CONSUMER FINANCING

FINE LINE DRAWN BETWEEN HAVE, HAVE-NOT

TARIQ AHMED SAEEDI - tariqsaeedi@hotmail.com
Jan 28 - Feb 03, 2008

Owing to high gestation period interspersed in sanctioning loan to industrial sector financial institutions find it opportune and lucrative to finance consumer and durable goods, stated by Dr. Kaiser Bengali-a renowned economist-during an interview with PAGE. Indeed, consumer financing allows them to recover lending amount in a shorter tenure while lending to an industrial project implies maturity of principal amount in a longest time period. According to an estimate, during first half of the fiscal year 2006-07 Rs. 276 billion were sanctioned as consumer financing, Rs. 141 billion to finance agriculture, and only Rs. 11 billion for micro financing. It would take hardly one year for consumer financing institutions to get back its indebted principal amount because of high rate of interest that is commercially non-viable in case of lending to manufacturing or non-manufacturing ventures. Therefore, low gestation period-principal amount reimbursement tenure-in consumer financing has attracted growing interests. Although consumer financing has resulted in betterment of social economic conditions, its benefits are confined to special stratum of the society in our nation. While access to liquidity has led to improvement in quality of lives of the people, it equally has played havoc to the lives of major chunk of the population. In addition to his agreement to the argument that change in psychographics surge demands of industrial production, he nullifies, ìthis has brought in advantages to masses.î In an apparent perspective, for example, increasing demands of cars precipitate automotive industrial production processes, which indicate move towards economic efficiency. But, this move improves nicheís state of life only, causing dangerous divide between haves and have-nots.

ACCESS TO FINANCE: Vehemently dispelling the impression that finance is available to significant portion of the population, Dr. Kaiser said person belonging to formal sector can qualify for any lending henceforth outpace person of informal sector in race of well-being. Even though eligibility criteria to borrow money have been relaxed without preliminary documents none of them could avail lending opportunity. And, most of our people work in informal sector, whether it is agriculture, manufacturing or service and are unable to prove their ability to loan repayments. Let alone improvement in quality of life, to add insult to injury, misdirected government plan has furthered agonies of common people. Excess of liquidity has surged the graph of food as well non-food inflation, which greatly affects common man whose seventy percent monthly budget composes of food plan. He opined government monetary policy should be redirected and revised for the betterment of society as a whole. ëWe are basically a poor economy with mass consuming elite.í Consumer financing implies expenditures on extravaganzas of low income group; on imported cars; and on insane buying spree. One economist suggested consumer financing except in housing should immediately be banned. Rather, entrepreneurship should be encouraged through expanding outreach of loans. Women workforce of agriculture sector should be given money to flourish home-grown cottage industry. Basically, he said, our economy is infested with feudal approach which allows selected few to avail benefits of economic growth. Notwithstanding progress of financial sector numbers of bank accounts have not increased due to criterion on account opening of Rs.10, 000

IMPACT FACTORS: While talking about the root causes of the misdirection, Dr. Kaiser revealed economic managers are following international agenda of economic growth, which has a complete disparity in relation to national ground realities. Foreign loans are executed for the benefits of Multi National Companies. It is clearly evident in investment trends of last past seven years. He said significant foreign direct investments were flowed in telecommunication and banking and finance industries of Pakistan in recent past. ëHow many manufacturing companies have been established so far?í Import figures of cell phones, however, have contributed its part to widen trade gap. Because of very consumer financing precious money goes into making luxurious imported purchases. ìIt is true that economist does not care about social aftermaths of an economic policy,î he remarked and adding interdependent factors underlying in development should be analyzed at least. ëDevelopment is an ongoing process instead of a project.í Expressing his fear, he said the recent development would not less than engender social anarchy due to wide income inequality. Those who do not have access to facilities may develop sense of insecurity, which might be translated into backlash. The glimpse of which weíve already witnessed in the riots following Liaquat Bagh incident, he insinuated. Dr. Kaiser Bengali is presently a Professor of economics at SZABIST, Karachi and Senior Economist at the Collective for Social Sciences Research. After graduation in economics initially from University of Karachi and then from Boston University, USA, he completed his PHD from KU 1997 with dissertation topic of ëQuarterly and Regional Decomposition of National Income Accounts of Pakistaní. From 2001-04, he has served as Managing Director of the Social Policy and Development Centre. Dr. Kaiser held the position of Research Economist and Assistant Professor at the Pakistan Institute of Labor Education and Research, University of Geneva and various other local and foreign reputable institutes. He has presented over 30 research publications in national and international journals and conferences. So far, he has carried forward over 20 consultancy assignments in Saudi Arabia, Eritrea, Afghanistan, and in other countries. Authored two books: ëWhy Unemploymentí and ëThe Politics of Managing Water, he has also edited three reviews of social development in Pakistan on ëGrowth, Inequality, and Povertyí, ëThe State of Educationí, and ëCombating Poverty: Is Growth Sufficientí. His areas of interest include urban development and issues in local government. His areas of research include macro economic development issues with respect to inequality, poverty, unemployment, and social justice.

EPITOME: A research revealed that financial institutions have achieved present growth rate mainly at the cost of reducing rate of returns to depositors. In 2000, pre-tax profit of all banks was Rs. 7 billion. That stood at Rs.123.4 billion in 2006: a recorded leap jump. Economic growth should spring up from people end. People should participate in the process of economic growth rather than be contingent upon any kind of trickle-down effects showering on them from upside. Also, Dr. Kaiser attributes genuine economic efficiency to re-aligned direction.