Oct 29 - Nov 04, 2007

Gone are the days when people were reticence about the borrowing they made to fulfill their routine monetary needs. They usually felt shy disclosing it off per se. To say, it was dubbed as a "taboo" in our society, understandably, would not be an exaggeration. Rather, it euphemistically characterizes the erstwhile economical and social interwoven grids on which the nation's economy was moving on. The social structure likened to a close knitted group informally utilizing the sources of money for their personal use albeit existence of if not many but significant numbers of informal financial sources viz. individuals/groups lending on certain marginal repayments" understanding. No third party was involved to regulate the business. Therefore, the financial risks for both lender and borrower were quiet high. Nor, economical structure had been strong enough to cater the accruing pecuniary needs of the public. The cash outflows, for instance, with the commercial banks were said to be sparse to use for retail financing. Later, the international exposures and philosophy of consumerism instilled new dimensions in the present financial structure of the nation. To minimize money circulation in the market and to make consumers a fully operational unit of the economic wheeling and dealing, unprecedented changes were introduced in the financial sector of the nation. Now, a person doesn't contribute to social upbringings his actions equally effect in the economic policy making and restructuring. Privatization of public sector financial institutions, amalgamation of banks into an entity; making of strategic alliances, and emergence of new banks and NBFIs are treading on conspicuous entries causing an exponential macro economic growth. Undoubtedly, this growth has a subsequent effect on the real economy and an adds-on for public genuine needs resulting in the overall socio-economic developments. At the same time, this policy turnaround in consumer financing have paved a way for a common man to luxurious standards of life. A school of thought refers it as a malicious attempt of financial institutions to fabricate consumers needs which actually don't exist.

SAVING-EXPENDITURE RATIO: The standards of lives have been improved certainly. Yet, the savings by public have been significantly slashed down. The saving-expense ratio is considerably disproportional in all sense. It is common that a person, drawing on middle pay scale, at the end of the month is left up with no money to save after paying off his various credit installments. The growth of personal lending shoots up high in comparison to industrial and corporate financing in recent years. Experts attribute it to the rapid rising of middle class formation of the society. This class accounts for a major economic growth world over. It is a usual phenomenon that this stratum looks for more financial solutions for personal problems than lower and upper classes do. Upper class adopts them for convenience while lower class is complacent enough to go for any kind of institutional financial solutions. Therefore, there appears a progressive propensity of commercial banks towards providing as many consumer products as possible according to the prevalent scenario. Unlike past rate of personal loans approval is incredibly awesome. Similarly, diversified credit cards are available in the market for consumers replacing hard cash (rupiah) in a matter of time. Yet, consumers have to pay aggregate cash amount at the month end. Due to sometimes impulse buying via plastic money they ought to bear the brunt of unnecessary purchases. If not spent on credit cards' repayment or installments and others' loan repayment the amount would become their savings which necessitate building a viable and sustainable rather real economy. It is not denying the fact, however, that plastic money gives security and comfort to consumers in purchasing goods and services but simultaneously cajoles majority of card holders into committing trivial purchases subsequently increasing their budget deficits. The requirement of taking an extreme consciousness and cautiousness in making financial decisions comparatively adds up.

DEBT-BURDEN APPRAISAL: Apparently, without taking concern of consumer debt-burden and debt repayment abilities, financial institutions are strategizing to score big in terms of customers. Prudential regulations of SBP bounds banks and non banking financial institutions, involved in consumer financing, to thoroughly evaluate the repayment abilities of the borrowers prior to engage in any kind of lend arrangement. Nevertheless, a person is seen availing credit facilities of more than one bank at once irrespective of his financial soundness. Ironically, the banks do not associate with a single Consumer Finance Credit Information Bureau in order to get credit history data of a particular debtor. They link with different CIBs for collecting information and evaluation reports. Obviously, the chances of embezzlement are extended because of the veracity and variety of reports issued by isolated CIBs. Doubtful is the coordination between these bodies as the rate of non-performing loans is high in Pakistan. Instances of provision of multi-lending to an ineligible person create long term problems for the lenders and the borrowers at once. Talking to the scribe a credit card holder related his soar experiences with banks that when the payment bill exceeded his ability to pay, he tactically but legally decided to apply for another personal loan and got approval easily. With that personal loan he paid off his outstanding credit cards balance. And, now he was sure of making monthly installments of personal loan more comfortably than before. Another person told that in return to his application he was approved for a loan amount more than the proposition "forcefully", he whined.

MARKETING AND ETHICAL VALUES: In spite of consumers' disinterest in "knowing things" while forming any banking agreement banks can not budge from the duty of designing an implicit and explicit marketing message. People often complain about a heap of promotional materials along with the every mail of banks they receive. This information over load sometimes distracts them from original message and entangles them into another untimely decision. Moreover, advertising appeals are designed in a way that persuades consumers to use credit card or other financial securities irrespective of their debt repayment abilities. It could be defended that these appeals target only to a specific target market. How does using media vehicle, followed mostly by the middle class, for advertising paid-by-credit-card-visit-to-Disney Land make any sense? Maybe, it is due to lack of media planning skill or wish full thinking for generating clients. In either case, the consumers are hypnotized and trapped into the unending credit life cycle. Organization with a prowess to mobilize people should honestly persist on its corporate social responsibilities. Along with, consumers are in better position to discern between right and wrong. Unfortunately, ours is the society where majority of the population comprises of illiterate and impressionable lots. Both are susceptible to ignorance. Their pitiable ignorance and natural inclination towards Bon Viviane impel them to spend unnecessarily after quality of standards-of-life. It becomes a norm of our society to pay less heed to details. Majority of consumers do not pay heed to details owing to their lack of reading habits. It was reported by a sales team manager that consumers while signing the financial paper hardly studied what were the modalities of the agreement. Resultantly, they keep unaware about the unfavorable conditions of the services they subscribe to. They cursorily read the message of financial products tactfully designed for them with technical details. What they least do is to be influenced by product benefits presented in the promos. Inefficiency in consumer banking operation has started inflicting on public hassles as well. One professional guy told the scribe recently that since his credit card bill had risen up so he decided to lower it down to zero and thus deposited a hefty cash amount to his [a reputable] bank; and later deposited a crossed cheque in the creditor's account. Few days later, he was reminded by the creditor of non-payment. Urgently, he rushed to his bank and shocked to know that mistakenly his amount was transferred to another account with the same title. The bank staff apologized for the "mistake" later on, which cost him substantial amount in the form of heavy late payment surcharges. To leave him astonished in a following month, he received another bill from another card issuer asking him to deposit an amount as retail service charges. Innocently, he asked, what did this "retail service charges" mean for when no transactions were being made for several months. Like any other profession marketing practitioners are obliged to follow certain norms and ethical principles internationally. More importantly consumers' privacy and information confidentiality must be revered. Let alone other things, these two principles are not being followed properly. It is also a marketing principle to maintain the consumer satisfaction scale and keep post-sale services. Then, what else our banks are following. State Bank of Pakistan and Security & Exchange Commissions of Pakistan, being the regulatory bodies for the financial sector, should devise effective procedures for consumer financing banks and NBFIs making it obligatory for them to keep abreast with the consumer-oriented approaches in practicality.

TRAINING & DEVELOPMENT: Last few years have recorded a major foreign and local investments pouring in the banking sector of Pakistan in the form of new set-ups, consolidations, strategic alliances, and mergers. As the bankable portion-who can open an operation account in the bank-of the population is keep on increasing, so is the number of commercial banks and NBFIs dealing vigorously in consumer financing. This opened up remarkable employment opportunities. The demand for bankers and the people having basic knowledge of banking operations has been increased manifold. In the backdrop that the shortage of skilled employees has remained a major hurdle for employers, a crucial battle for hunting talents kicks start. Consumer financing sector, which offers prominently products in auto finance, credit cards, housing finance, and personal loan, has emerged as a highly-labor-intensive field. That, its effective performance mainly depends on direct selling, direct marketing, and direct mailing tools, calls up a great support from professionally trained workforce having knowledge of banking and finance. The way, however, sales person of a bank adopts in convincing consumers looks awkward, laden with a mere non-professionalism. The sales team is seemingly constituted by persons who found no other avenue to earn money; so that they joined in this profession. Instead of learning problem solving techniques they memorize canned speeches to foment customer interest for their propositions. The ultimate goal is to earn more commission by selling more regardless of the customers' depredation afterwards. Their lacking in analytical skills of evaluating customer on-the-spot on one hand augments the risk of insolvency and stands alone as non smart selling tactics on the other. Obviously, the entire responsibility of saddling up sales team with the adequate sales pitches and supplements accessories lies on financial institution. Coercive rewarding method of commission induces them to complete the sales target by hook or by crook aggravating their greed to earn more by selling more. Recently, few banks have shifted to per month fixed remuneration structure but with variable commission stirrup. Awarding salary plus commission per month is fair as far as it does not instigate illegitimate selling. Modern sales have now come up as a separate field, earlier which was considered a subject of marketing. The techniques which are currently in-use in the developed countries are not only consumer oriented, they set up a stringent criteria for hiring sales people. Since these are the entry level people directly in contact with the company's precious asset i.e. customer. Their rigorous training and skill advancement are very necessary. Is it not irony that in our nation customers are being treated only to leverage company's profitability?

INDEMNIFYING FINANCIAL RISKS: To secure assets of consumers and indemnify financial risks probability of future insurance companies put forward its services to consumers especially those who lease in vehicle or house. For these products leaser is also on the safe side because of the tangibility factors involved. The question arises when bank issues credit cards without asking for any security to consumers. On the bases of few documents, they are allowed a sound monthly purchasing limit. Owing to intangibility of the assets in later case and with no holding of security (customer's propriety) bank can not lodge ownership claim in case of customer's bankruptcy. Threatening, pressurizing, and coercing are said to be the alternative modus operandi to recover non performing loans. Professionally trained workforce for this purpose is always in an active mode treating insolvents. But reminder of non payment, sometimes rude telephone follow-ups, to customers every month creates nuisance for the performing debtors as well.

A consumer rights organization in its report revealed "misleading information, arbitrary procedures, unjustified tariffs, hidden charges, high differential in interest and profit rates, service inefficiencies, processing delays, and unauthorized debits" violations being committed by consumer financing institutions in Pakistan. Given the circumstances Pakistan is going through unnatural transitions! In financial sector masses should not have been mechanized to process the developments at this juncture of routine flare-ups in macro economic indicators.