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 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.
