Consumer Credit Crunch in Pakistan

If you are in a habit of going through classified pages of daily newspaper you notices invitation of bids of used cars, durable consumer goods by banks and dealers. This is a part from other reasons mainly recovered items from non performing consumer loans.
 
The credit crunch in Pakistan in consumer loans is contributable to following reasons:
 

·         The consumer loans are not covered by collateral as in business loan. The dependency of recover ability lies in future inflows / disposable income of consumer. Therefore uncertainty of future in flows of cash leads to wrong decisions by credit manages resulting in losses.

·         The fluctuation of cash flows of consumer is volatile in Pakistan to lacle of risk coverage of health and property which causes huge drunk of money to cover mishaps causing consumer unable to pay back the rentals.

·         The other reasons in communication gap and lack of information available to credit and lack of information available to credit manager. The people of Pakistan are not accustomed of declaring their fair income and wealth. Therefore risk management is not effectively done by loan provider. The communication gap causes hesitation by consumer in informing credit manager about financial difficulties he is facing until its too late to be reversible.

·         The other reasons of more chances of looses in consumer loans versus business loans is consumer are not expert in managing finance than business people do therefore they are less acquainted to knowledge and skills required to come out of crises.

The remedy to problems in consumer loans lies in credit manager to become finance manager of client. Thus changing one initial reviews procedure to continues monitoring of financial position because it is continuously changing and the factors assumption at tenure of sanctioning  loan may become irrelevant and it proceeds This will also compensate for lacle of consumer expertise in finance and save him from taking wrong decisions in the case the IMF exange may be cited or it not only provide loans to government but also it become there finance manager helping in budgets, policy making, thus saves the government from spending loan in unproductive way.
 
Other remedy is to make agreement of loan flexible to change as per requirement or condition of client in the term of loan to fit the situation effectively Thus minimizing the chances of getting into irreversible condition.