The markup is 15% on 12 month financing on the 70% of the balance
By Syed M. Aslam
Apr 24 - 30, 2000
By and large the concept of affordable financing still much remains a
far off dream from the majority of middle-income Pakistanis. The local equivalent of
credit financing usually revolve round individual schemes offered by a handful of
companies, and traders, with exorbitant markup rates of as high as 45 per cent for
short-term financing of electronics and household appliances.
The lack of availability of easy credit for the purchase of electronics
and daily-use household items such as refrigerator, deep freezer, air conditioner,
microwave oven, vacuum cleaner, television, VCR, motorcycle, washing machine, is not only
shying the middle-income households to buy a new appliance. It has also deprived the
producers and traders a substantial volume of business due to lack of participation by the
salaried class which finds it hard to buy many of these products on full cash amidst a
constantly decreasing purchasing power.
With a population of over 140 million Pakistan should, and does, offer
a big potential for the retail financing and yet the idea was deemed impractical primarily
as the vast segment of the national economy remains undocumented. Like all other
businesses the general preference for cash has also influenced the retail business.
However, lately with the introduction of credit cards and car financing by many
multinational banks the face of retail financing has also started to change in Pakistan.
Home Alliance, which opened in Karachi on the 23rd of last month, is
the first company in Pakistan which offer a dedicated hire-purchase service of a range and
make of household appliances at an affordable markup rate. It finances a range of such
household products as television, VCR, audio system, washing machine, vacuum cleaner, air
conditioner and motorcycle etc. Its main display centre on Shahrah-e-Qaideen and branch in
Saddar offers a range of such major imported as well as locally manufactured brands as
Sony, LG, Samsung, Sharp, Philips, Whirlpool, Super General, PEL, Waves on range of
What distinguishes Home Alliance from others is that it charges a
reasonable markup of 15 per cent on twelve-month financing- and that too on the 70 per
cent of the balance amount after the payment of the standard 30 per cent of the
down-payment. The main target of Home Alliance is the middle class whose purchasing power
has been severely eroded by the rising inflation to put even essential household items
beyond its reach. It also targets both the individual as well as corporate business, which
unlike the former has to pay no 30 per cent down payment and non-refundable service and
administration charges of Rs 500.
Talking to PAGE, the manager of Home Alliance Saddar show room,
S.M. Bahauddin, said that the good response to the new retail concept offered by the
company during its first month of operations has encouraged it to further diversify its
business. We will be offering such new products as branded computers, financing the
purchase of new locally produced cars for the highend market. The limited exposure has
also made us aware the hard economic realities that the salaried class is finding it hard
to buy even such small items as juicers, food processors etc. on strict cash basis and we
will also be including these comparatively lower priced products in our hire-purchase
list, he added.
The computers will also be offered to the individual customers at 30
per cent down payment while we have yet to workout the markup rate and payment period on
it, Bahauddin said. The car financing of up to Rs one million will be available at 25 per
cent down payment and will carry a markup of 21.5 per cent on the balance 70 per cent of
the price payable over a period of 48 months.
Bahauddin said that though the primary target of Home Alliance is the
middle and salaried class the high-income group has appeared as the major beneficiary of
the scheme. However, the middle class which is facing hardships due to declining
purchasing power will still benefit from the scheme particularly the easy finance and low
interest rate make it possible for it to buy a range of essential home appliances for
Just how affordable the financing provided by Home Alliance actually
is? It is easy to make an informed calculation based on the example highlighted herewith.
An individual, or walk-in customer, has to pay a down payment of Rs 9,000 for one or more
appliance whose price is Rs 30,000. Subject to the approval of the application a mark up
of 15 per cent or Rs 3,150 will be charged on the remaining balance of Rs 21,000. The
total liability of the customer thus adds up to Rs 24,150 over 12 months. The installment
thus will be Rs2,012.50 per month over a period of one year.
The walk-in customers, the term used by the company for the individual
customers to distinguish them from corporate employees, are charged a non-refundable Rs
300 verification charges alongwith the application and another Rs 500 service and
administration charges plus a Rs 200 delivery charges.
Home Alliance which also finances the Hero 70 cc motorcycles charges a
Rs 500 non-refundable service and administration charges, insurance premium for the first
year the duration of twelve installments of Rs 2,300 plus registration
charges of Rs 1,700 including the life-time tax.