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Consumer financing in Bangladesh and India

BANGLADESH

Limits to credit-card and personal loans under consumer financing almost doubled to match rises in people’s purchasing power. Bangladesh Bank (BB), country’s central bank, revised the limits after 13 years considering per-capita income.

The consumer-product market in Bangladesh has been growing rapidly over the last few years, and rising per-capita income has enabled growth in consumer spending.

Per-capita income in Bangladesh was estimated at US$1466 in the fiscal year 2015-16, an over threefold rise since the 2014.

Bangladesh has revised the limits for such loans considering the existing market price and the increasing demand for consumer goods.

This will help in enhancing overall production through increasing the purchase of consumer durables.

Bangladesh bankers welcomed saying that it will help increase overall economic activities in the country. Bankers urged the central bank to raise the limits for such loans. This is because of the existing market prices and the increasing demand for consumer goods.

Consumer credit in Bangladesh decreased to 8319.50 BDT billion in January from 8320.38 BDT billion in December of 2016.

Consumer credit in Bangladesh averaged 2142.30 BDT billion from 1990 until 2017, reaching an all-time high of 8320.38 BDT billion in December of 2016 and a record low of 220.17 BDT billion in January of 1990.

Bangladesh Bank (BB) has re-fixed the ceilings of credit cards and personal loans under consumer financing matching the rise in people’s purchasing power.

Maximum unsecured limit under credit card to a borrower (supplementary cards shall be considered part of the principal borrower) shall not exceed taka 10 (ten) lakh. Earlier, the limit was taka 5 (five) lakh.

The banks may allow financing under the credit card scheme in excess of the limit of taka 10 (ten) lakh provided the excess amount is secured against liquid securities.

However, in no case the limit will be allowed to exceed taka 25 (twenty five) lakh.

In case of foreign currency cards, cards can be issued if repayment is made against respective foreign currency account or against lien of foreign currency quota allocated to Bangladeshi nationals by Bangladesh Bank from time to time.

On the other hand, limits per person for personal loans will be taka 5 lakh instead of taka 3 lakh without any securities.

The loan secured against liquid securities shall, however, be exempt from this limit, according to the BB circular.

Bangladesh Bank said the consumer product market in Bangladesh has been growing rapidly over the last few years and the rising per capita income has enabled growth in consumer spending.

INDIA

Consumer credit grew steadily in 2016, both in terms of gross lending and outstanding balance. Growth was driven by the increased awareness amongst consumers regarding various loan schemes and a greater acceptability amongst consumers regarding opting for loans.

Durables and card lending registered the strongest growth in 2016. This was driven by the huge population, the majority of which have a higher disposable income than older generations.

Mortgages amongst all the different types of loans continued to be the biggest contributor to consumer credit in 2016. This was due to the average ticket size being the largest for mortgages.

State Bank of India continues to be the preferred lending bank. Government banks or Public Sector Unit (PSU) banks continued to be the preferred banks by consumers for loans due to the longstanding trust consumers had in these banks.

The large number of schemes offered by Public Sector Units banks offered the best interest rates.

The annual per capita income registered growth and India in general is going through a phase where consumers are more willing to spend. With the expected growth of the economy, this trend is expected to continue, thereby driving the growth of consumer credit in the country.

Indian consumer segment is broadly segregated into urban and rural markets, and is attracting marketers from across the world.

The sector comprises of a huge middle class, relatively large affluent class and a small economically disadvantaged class, with spending anticipated to more than double by 2025.

India stood first among all nations in the global consumer confidence index with a score of 133 points for the quarter ending September 2016.

India leads the global top 10 countries for this parameter during the quarter. Global corporations view India as one of the key markets from where future growth is likely to emerge.

The growth in India’s consumer market would be primarily driven by a favourable population composition and increasing disposable incomes.

A recent study by the McKinsey Global Institute (MGI) suggests that if India continues to grow at the current pace, average household incomes will triple over the next two decades, making the country the world’s fifth-largest consumer economy by 2025, up from the current 12th position.

India’s robust economic growth and rising household incomes are expected to increase consumer spending to US$ 3.6 trillion by 2020.

The maximum consumer spending is likely to occur in food, housing, consumer durables, and transport and communication sectors.

The report further stated that India’s share of global consumption would expand more than twice to 5.8 percent by 2020.

The growing purchasing power and rising influence of the social media have enabled Indian consumers to spend extravagantly on good things.

The Indian consumer sector has grown at an annual rate of 5.7 percent between financial years 2005 to financial year 2015.

Annual growth in the Indian consumption market is estimated to be 6.7 percent during fiscal year2015-20 and 7.1 percent during fiscal year2021-25.

India has drafted a new Consumer Protection Bill with special emphasis on setting up an extensive mechanism to ensure simple, speedy, accessible, affordable and timely delivery of justice to consumers.

In the Union Budget 2017, the government has proposed to spend more on the rural side with an aim to double the farmer’s income in five years; as well as the cut in income tax rate targeting mainly the small tax payers, focus on affordable housing and infrastructure development will provide multiple growth drivers for the consumer market industry.

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