Review of car financing in Pakistan.

Byline: S. Kamal Hayder Kazmi

Studies identified that the significance of the financial system rises with the passage of time as states are moving towards economic development. As the economy becomes wealthier, the financial sector becomes larger. People need to borrow funds from the financial institutions to buy those assets which they want.

It is said that car financing is one the facility of both system; Islamic banks utilized the word Ijara for this. It is necessary for both systems to know the factors that influence their demand and purchasing behavior of the customers/clients. In this fast world the managing of personal and professional life is very tough and if people do not have their personal transportation life can become more hectic. To make their life easier people always try to find a reliable mode of transportation in any state.

Car is considered more significant because it is a secure mode of transportation, but everyone has not financially stable and capable of buying their car. To complete their requirements of a car they go towards the banks and obtain a car loan for the long as well as short term payment. Furthermore in Pakistan, dual banking systems are working which means one product is offered through two dissimilar financial institutions with dissimilar strategies.

Conventional banks and also Islamic banks in Pakistan offered car loan facility to people with some agreement. It is also said that the chief difference between conventional and Islamic banks is interest (Riba). No doubt, Pakistan is an Islamic country and in Islam Interest is not permitted, but both Islamic and conventional banks have their clients/followers. Present statistics show that car financing through banks in the country soared to an all-time high of Rs 326 billion in August 2021, as the financing became reasonable for more people in the wake of low interest rates amid the Covid-19 pandemic.

The August-2021 statistics for car loans depicted a 46.8 percent year-on-year (YoY) jump, mostly owing to low interest rates. It is also analyzed that Car loans rose 3.8 percent month-on-month (MoM) in August, while they reached at Rs 314 billion in July.

The growth in auto financing during Q3 FY2021 is chiefly attributed to low interest rate environment, growing prices of passenger cars, which affected the consumers' capacity to buy on cash, and new entrants in the automobile market that provided wider options to the consumers. This...