Consumer Finance Trade Associations | Your Ezbukz Blog

A TIMELY report by the Consumer Rights Commission of Pakistan has focused on the asymmetries in consumer finance in Pakistan that are squeezing the general public. While banks reap record profits (in 2006 the pre-tax profits of all banks was a record Rs123.4bn), the benefits that have been passed on to customers have been inadequate. Most criticised has been the interest spread ? generically, the difference between the rate at which a bank lends money to customers and the rate at which it pays depositors for their money ? which has remained persistently and unjustifiably high. According to the CRCP report, the spread has ranged between approximately six and 10 per cent between 1990 and 2005, and in recent years has averaged over seven per cent. The banks justify the spread on the grounds that the cost of doing business in Pakistan is high and that their lending rates are reflective of the difficult economic environment here. Consumer rights advocates reject this argument, pointing to the record profitability of banks. At the very least, critics of the banking sector argue that banks have opaque cost structures and the high spread may be hiding inefficiencies within the sector that the consumer is being forced to pay for. The governor of the State Bank, Dr Shamshad Akhtar, has since early in her tenure tried to nudge banks into lowering their interest spreads and while they have come down in the past year, the feeling persists that the reduction has been too little and occurred too slowly.

Beyond the big issue of an unfair interest spread, the CRCP report highlighted the problems in the provision of the main consumer financing products, especially credit cards, car financing, personal loans and house financing. The banks do little to explain banking terms and conditions, resulting in customers signing up for loans and other products that they may not be able to afford. For example, the report highlighted the problem with variable markup loans ? the majority of consumer loans ? which become more expensive to service even as salaries lag behind inflation. Then there are the issues with hidden charges on credit cards and ATM machines that do not function adequately. Processing delays, unsolicited banking and unauthorised debits add to the woes of the consumer. Overall, the report gives the picture of an immensely profitable banking sector that has greatly enhanced the scope of products available to consumers, but has failed in providing services efficiently and with minimal fuss to customers. This is a regulatory failure that is in part caused by a timid State Bank keen to maintain a buoyant, attractive banking sector. However, the CRPC report is a reminder that the trade-off between the banks? interests and the customers? interests needs urgent readjustment.

Source: http://ezbukz.com/consumer-finance-help/consumer-finance-trade-associations/

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