simple interest. Installment loans are typically used to finance purchases of houses, cars, appliances, and other expensive items. Secured loans: Secured loans are loans that use one of your assets, such as a home or a car, as collateral to guarantee that the lending institution will get the amount of the loan back, even if you fail to make payments. Examples of secured loans include home equity loans and car loans. Because these loans are backed by collateral, they usually have lower interest rates. Unsecured or signature loans: Unsecured or signature loans do not require collateral and are generally offered only to borrowers with excellent credit histories. Unsecured loans typically have higher interest rates, which may range between 12 and 26 percentsometimes even higher.

Fixed-rate loans:

The majority of consumer loans are fixed-rate loans. These loans maintain the same interest rate for the duration of the loan. Normally, lenders charge higher interest rates up front for fixed-rate loans than they do for variable-rate loans. This is because lenders can lose money if market interest rates increase and the loan rate remain lower than the current market interest rate. Variable-rate loans: Variable-rate loans have an interest rate that is adjusted at different intervals over the life of the loan; there is usually a maximum interest rate that can be charged on the loan, or a cap, as well as a maximum that the interest rate can increase each year. The interest rates on these loans may change monthly, semiannually, or annually. The interest rate is adjusted based on an index, such as the prime rate or the six-month Treasury bill, as well as on an interest-rate spread. Lenders usually charge a lower interest rate up front for variable-rate loans because the lender will not lose money if the overall market interest rates increase. Convertible loans: Convertible loans are loans in which the interest-rate structure can change. For example, a convertible loan may start off having a variable interest rate and then switch to having a fixed interest rate at some predetermined time in the future; the opposite process may occur as well.

Answer (c):

Classification of consumer loan:

Documentary credit

Commercial documentary credit Non-commercial documentary credit

C o n s u m e r L o a n

According to nature
Cash credit Loan from fund Loan Bank over-draft

Commercial loan

According to use
Non-commercial loan

Long-term loan

According to maturity

Middle-term loan Short-term loan Call loan Money call at short notice

# Figure: Classification of Consumer Loan.

Question #02: (a) Delineate the factors considered in granting consumer loan in the perspective of our country? (b) State the steps involve in the operations of consumer loan in Bangladesh. (c) What are the advantages and disadvantages of consumer loan?

Answer (a): Factors considered in granting consumer loan:

There are six Cs while granting of any consumer loan those are depicts in the consequent manner:

Character

Consistency

Capacity

Borrower

Collateral

Capital

condition

# Figure: Factors considered in granting consumer loan:

Answer (b):

Steps involve in the operations of consumer loan:

There are certain steps in the operation of consumer loan. The indispensible steps are illustrated in the following way:

Step # 1

Collection of loan application form Supply of necessary loan information

Step # 2

Step # 3

Credit analysis Final decision about loan Preparation of documents Completion of negotiation Book keeping of loan transection Supervice the implementation of loan negotiation

Step # 4

Step # 5 Step # 6

Step # 7

Step # 8

Step # 9

Collection of loan

# Steps involve in the operations of consumer loan

Answer (c):

There are lots of advantages of consumer loan, some of the significant advantages are portrays as below:

Advantages:

The main advantage is the flexibility of using the money for whatever purpose you intend. Secondly personal loans are usually unsecured which means you dont have to offer security or obtain a guarantor. Finally there is less paperwork involved since the bank doesnt have to verify assets used to secure the loan which also means that these loans are approved more quickly. Easy application process Prompt loan request approval Payments tailored to meet your need Automatic repayment plans Interest rate discount A consumer loan offers flexible terms from 12 months (1 year) to 60 months (5 years) to suit your budget. The interest rate is fixed for the term of the loan so the repayments stay the same.

Besides the advantages there are a few disadvantages of consumer loan, a number of those are shows as under:

Disadvantages:

The disadvantage is that these loans are relatively difficult to obtain The qualifying criteria are stricter than for other loans. The rate of interest is also higher than for most other loans and may be as high as 25 per cent particularly if your credit profile is weak.

Question #03: Explain the feature and eligibility of different sort of consumer loan provided by the commercial bank of our country.

Answer: Feature and eligibility of different sort of consumer loan: 1) Jibandhara loan: Feature:
Loan Amount ranges from BDT 50,000 to BDT 1,000,000 ( or 12 times of gross salary, whichever is lower). Repayment tenure of 12, 24, 36, 48 or 60 months. Payment option available starting after minimum 6 months of disbursement of loan. Early full and final settlement allowed. No security required. No hidden charges.

Eligibility:
Age : Minimum 22 years, Maximum 60 Years. Professional Experience: Salaried Executives: 1 year of experience. Self employed Professionals: 2 years of experience. Minimum monthly income: Salaried Executives: minimum BDT 15,000 / month. Self employed Professionals: minimum BDT 20,000 / month.

2) Home loan: Feature:

Loan amount BDT 500,000 75,00,000 or 50 times of applicants Gross Monthly Income, whichever is lower Repayment tenure of 12, 24, 36, 48 or 60 months. Repayment tenure 3 years to 20 years Early full and final settlement allowed. Attractive Interest rates based on loan amount: Loan Take-over facility with attractive interest rate option (1% less than existing other Home Loan but not less than 13.5% per annum). Processing fee 1.25% of the loan amount for the fresh applicants and 0% for the take-over loans. Loan up to 80% of the property value. Advance/Partial Prepayment - Anytime and any amount payment facility available, fee is 1% of the Advance/Partial Prepayment amount.

Eligibility:

 Age : Bangladeshi citizen within age range 22 Years 57 years. Minimum Income for Individual : BDT 25,000/- per month for Salaried Executives BDT 40,000/- per month for Self Employed and others BDT 50,000/- per month for Businessmen Joint Applicant - Spouse and immediate family members (father, mother, son, daughter, brother & sister).

3) Auto loan: Feature:

Loan amount ranges from BDT 350,000 to BDT 2,000,000 (up to 100% for brand new car and 70% for reconditioned car) Repayment tenure 3 years to 20 years Early full and final settlement allowed. Repayment tenure of 12,24,36,48 or 60 months. You have the option of pre-paying your loan after a minimum of 6 months of loan disbursement. Early full and final settlement allowed.

Eligibility:
Age : Minimum 22 years, Maximum 60 Years. Professional Experience: Salaried Executives: 3 year of experience. Self employed Professional: 2 years practice. Business: 2 years experience. Minimum monthly income: Minimum monthly income: BDT Tk. 30,000/month.

4) Education loan: Feature:

Maximum loan amount BDT 10,00,000 or 10 times of Gross Monthly Income of the applicant . Loan amount up to 80% of the summation of admission fee, tuition fee, semester fee, other fees as stated by the educational institutions, living/lodging expenses and traveling expense. Total expense estimation needs to be submitted by the applicant with supporting documents. Processing fee 1.5% of the Loan amount. Repayment tenor: 12 60 months. Advance / partial pre payment is allowed. Interest Rate: 18%. Disbursement: # Study in Bangladesh: Initial admission fee & initial semester/tuition fee to be remitted directly to the institutions through Pay Order.

# Study Abroad: Initial admission and initial semester/tuition to be remitted abroad through EBL Smart Student File. Payment for traveling expenses to be reimbursed through Pay Order favoring the travel agent.

Eligibility:
Age : Minimum 18 years, Maximum 30 Years. Must to have HSC certificate.

5) Personal loan: Feature:

Any purpose personal loan facility. Loan amount BDT 2,00,000 to BDT 10,00,000 or 12 times of Applicant's Gross Monthly Income. EMI based loan repayment facility. Repayment Tenure - 12 months to 60 months. Loan facility for both fresh applications and take-over purpose. Processing Fee: Fresh Loans: 1% of the loan amount. Take-over Loans: 0.25% of the loan amount. Attractive Loan Interest Rates: Annual Interest Rate for Fresh Loan Applicants = 16.5% - 17.5% Annual Interest Rate for Take-over Loans = 16% - 17%.

Eligibility:
One Personal Guarantor required. Salaried Executives: Minimum 1 year of service and BDT 15,000 monthly income. Professionals/Self Employed: Minimum 1 year of experience and BDT 20,000 monthly income. Businessmen: Minimum 2 years in business and BDT 20,000 monthly income.

The End