BANKS ALLOWED CONSUMER FINANCING
The demand for consumer items will certainly increase and help generating economic activity
By AMANULLAH BASHAR
Aug 26 - Sep 01, 2002
So far, the segment of short-term consumer financing was the exclusive domain of the leasing companies, hence other financial institutions like commercial banks were not allowed to operate in this activity which, constitute a large clientele representing the middle classes of the society.
Traditionally speaking, for the general public the banks are the place where they can deposit their money alone while the access to the bank advances, loan etc. were availed only by the strong groups of the people whether in trade and industry or having political strength.
The trading circles are of the opinion that such facilities are available to the general consumer all over the developed world and gives a strong base as a result of this new policy the demand for consumer items will certainly increase and help generating economic activity in the country.
The idea behind the decision of the SBP to allow the banks to provide financing for the consumer goods to boost the industrial and trading activity in Pakistan.
The circular issued by SBP in this regard removed the restrictions of submitting income tax and wealth tax statements on borrowers of up to Rs100,000. The SBP has been endeavouring to promote consumer financing in Pakistan, which has strong linkage effects with the growth of industrial and trading activities in the country.
According to circular, it has been decided to allow banks to provide financing facilities to general public (individuals) for purchase of consumer durable. Advances for financing goods, including production machinery, commercial vehicles and consumer durable on hire purchase or installments plan has been allowed.
In order to further facilitate consumer financing, it has been decided to do away with the requirement of submission of the copy of income tax and wealth tax statement by the borrower availing above facilities from the bank provided their consolidated borrowing for the purpose from the banks do not exceed Rs100, 000.
Banks are encouraged to have properly formulated lending policies in this regard with adequate delegations of powers of their branches, for quick disposal of requests from the interested borrowers.
The television industry is also anticipating tremendous growth in the coming years as a result of permission to the banks to resume loans for consumer and durable goods purchase to the general public.
The decision would certainly boost the industrial and trading activity in the country helping the economic managers to achieve the economic growth target set by the government. The television industry in particularly would record a growth of nearly 20 to 25 per cent in the current year. Last year production of television sets was estimated to 450,000 units.
The local producers are Samsung, Philips, LG, Nobel, Singer, Luminar, Crown, Viva and PEL- Daewo.
The industry is also considering to negotiate with the banks and other financial institutions that they should disburse loans only to those consumers who are willing to buy locally produced items so that the interest of the local industry could be protected.
If the banks will entertain consumers who are buying imported goods it would deny the efforts of the State Bank to boost local industrial activity.
Last year leasing companies opened avenues and introduced car-financing scheme, which boosted the sale volume of auto makers. Sales volume of locally assembled cars was around 42,000 units up from 32,000 units last year.
The prices of locally manufactured television sets have registered a drop of 10 per cent as compared to last year on different brands. The main reason for this decline was strengthening of rupee against the dollar. Another reason for price reduction was the increase in volume of production.
As a result of the new policy, growth in sale is expected which would not only boost the trading activity but more production would mean more revenue to the government.
Last year, the companies paid Rs778 million in terms of revenue and other taxes. Growth this year would push the revenue collection of this source.
Current, the electronic market is flooded by foreign electronics items especially the mobile phones certainly beyond the volume of officially imported mobile phones. This indicates how the volume illegal trades in this sector. In order to discourage the smuggling trend, the government would have to bring down the duty structure on these items.