|
|
|
|
 |
 |
   |
Life
on Lease Statistics about Pakistani banks reaping huge profits in the last five years or so are deceptive, if true. The consumer banking shows only one side of the picture. For this Special Report, we decided to separate the consumers from banking to see how they fare in the new arrangement. Are they happy to have realised the dreams they were made to dream by an aggressive advertising they could not have missed, even if they chose to? Or do they feel stuck, in stress, or not quite happy as they had imagined? trend For the average salaried consumer of Pakistan, the leasing industry appears to be a treasure chest, full of luxurious goodies for the taking. With the past couple of years witnessing the so-called liberalisation of the country's economy, a Pakistani middle and upper-middle class citizen has upped his and her lifestyle. Thanks to the various tantalising, consumer financing deals being 'consumed' like hot cakes, asset acquisition for the enhancement of social status seems to have become more of a reality rather than a distant dream. Chit
chat financing Financing of car or other material goods such as computer, air conditioner, and refrigerator through formal sector like banks is a phenomenon introduced in Pakistan in the late 1990s. However, informal financing and leasing boasts a long history predating formal markets, and also has a strong presence in most of rural and urban Pakistan. Happy lending In Pakistan, there are different types of companies involved in the business of consumer financing. Modarabas, commercial banks and Non-Banking Finance Companies (NBFCs) are the main organisations supporting the sector, with the latter two being the major players. Leasing companies per se are primarily categorised under NBFCs and thus have specific rules and policies governing their incorporation and regulation. logjam "I kept on calling my bank's helpline but the number was constantly engaged. Two bandits had robbed me of my wallet that carried my credit card and I was trying to report this to the bank as early as possible," says Yawar Ali, 27, who is being pressurised by a commercial bank to clear his outstanding amount as early as possible. Stage of
recovery "My father passed away more than six months ago, however, the recovery officials still call us and harass us for the loans which stand against my father's name," Zain Alam, a resident of Karachi related his story to TNS. Rail ways to
borrow Pakistan Railways is one of the most conservative state corporations still using obsolete methods to run its day to day affairs. It is still paying salaries to its low-ranking staffers in cash while other departments transfer them to their staffers' bank accounts.
Editorial Statistics about Pakistani banks reaping huge profits in the last five years or so are deceptive, if true. The consumer banking shows only one side of the picture. For this Special Report, we
decided to separate the consumers from banking to see how Leasing, as we have come to know it, is a reality people have learned to live with. It's the stuff that fulfils dreams of luxury and pushes people a notch up in the class ladder. Interestingly, the real profit-makers may be very few but there's a huge middle class, of urban residents mostly, that is being created in the process. And these are not just 'consumers' of leasing facility but the providers of this facility as well. And God forbid, if some of us default, there are recovery agents who too are beneficiaries of this system because they make money out of this exercise. So, in the true spirit of an aspiring capitalist economy, the consumers use credit cards and mobile phones, change models of cars, buy modern gadgetry and aspire for castles not just in the air with their whole lives on lease. In the true spirit of capitalism, they have no time to think whether that's good or bad for them. They just do it. People who have now come to be known as consumers will do more of it in times to come, it seems. Luxurious goodies for the enhancement of social status have today become more of a reality than a distant dream By Aziz Omar For the average salaried
consumer of Pakistan, the leasing industry appears to be a 'Gaddian' and 'Kothian' have emerged as popular objects of desire and, hence, their leasing and financing schemes the most availed services. Earlier, till the 1990s, families would commonly have one primary vehicle that all members had to car-pool in to get to their destinations and back home. Before leaving for their offices, the daddies used to frustratingly co-ordinate with their school/college going offspring, often having to make several trips. When one of them graduated and got initiated into the practical field, few feasible options existed for an independent form of transport. It was either the way of unreliable and noisy public commuting or braving the weather on a motorbike. Even purchasing a used, barely-running car was a blessing for a fresh inductee into the workforce. Leasing companies have existed since the eighties, when they were allowed in 1985 as permissible under the Islamisation policies of Zia-ul-Haq. Yet, it has been most notably with the entry of commercial banks in consumer financing that the related schemes have become more attractive for the potential customers. Sania, who works in a Karachi-based media related company, has recently had an 800-cc car leased under a prominent bank's car financing scheme. "It has solved a lot of my transportation hassles. My family resides in Lahore, so when I moved to Karachi for my current job, I had to rely on call-cabs or request my friends to do my pick-and-drop." Like many young, independent working women in Karachi, Sania resides in an apartment which she shares with two other similarly employed ladies. "Generally, people who are working on a contractual or freelance basis, especially in the media, have faced a 'no-deal' policy. It was only upon proving my permanent employee status that I qualified as a lessee." However, Sania laments that even then the concerned officials of the bank created a lot of problems in the verification process and she barely avoided a 'case-closed' scenario. "Most of the time, I was not at my apartment and so they used to come and not find me there. At first it was a real nut-case that came to assess my residential status, so I had to request the bank to send a more qualified and responsible person." It is indeed quite promising that determined female professionals like Sania are persevering in carving a niche in our society and blazing the trail for aspiring girls to follow. On the other hand, people like Adnan Mehmood have utilised a house financing scheme to purchase a plot and construct a family home. Adnan, a lawyer by profession who works in the legal department of a company, has availed this particular loan as per the policies governing Islamic Banking. "I, along with two of my brothers, am contributing to loan repayment. Certain clauses, such as prepayment are more consumer friendly under Shariah guided banking as opposed to the conventional kind," claims Adnan. However, he concedes that although he himself doesn't have to pay interest based installments, the bank would not be able to generate its revenue on the other end without investing part of the money in interest-based projects. The whole leasing business has been very well perceived as a major boon for the enhancement of the standard of living. However, rising interest rates or increases in unit based repayment are eventually siphoning off a large amount of a person's hard earned wages. Having to pay large installments for a period of 5-10 years is quite a burden. Hopefully, what is being considered as a new lease of life doesn't turn out for some to be a warrant for arrest and legal turmoil. Informal financing stems from the need to operate without legal formalities such as having a tax number, a guarantor and other documentation By Aoun Sahi Financing of car or other material goods such as computer, air conditioner, and refrigerator through formal sector like banks is a phenomenon introduced in Pakistan in the late 1990s. However, informal financing and leasing boasts a long history predating formal markets, and also has a strong presence in most of rural and urban Pakistan. Informal finance sector is
that part of economy wherein financial contracts and Though financing for business or agriculture is as old a phenomenon as banking itself, most of the people in Pakistan now opt for the informal sector to obtain loan because it has a reasonable share in the total economy of the country. According to economists, the informal sector accounts for around 50 per cent of the total economy of a country. "It is growing, and the beneficiaries of this growth are the producer and the seller while the consumer and the government are on the receiving end," says economist Dr Qais Aslam. "The consumer, in most cases, is getting substandard goods while the government is suffering because it ends up without being paid taxes worth billions of rupees." Dr Qais affirms that the trend of providing material goods on installment-basis was started by Afghan refugees "but the informal source of financing in our society has a long history, and it still accounts for more than 50 per cent of the credit supply provided by moneylenders, shopkeepers, traders, middlemen, family and friends for consumption and production purposes." Those trading in consumer goods on installments disagree with Dr Qais. Muhammad Asif, the owner of Alfazeel Centre in Sant Nagar, Lahore, tells TNS that he knows of many families who have put together dowries for their daughters by purchasing expensive goods on installments. He admits that most of the time the consumer is offered substandard goods, but eventually it is up to the customer if he wants to buy branded stuff or otherwise. According to Asif, selling goods on installments is not as easy as it seems. "It involves a great deal of risk and money. Though we try our best to examine the character as well as the capacity of the buyer, the default rate, at least in our sector, is very high." Yet, people must go for it because the profit rate involved in the business is also very high. "A product worth Rs 1000 in the market can easily be sold at Rs 1800 on installments." Dr Qais insists that the expansion of the informal sector "should mean that the consumers are satisfied with the services being provided to them. However, the reality is quite different. In fact, thanks to different kinds of pressures from the society and also from within their own families, a lot of people have no option but to purchase goods such as TV, refrigerator, air conditioner etc, whether they can afford them or not." According to Dr Qais, one major reason for the success of the informal sector is the fact that the transaction cost in the formal sector is very high. He believes that informal markets are generally characterised by high interest rates and a sizeable gap between lending and deposit rates. "There is an extreme variability in the interest rate charged by lenders for similar loan transactions. Informal finance markets are generally marked by low levels of default due to social sanction, group sincerity, past history and repeat transaction." The businessmen, on the other hand, think that the success of the informal sector is not directly proportional to the limitations of the formal markets. "It has a comparative advantage in some market segments," says Amjad Hussain, owner of a big wholesale shop in Shahalam market. According to him, either the informal institutions provide services that the formal institutions do not, or they have a cost advantage over their formal counterparts. "Part of the demand for informal financing stems from the desire to operate outside the formal, documented economy in order to avoid taxes, and is sometimes linked to the underground economy," admits Amjad who himself prefers informal sector over the formal to borrow money for his business. In old markets and with established players, around 90 per cent of dealings are carried out on suppliers' credit resting on good reputation. "A chit (parchi) is the norm for making business transactions and is not dishonored; it represents a convenient and flexible method that allows business to be conducted at an arm's length and does not require spending weeks on processes and documentation or entail tax liabilities," he continues. Amjad says that moneylenders do not give credit to every client right away; they usually take precautionary measures before accepting a new client. "These (precautionary measures) include the practice of dealing with potential clients in other markets, an intensive inquiry about new clients, and testing them through small loans." Their recovery patterns are also very organised. In cases of default, market associations normally mediate and decide about receivables and payables and, in extreme circumstances, dispose off assets. Social, political influence or, when all else fails, the use or the threat of the use of force is also a potent instrument for enforcing contracts or ensuring payment. "In many markets, there are now established groups that offer their services for a fee to force recovery," says Amjad. In the rural areas, credit is mostly supplied by 'aartis' (commission agents) and other middlemen at high interest rates through interlinked transactions to the farmers that are recovered after six months upon the ripening of crops. Mohammad Asif adds that most of the household items are available for sale on 12 to 15 equal installments. The down payment which ranges from 20 to 40 percent of the price is collected along with the first installment. The only responsibility of the client is to provide basic information about himself, submit a few documents such as photocopies of his National Identity Card (NIC) or service card, and deposit an advance along with the first installment. "It is our own responsibility to inquire about the credibility of the client and seek personal guarantees from people residing in the vicinity of his house. Once the antecedents are verified, we hand over the desired item to the client. This whole process is completed within three to four days." When asked about the chances of risk and default, he says, "We have been in this business for years now, and have always kept this point in mind. The ownership of all goods is in the name of Alfazeel Centre till the time all the installments are cleared. To facilitate confiscation of goods where installments are not being paid regularly, we get an agreement signed from every client that a specific good is being rented out to him and he will be bound to return it whenever the seller wants." Asif admits that if a client is not ready to return a specific item or pay the installment, then they employ 'other means'. "There are people or groups who charge 12 to 15 percent on the total amount of recovery," he adds. Happy lendingWhat it takes to get registered and function as a leasing or financing company In Pakistan, there are different types of companies involved in the business of consumer financing. Modarabas, commercial banks and Non-Banking Finance Companies (NBFCs) are the main organisations supporting the sector, with the latter two being the major players. Leasing companies per se are primarily categorised under NBFCs and thus have specific rules and policies governing their incorporation and regulation. A leasing concern is provided legal coverage under the English common law, a heritage shared by Pakistan and its eastern neighbour. Before the commencement of any commercial activity, a leasing company has to have acquired prior permission from the Securities and Exchange Commission of Pakistan (SECP). Leasing institutions are registered as public companies under the Companies Ordinance 1984, with just the licensing fee being Rs 0.1 million. An amendment to this act, more specifically The Leasing Companies (establishment and regulation) Rules, 2000 outlines the conditions that have to be complied with. Once registered as an NBFC, a company with consumer financing concerns has to invest separately for leasing and housing finance. Although leasing can extend to a lot of varied products such as expensive industrial machinery, property and associated structures, in Pakistan the interest of consumers is largely in automobiles. Pakistani law currently requires a capital of about Rs 200 million to be invested by an NBFC with regards to leasing and Rs 100 million for house financing services. Leasing companies are required to create a reserve fund comprising of an amount that has to more than 20 per cent of its post-tax profits. Their stock dividends can also be considered as being a contribution for this purpose. For taxation, an NBFC leasing company is treated as a corporate entity and thus is required to shell out 33 per cent of its earnings. --
Aziz Omar
Customers have a range of complaints against the services as well as the available helplines "I kept on calling my bank's helpline but the number was constantly engaged. Two bandits had robbed me of my wallet that carried my credit card and I was trying to report this to the bank as early as possible," says Yawar Ali, 27, who is being pressurised by a commercial bank to clear his outstanding amount as early as possible. The poor guy has an ideal
credit history with no default at all since he obtained a credit Yawar reveals that he tried to convince the relevant bank officers but they were simply asking for irrevocable evidence. "How can I produce any evidence? Had someone at the helpline picked up my phone, the issue would have been solved long ago," he adds. Yawar's ordeal is just a case in point. There are many others like him whose complaints remain unattended. On the other hand, banks contend that it is mainly the inability of the customers to fully understand the terms of their agreements with the bank that such anomalies arise. Besides, they say, every scheduled bank dealing in consumer finance has full-fledged complaint handling departments where they listen to and resolve "only and only genuine complaints." There have been cases where it was proved in inquiry that the "disputed transactions" had been made by family members of the complainants without bringing the fact into their knowledge, bankers claim. Haider Zaman, a customer relations executive at a private bank, tells TNS that they have entry, middle and senior level customer service executives, supply chain managers and customer relations managers to attend customers' complaints. He denies charges of negligence against complaint handing departments saying "all the calls made by customers are recorded in our Interactive Voice Recording (IVR) system along with the date and time at which they were made." Haider says that in case the decision on the complaint is not made within the stipulated time or the complaint is not forwarded to the relevant person, the IVR recording is produced before the highups. There have been cases where people have been terminated from service for not entertaining customers' complaints properly. On the other hand, Haider says there have been cases where people have filed complaints with the banks instead of the private companies. "I can recall how our officers were threatened by people who could not get delivery of financed cars in times. Many of these officers had to go on leave or get transferred just to avoid public wrath. The delay was on the part of car assemblers but the bankers had to pay for it." Complaints can be of any type, ranging from imposition of excessive service charges, application of higher interest rate than the one decided at the time of signing the contract, delay in receiving the approved product to imposition of late payment charges. Though there are people who double check the billed amounts, there are many others that lack the ability to find out discrepancies, if there are any. "I was charged Rs 600 as late fee despite the fact that I had dropped my cheque three days prior to the due date for my credit card payment," says Adnan Ahmed. He tells TNS that many banks discourage over-the-counter cash payments by imposing cash handling charges but on the other have no mechanism to find out whether a customer dropped a cheque in the drop box in time or not. "If I had had the option of making the payment in cash without being charged an extra amount, I could have saved these Rs 600," he adds. A senior banker at a foreign bank's Lahore branch says that most of the customers do not know that they have forgone their right to complaint against many bank decisions by signing the contract. "Does anybody read what's written in the agreement before signing it? Our bank's agreement clearly states that the customer will not have any objection in case the mark-up rate of a particular scheme can change anytime. But we have to face many disgruntled customers protesting against revisions in markup rates," he adds. But this does not mean that aggrieved party does not have a forum to go if it is not satisfied by the decision of the bank handling the complaint. The institution of the Banking Mohtasib has been a pleasant development for consumers who can approach it after the lapse of three months since the filing of a complaint with the relevant bank. All the complainant has to do is to submit a complaint form duly completed, signed and attested by an Oath Commissioner along with the letter of complaint with the Banking Mohtasib office. "The Banking Mohtasib handles complaints relating to violation of banking laws and regulations, excessive delays and inefficiency, poor service, discriminatory actions, etc. "The Banking Mohtasib cannot accept complaints relating to the bank policy e.g. a printed schedule of charges, loan policies etc. For instance, the Banking Mohtasib cannot order a bank to sanction a loan," says the policy statement. A complainant not satisfied with the decision of the Banking Mohtasib has the right to appeal to the State Bank of Pakistan within 30 days from the order of the Banking Mohtasib. If the complainant does not choose to go into appeal or does not accept the decision of the State Bank of Pakistan in appeal, the complainant has the right to go to a court of law. As the law is silent on the recovery mechanisms, agents of banks and companies use all means fair and foul to extort outstanding money By Bilal Tanweer "My father passed away more than six months ago, however, the recovery officials still call us and harass us for the loans which stand against my father's name," Zain Alam, a resident of Karachi related his story to TNS. Bank recovery departments
are known for employing notorious methods to extort "Instances of forced entry into houses and workplaces, use of threatening and foul language have been reported in the media," Banking Ombudsman Azhar Hameed told journalists on April 30 while launching the second annual report last month. However, the bank officials deny that they mishandle their clients. Irfan Chaudhry, a bank recovery official, emphasises that clients are valuable to banks, and that banks resort to rudeness only when the former refuse to pay their dues on time. "First thing we must know that every rupee that bank gives out is insured. So, the bank never stands to lose. And if, in the unlikely instance of a bad debt, money is recovered through insurance claims." However, he says, what the bank wants is the profits and for that they use these methods to get their money. According to him, the report of a non-paying customer goes to the collection department of the bank. "The representatives of the collection department make phone-calls to the customer and remind them of their overdue arrears, very politely and decently. If the customer clears his dues, there is no question of being rude. But if they stop taking calls or ignore requests, then we tell them a bit rudely," Irfan tells TNS. "Our representatives then start visiting their homes and workplaces. And here, we use harsher language, and degrade them publicly. Many respond to this public humiliation. Those who don't, we send them a legal notice through our lawyers. Many respond to this. Only when people do not respond to this, we outsource these loans to external agents," he adds. The matter is not so clean, however. There have been repeated reports of those who have suffered even when they have been paying their dues on time, or they have reached some other agreeable arrangement with the bank. This is because of mishandling of records or some other administrative loophole. Waqas, who bought a small, automatic car because he is handicapped had just three more instalments to make when his car was snatched at Kalima Chowk. "Three boys with guns roughed me up and left me stranded by the roadside. I just had three more instalments to make and had even requested for the delay. After they took my vehicle, I requested again. They asked me to submit the original papers, which I did. They took the papers and then I never heard from them again. They refuse to even talk to me now. All my instalments are wasted!" The recovery agents are private groups of individuals and they have a percentage in the recovered loan. In case of auto-recovery, the amount is fixed. According to Najam Zafar, owner of one of the recovery agencies, "Officially, the bank bears no responsibility for how we choose to recover outstanding dues. They provide us with a defaulters list and the outstanding amount against them. Our boys then visit the premises of the defaulter (workplace or home) and through whatever means -- abusive language, harassment of the family members, public humiliation, and in some instances, even man-handling -- bring them to negotiate with collection officers. For auto-recovery, we roam around the city with a list of defaulted vehicles and wherever we see the vehicle, we snatch it through force (often at gun-point)." The recovery agents say that they act as legal representatives of the bank and everyone, including the police, knows that they are working in this capacity. In case of automobiles recovery, they report to the police-station of the area within one hour that they have recovered the car from a certain location and have returned it to bank's premises. This way, they insulate themselves from an FIR or getting involved in a criminal case. "Besides, the police officials know who is in the right. And even if there is a complaint registered against us, we can go to court and prove ourselves," adds Zafar. The police are not entirely clear on the matter either. When asked whether criminal cases can be registered against these agencies, Hussain Habib, SP Security, Lahore, said, "It is a tricky question. We deal with this issue on a case-to-case basis. We only take note of those instances where there is excessive and unreasonable use of power. Generally speaking, we support these agencies because recovery is a legal process and they are assisting in recovery. But if they have created a lot of disturbance or used arms, we do register cases against them. However, there is no defined procedure for these agencies to function and that needs to be defined." The legal status of these recovery agencies remains ambiguous. Joseph Wilson, an expert commercial lawyer, says, "If people are not fulfilling their end of the contract, and using the property owned by the bank without paying for it, the bank has the right to use reasonable force to recover it. Those who suffer harassment have little or no case to make in the court of law, unless, of course, they file a criminal case against these agencies for robbery or harassment." But, recovery of rightfully owned property is not robbery, the bank officials say, and people do not register complaints against the agencies because they know they have defaulted. According to a news report, country's top banking lawyer, Saalim Salam Ansari, Advocate, has claimed the recovery agencies without any legal status under the prevailing banking recovery laws. Similarly, last month, the Banking Ombudsman in his report to the State Bank of Pakistan, has recommended new set of instructions to regulate these recovery agencies because of increasing number of complaints of abuse by small-borrowers. In his report, Ombudsman recounts cases "when innocent people have been accosted and maltreated and borrowers with up-to-date payment record have been needlessly harassed." Whatever is the case, the matter throws up two questions. One, the weakness of the law-enforcement agencies and the system of law, where the only recourse left to banks is to employ these private agencies who act like thugs. The other is the marked absence of procedures for the regulation of these agencies. They need to be tamed and a civility must not be compromised in their business. Rail ways to borrow Profile of a market in Lahore that has a unique way of selling myriad items on lease to Railway employees... Pakistan Railways is one of
the most conservative state corporations still using obsolete Not long ago, even the officers of the department were getting salaries in cash. On many an occasion, Railways officials have said that soon the organisation would reach the target of 100 per cent salary disbursement through banking channels but the realities on ground are otherwise. Many people believe it would take Railways years to meet the target. However, the presence of this system has been a blessing in disguise for the low-ranking staffers, though in a novel way. The example of those employed at the Locomotive Engine Shed, Railways situated near Garhi Shahu in Lahore is worth mentioning here. Most of these employees, whose number stands in thousands, are customers of dozens of shopkeepers who have set up their businesses on the road right opposite to the workshop. The shopkeepers offer myriad items ranging from an iron, bicycle or washing machine to a motorcycle on instalments to these Railways employees. As most of these prospective buyers are illiterate and unable to meet the requirements of banks or leasing companies, these shops are the only hope they have. Zahid Husain, a salesman at one of these outlets tells TNS, "We sell goods to these employees on installments without even taking any collateral, security or personal guarantee from them. Neither do we need any as our money is safe and no one can hold back the installment that is due." Explaining the system in place, he says that the shopkeepers have worked out an arrangement with the accounts clerks. These clerks allow shopkeepers' agents to stand right next to the recipients of the salary at the start of every month. The outstanding installment amount against each and every employee, if any, is settled there and then even before the recipient gets the feel of the cash in his hand, he says. If the salaries were transferred to bank accounts, this would not be possible. A Railways official in the accounts department tells TNS that even though this system of recovery had been in place for long, they are strongly discouraging it now. "Serious efforts are underway to end salary disbursement in cash since the salary amount to the tune of Rs 13 million was looted from accounts office last year by a head constable," he adds. -Shahzada
Irfan Ahmed
|
|
they fare in the new arrangement. Are they happy to have realised the dreams
they were made to dream by an aggressive advertising they could not have
missed, even if they chose to? Or do they feel stuck, in stress, or not quite
happy as they had imagined?
treasure chest, full of luxurious goodies for the taking. With the past
couple of years witnessing the so-called liberalisation of the country's
economy, a Pakistani middle and upper-middle class citizen has upped his and
her lifestyle. Thanks to the various tantalising, consumer financing deals
being 'consumed' like hot cakes, asset acquisition for the enhancement of
social status seems to have become more of a reality rather than a distant
dream.
agreements are conducted without an official regulatory process or
monitoring. This sector actually gained prominence after the arrival of the
Afghan refugees in mid-1980s. They started the business of selling material
goods on installments and, later, many of them entered into money-lending on
high interest rate business. Most of the small and even medium size
businessmen prefer to borrow money from these money lenders despite having
banks offering the same facility on relatively lower interest rates. This
discounts any legal formalities such as having a tax number, a guarantor,
property worth debt and other documentation.
card from the bank some two years ago. The transaction amount that the bank
is demanding was not spent by him but the person who had snatched it from
him, he says.
outstanding loans. According to reported cases, these methods include verbal
abuse, verbal harassment of family members especially females, forced entry
in the workplace and houses, and in the worst reported cases, kidnapping.
methods to run its day to day affairs. It is still paying salaries to its
low-ranking staffers in cash while other departments transfer them to their
staffers' bank accounts.