KARACHI: Traders and shopkeepers generally stay away from bank borrowing, preferring instead to manage their affairs with their own resources. Their main link with the banks relates to cash deposits at the end of each working day. In contrast, exporters and big-time traders keep a vigil on the interest rate.
Chairman, All-Karachi Tajir Ittehad (AKTI), Atiq Mir said some “five per cent traders borrow loans from the banks, while the rest take it as a sheer risk owing to uncertainty in business environment and rising insecurity”.
Other than contingencies, traders manage capital from their own resources or from friends/relatives even when they plan expansion of existing business or to branch out to some other area. “Only one to two per cent big traders might have been taking loans from banks,” he said confidently.
Atiq said that even if the State Bank cuts the interest rate down to five per cent, the prevailing economic and political uncertainty will still keep the traders away. He said some commercial banks offer loans on easy terms, but have failed to lure the traders.
Only if the security situation improved will the traders feel encouraged to approach the ban counter, he said, adding that nobody would mind paying at 10 per cent interest rate in a conducive environment.
General Secretary, Karachi Retail Grocers Group (KRGG), Farid Qureishi said 75 per cent of shopkeepers avoid taking credit from the banks due to cumbersome documentation procedures and the current lawlessness”.
Karachi Chamber of Commerce and Industry (KCCI) President Haroon Agar said that the SBP had cut down the interest rate over the last six months to around 10 per cent. The inflation on monthly and quarterly basis, according to him, is currently around 8.25-8.75 per cent. KCCI has already demanded that the discount rate must be brought down to single digit at around six to seven per cent.
“State Bank’s exercise to control inflation by increasing discount rate remains unproductive,” he said, expecting that in the coming monetary policy, the SBP stance would be the same and 0.50 to 0.75 per cent cut down in discount rate might be announced.”
On getting bank credit easily, he said that at present, the government is the biggest borrower which limits the availability of credit to the private sector. “Bankers are often reluctant to give credit easily because banks ask for financial reports, debt-to-equity ratio etc. and prefer to give credits to financially stable companies. Credit availability for SMEs is not easy,” Haroon said.
Talking about links between interest and exchange rates, he said that in a way the two rates get linked when dollar value increases against the local currency which bring an inflationary trend in prices of importable items and commodities.
Karachi Wholesalers Grocers Association (KWGA) Chairman Anis Majeed said he was not satisfied with 10 per cent interest rate as in the world it was about six per cent on an average. However, single-digit in Pakistan may prove satisfactory. Lower interest rate, he said, would attract more foreign direct investment and new ventures would start.
he also lamented the fact that getting bank loans was not easy for the private sector.
Apart from worsening law and order, the overall cost of doing business and devaluation of the Rupee, he said, were the main obstacles business growth in the country.
he stressed that though the exchange rate was not directly linked with the interest rate, both need to be in control.