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Definition
The division of retail banking that deals with lending money to consumers. This includes a wide variety of loans, including credit cards, mortgage loans, and auto loans.
Any financing allowed to individuals for meeting their personal, family or household needs.
Type of service that is designed to provide the individuals with necessary finance for personal purchases ranging from buying a car, shopping purchases, to buying a house.
The concept of consumer financing is based on the need for an institutional arrangement that provides consumers with financing support to enhance their consumption and, as a result, improve their standards of living.
KEY PLAYERS
United Bank Limited Habib Bank Limited Bank Al Habib Limited Bank Islami Burj Bank Modarbas Companies.
Personal loans: loans provided to individuals for the payment of goods, services and expenses, Auto loans: Auto loans include any loans used to purchase a vehicle for personal use. The loans borrowed to purchase vehicles for commercial or corporate use are not included in this category. Housing Finance: Housing finance includes the loan, which is provided to individuals for the purpose of purchasing or improving a residential house, or apartment, or land. This category also includes loans for a combination of housing activities such as loans for purchase of land plus construction. Credit Cards: Credit cards include any card, which a customer can use to borrow credit from a bank. Credit cards include charge cards, debit cards, Stored Value Cards (SVC), and Balance Transfer Facility (BTF). Corporate Cards are not included in this category.
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2006
2007
Banks are making abnormal profits after the emergence of consumer financing.
State Bank of Pakistan (SBP) regulator of all banks and Development Finance Institutions (DFIs) For redress of consumer grievances comprises of both administrative and judicial institutions. Banks are obligated to clearly disclose Margin Requirements no limits are placed on the margin requirement SBP has restrained banks from charging any Insurance Premiums Banks are not allowed to finance older than 5 years cars and must keep the customer informed of payment schedules and any changes
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Intimidating recovery practices:
Banks recovery team reaches the borrower house to pressurize them for payment of dues without any legal authority
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Unsolicited Financing
Aggressive marketing campaigns launched by the banks are targeting the costumers and encouraging them to purchase a loan or credit. Source: Consumer financing in Pakistan: Issues, Challenges, and way Forward published by CRCP
Increased consumption > increased output / Inflationary Pressure (Demand-Pull Inflation) Increased dependence on foreign loans Lack of infrastructure to absorb and manage the increased number of cars on the road due to easy auto financing Spending beyond their means behavior results in burdening the economy and society Negative Saving-Investment gap as a result of spend now, save later behavior in developing nations Its beneficial for those who have the prerequisite responsibility, maturity and financial literacy to manage their finances.
High Interest rate spread should be reduced to increase competition in the banking sector SBP Regulations regarding consumer financing should be enforced strictly to decrease the high profit margins of the banks at the expense of the depositors Unsolicited financing should be discouraged to avoid unnecessary private consumption at the cost of consumer savings SBP should bind banks to explain ALL applicable charges on consumer loans before signing the contracts
Consumer Education: comparative information should be made available Latest copy of terms, conditions, & schedule of charges should be provided to applicants in the language of their understanding
Question-Answer Session