Sumera S. Naqvi highlights the role banks play to help cope with rising costs of living.

The most important need for a ‘documented’ consumer is a car loan, a personal loan, or a house (mortgage financing). And the most convenient way of buying the needs and desires today — as many retail bankers promise their customers — is a credit card.

“Credit cards have been in the Pakistani market for almost two decades,” says a senior retail banker who heads the credit card department of a local bank. “As a non-documented economy, banks find it to be a serious challenge to approach the target consumer to lend,” he says.

There is a sizeable middle class or an upper middle class that largely comes into the ambit of the ‘documented economy’, the larger population of the country remains ignored and neglected from the mediatory role of banks. The reason is that the undocumented economy cannot provide bank-tailored collaterals.

Zafar Masud, founder partner of Burj Capital, explains that consumers remain at a disadvantage in Pakistan. “There is a huge relief for the consumers but expensive. Misuse of consumer loans could lead to a potential financial crisis as recently seen in the US. The real boom of consumer loans comes when interest rates are at their lowest. Consumer loans in a high interest rate environment could be a recipe for trouble”.

While costs rise, consumers find it extremely hard to keep hold of cash in their kitty. What then are the trends of consumer behaviour in such a volatile market? “The consumer in Pakistan in general is yet to realise the importance of saving,” says the retail banker. “Now with marketing becoming an integral part of banking, we do see a surge in life stage products i.e for children, youth, professionals and senior citizens which include saving products to credit cards, loans, etc. — the challenge however remains that banks not yet perceived as a companion though some of the banks are working towards it,” he says.

Masud believes that with interest rates going down, there should be more demand (and of course supply) of consumer loans and products. “With reduction in interest rates, the cost of living should come down, however, with consumer loans quantum going up, the cost of living may remain unchanged which is not the best situation,” he says. So who dictates the consumer market then; the consumer or the banks? Retail bankers believe that non-documentation continues to be the biggest challenge. This situation has somewhat made banks dictate the market. However, some local banks are considering financial literacy programmes to educate consumers on banking.

“It depends on the stage of the economy and the level of interest rates,” says Masud. “Higher the interest rates, less the bargaining power of consumers. Lower the interest rates, higher the consumer power. Similarly, economic performance also has a direct correlation with the demand/ supply and thus the bargaining power of consumers.”