PAKISTAN has seen a consumer financing boom in the last three years and one would like to see this sector grow on sound footings. But without the cost benefit analysis and proper tools to judge an offer of financing (from housing to durable items financing), the consumer may burn his fingers. He may not be able to repay his debts. The issues involved in consumer financing can be spelt out as follows: are we ready for it?; are we aware of the pros and cons of consumer financing (literacy rate)? ; Is the attractive marketing for it misleading for our people? And should we explain its every aspect for the benefit of applicants? If the answers to these questions are in the negative, they pose a serious threat to the very fibre of the society. In fact, a majority of our people do not understand the true meaning of consumer financing, as to how it is done and what are their rights and obligations. This consumer financing not only has intensified the ongoing rat race for a brand new car, a big house, and the latest brand of TV etc but it is also plays a role in fuelling the inflation. Increase in car prices, payment of own money on car bookings and the phenomenal increase in the prices of property are some of the examples in this regard.

Keeping in view our current literacy rate, do we understand what consumer banking is? What is ‘internal rate of return” (IRR? What do we mean by penalty in course of a premature payment? Or do we understand what annual percentage rate (APR) means?

A majority of us only know what we are told by sales advisers of banks or leasing companies or what is written in the product brochure. We hardly ever read the fine print or even if we read it, do not know what it means. Majority of us do not know or understand the IRR or APR and how it is calculated and end up paying 18 percent IRR with an understanding of paying 10 per cent interest rate only.

Consumers commit themselves for future payments for at least a term of three years, before they know what we are signing for and what are their rights. Misleading advertisement of financing rates should also be stopped.

In a small economy like ours, additional and artificial buying not only increases the rate of inflation, it also provides an opportunity for hoarders and making of unearned profits. Our industry is not yet ready to cater to this artificial boom of demand.

Housing and property market is yet another example where investors are taking advantage of simple-minded borrowers and creating an artificial hike in prices.

Another aspect of the situation is setting the priorities, as individuals and as a nation. Do we want to give our children a new car or a better education. Do we want to give them a DVD player or better nourishing food? Do we want to give them a bigger house or a better health system?

Consumer financing is promoting hoarding and making rich richer and at the same time preventing genuine buyers from buying shelter for themselves due to artificially inflated prices.

I am not a critic of financing schemes for individuals, but we should also be aware of the mindset of our people and devise financial products which would help them realise their dreams without compromising their basic values and traditions and upsetting right development priorities.

Our national priorities be fixed first and then schemes should be develop to improve priorities like education, clean drinking water, health services, emergency medical services, judiciary etc.