Investment climate in the country has never been so conducive for the loan-based projects, as it is now a days. The interest rates are at record low levels.

Bank borrowing for new projects and for balancing,modernization and replacement (BMR) of existing industrial units is cheap. Surplus funds are available with the financial institutions to be lent at an affordable price. The news has it that a bank has even lent money to one of its existing clients at a mark-up rate of as low as 2 per cent per anum.

Despite all this the industrialists are not coming forward to borrow and set up new industrial projects. They are being hampered by the recently promulgated Financial Institutions (Recovery of Finances) Ordinance, 2001. This Ordinance which came into force on 30th of August 2001 is unequitable, one-sided and is full of errors.

The Ordinance has not even been properly drafted. One example of weak drafting is evident from a simple reading of sub-section (4) of section 10 where sub-clause (c) is mere repetition of sub-clause (b).

There are other errors which could be ignored as clerical errors. Surprisingly, a presidential ordinance to which the President of Pakistan is signatory has been so carelessly drafted and typed.

The ordinance is very clearly tilted in favour of the banks and financial institutions. It gives no protection to the borrower from any wrong doings or breach of agreement of the lender. Section 15 of the Ordinance has given wide ranging powers to the banks/financial institutions. Sub-Section (2) of this section states that in case of default by a customer, the financial institution may sell the mortgaged properties or dispose off the same through public auction without even referring to a banking court.

Now it is not a secret that how the banks will exercise this discretion of theirs, against the borrowers. Irony of the situation is that the whole Ordinance is silent about a situation where there could be a dispute of accounts between the parties, how the mortgaged property could be auctioned. by the financial institution without determination of liability by the judicial authority and who will judge the actual liability without the filing of a suit?

The grant of leave to defend is now conditional. Sub-section (9) of section 10 of the Ordinance states: “In granting leave under sub-section (8), the Banking Court may impose such conditions as it may deem appropriate in the circumstances of the case, including conditions as to deposit of cash or furnishing of security”.

The question is that when the financial institution is already adequately secured by way of mortgages, pledge, hypothecation etc, then what is the need of additional security and from where the borrower is going to provide it?

Another point supporting the argument that it is a one-sided law in favour of the financial institutions is that the facility of 24 monthly instalments for the payment of decretal amount has been withdrawn in this recovery Ordinance. Also the mark-up upon decretal amount will now be calculated from the date of default and not from the date of institution of suit or decree. (section 17 and section 3).

If the law can be so much prejudiced against the borrower then how much prejudiced a financial institution can be? This is food for thought for the borrowers, but for the time being they are just wondering what to do and what not to do.