Consumer credit favours economy.

Byline: UROOJ AIJAZ

Over the past ten years, credit has expanded at a high pace in emerging economies. The recent significant rise of credit in emerging markets (EMs) are the outcome of a number of factors, such as macroeconomic stability, financial deepening, the availability of new lending instruments, as well as economic growth. Over the past ten years, average credit growth has exceeded 10% in some nations, including Brazil, Indonesia, Russia, and Turkey. Other nations display slower rates of credit expansion where, the composition of the credit portfolio and in particular the contribution of each type of loan that is, corporate, consumer and housing to the expansion of the stock of credit has been different across EMs.

But the thing which really matters EMs is that, either consumer finance had any positive impact on GDP growth or not. Or has the mix of credit in the forms of lending for homes, for consumers, and for businesses had an impact on GDP growth? Because EMs are exploring financial development and the composition of credit expansion which may have a variety of possible effects on economic growth.

Some financial experts believe in the fact that, greater economic growth promotes credit growth because it increases collateral values and creditworthiness, by the decline in unemployment, through higher investment and consumption so, consumer financial services including consumer finance has visible impacts in the domains of:

Economic Modernization and the Emergence of international retail chains: A new environment for consumption characterized by economies of scale brought about by the emergence of international retail chains, the concentration of shops in shopping centers, and the expansion of consumer credit availability may logically call for the formalization of business dealings and hiring practices. Rapid urbanization, economic modernity, and the automation of value chains favor larger businesses with comparative advantages in a disproportionately greater way, changing consumer behavior to the detriment of smaller businesses. Financial liberalization and the banking sector's quick expansion, which make it easier for people from all income levels not just the wealthy to obtain credit cards and consumer loans, further amplify this effect. As a result, in many fast-growing economies, not only is the form of consumption spending changing but so is the mechanism of consumption finance.

Demand for formal contracts: Given the need...