The consumer financing was started in Pakistan during the General Pervez Musharaf regime and was at its peak in 2004-05 when inflation was in single digit and the banking sector was flourishing. The banking sector was searching the customers to invest their money. During the tenure of the last government (2008-13), the increase in inflation drastically reduced the consumers buying power.
The inflation is once again in single digit for last three years due to reductions in international crude prices. The low inflation results in low interest rate, which is resulting in a boom in consumer financing.
The country’s banking sector increased its loan portfolio by more than 17% during last fiscal year. The overall credits have gone up to 16 trillion. As per the data during the last fiscal year, the government maintained its borrowing trends and remained the biggest borrower. This includes loans from the central bank and commercial banks as well. During the last fiscal year government borrowing increased by 12 percent and overall government loans went up to Rs9.131 trillion. On the other hand, during FY 2016, the government’s loan stood at Rs8.109 trillion. The net increase in credit is Rs1.022 trillion.
The private sector loans were led by the enterprise sector during the previous financial year. For businesses, loan volume increased to Rs3.980 trillion in the current fiscal year. The country’s banking sector increased its loan portfolio by more than 17% during last fiscal year. The overall credits have gone up to 16 trillion. Personal loans also showed growth, with banks very actively giving out loans to individuals. These loans were as much as Rs485 billion. During FY-2016 personal loan volume was Rs415 billion. The Consumer Financing has increased up to Rs370 billion.
The major reason of increase in consumer finance is low interest rate. The State Bank of Pakistan has recently increased the discount rate by 0.25% to 6.0%. The low interest rate increases the buying power of the customer. Second main reason of increase in the consumer finance is the awareness in the public. Now people are more aware of the utility of different home appliances. The sale of refrigerators, washing machine, microwave oven and televisions are increasing rapidly. It is obvious that with the passage of time, people are getting more and more aware of the importance of the home appliances. The awareness and time saving will push the people to buy more appliances to make their life easy.
Another famous word of financing that we usually hear in our homes in “Comiti”. In Comiti, first all the members select the total amount and period. For example the total Comiti amount is one hundred thousand rupees and period is twenty months. This means that each member will pay five thousand rupees every month for twenty months. Every month the total sum of one hundred thousand is paid to one selected member. There are two methods mainly used to select the Comiti number of the individual (a) The draw is carried out at the time of first Comiti in which the nominee of every month is selected (b) The nominee of every month is selected by mutual consent of all members. The Comiti financing is totally Riba free, every member pays the full amount in equal installments and received back the full at his turn.
The person who organizes the Comiti usually takes the first Comiti. The organizer takes all the pain of collecting the Comiti from every member and pay to the selected member of each month. Mainly people use the Comiti for the following purposes:
- Purchase of annual wheat, rice etc.
- Purchase of home appliance (fridge, television, washing machine etc).
- Purchase of dowry items.
- Purchase of automobile (motorbike, car etc).
- Payment of educational fee.
- Performance of Umrah and Hajj.
- Purchase of plot
- Use as working capital for the business.
The Comiti is one of the most useful tools of consumer finance without any interest and complication.
The banking institutions can also start the option of Comiti; this will be safer and hassle free for the public if their Comiti is managed by a financial institute. The issue is how the bank will manage the administration cost of the Comiti. It is very easy, the bank can take the first Comiti, and then the bank will have to pay it back in say twenty months. The bank can invest the whole Comiti and use its interest as the administration charges to manage the Comiti.
We think, the innovation of Comiti by a financial institution can be very useful for the public and even for the bank itself. The Comiti is not the new word for anyone. Almost all of us had heard about it and aware of its importance in our society. The purpose of highlighting this option is that we can use it to support the underprivileged people of our society. The small amount of Comiti may not be very useful for some people, but we can participate in Comiti to help the needy people in making their lives comfortable and better.