Consumer Finance in Pakistan: Consumers Could Face Mounting Debt Pressures in 2023.

Byline: DR. SHAHID A. ZIA

The Pakistan Government and International Monetary Fund could not reach a deal and a visiting IMF delegation departed Islamabad after 10 days of talks. Pakistan is in dire need of funds as we battle an injuring economic crisis, and a bailout from the IMF alone is unlikely to put the economy back on track.

Even though the economy is in a deep recession, inflation is extremely high, the highest since 1973. It could average 36% in the first half of 2023 due to higher energy and food prices and the weaker Rupee.

The consumer price index rose 27.5% year-on-year in January, its highest in nearly half a century.

Low income households could remain under extreme pressure as a result of high inflation on account of being disproportionately exposed to non-discretionary items. What our economy really needs is a continuous and strong economic management. We have an inevitably tough journey ahead, with fiscal and monetary severity to continue well into 2024.

The Basics, The Pros and Cons

The economy of Pakistan is classified as a low-income developing economy. It Is under severe stress with low foreign reserves, a depreciating currency, and high inflation is based on consumption, hence consumer finance is high in demand.

Consumer credit arose in order to cover the satisfaction of a consumption need of people who do not have the financial capacity to cover their cost in cash. This form of access to consumption is a loan granted to purchase a good or service for personal use in certain terms.

The function of consumer financing is to allow consumers to defer payment of purchases and pay with interest at a predetermined and sometimes variable interest rate. Many consumers use it to purchase durable consumer goods and services at higher prices, such as TVs, Air Conditioners, Cooking Ranges, Refrigerators, Personal Computers, Apparel, Furniture, Cars, Motorcycles, Home, Travel, among others.

As it is used to consume material goods, it is a loan in which the debtor receives a sum of money in his hands that he promises to repay to the institution or financial company that granted it, in an agreed term and with certain interest (which depend on the interest rate of the financing).

Generally, the payments are monthly and are paid in 24, 36, 48, 60, 72 or more months; according to the plan, the payment capacity, the amount and the institution.

It can be requested in a very easy way, in fact, the user can obtain it without having a credit...