EQUITABLE CONSUMER PROTECTION IN CONSUMER FINANCING AN EMERGING ISSUE IN DEVELOPING COUNTRIES Ishrat Hussain Banking Policy Department State Bank of Pakistan Karachi - PowerPoint PPT Presentation

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EQUITABLE CONSUMER PROTECTION IN CONSUMER FINANCING AN EMERGING ISSUE IN DEVELOPING COUNTRIES Ishrat Hussain Banking Policy Department State Bank of Pakistan Karachi

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Consumer credit bureau OR if they have one, it is negative ... POSITIVE CONSUMER CREDIT BUREAU. UNIFORM CONSUMER CREDIT SCORING LIKE FICO SCORING ... – PowerPoint PPT presentation

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Title: EQUITABLE CONSUMER PROTECTION IN CONSUMER FINANCING AN EMERGING ISSUE IN DEVELOPING COUNTRIES Ishrat Hussain Banking Policy Department State Bank of Pakistan Karachi


1
EQUITABLE CONSUMER PROTECTION IN CONSUMER
FINANCING AN EMERGING ISSUE IN DEVELOPING
COUNTRIES Ishrat HussainBanking Policy
DepartmentState Bank of PakistanKarachi
2
SOME BACKGROUND
  • Consumer credit portfolio is recording growth
    both absolutely relatively in developing
    countries
  • But such countries are lacking
  • Consumer credit bureau OR if they have one, it is
    negative
  • Positive consumer credit bureau OR if they have
    one, there is no uniform consumer credit scoring
    mechanism

3
CONSUMER CREDIT PORTFOLIO
  • INDIA Total retail portfolio increased from
    189.04 bn to 266.99 bn in one year,
  • Share in total LA of banks from 21.9 to 24.1
  • Pakistan 103.2 bn to 206.1 bn in one year in
    Jun-05
  • Its share in total loans/advances from 7.6 to
    11.4

4
What happens, if no uniform consumer credit
scoring
  • Banks indulgence on charging borrowers at an
    assumed level of default risk,
  • As a result, high creditworthy borrowers are
    being charged at interest rate of low
    creditworthy borrowers. Injustice is being done
    to high creditworthy borrowers, and banks make
    undue profit.

5
Take example of Credit Card
  • APRs in
  • USA 6.25 23.9
  • UK 9.10 29.9
  • India 34.7 41.7
  • Pakistan 30.0 40.0
  • lower upper limits are not only at a higher
    side but the margin is also very low.

6
?WHAT IS EQUITABLE CONSUMER PROTECTIONIN
CONSUMER FINANCING
7
IS NOT LIKE THIS
8
BUT LIKE THIS
9
NOT EQUITABLE?
INTEREST RATE
r
0 x x
CREDIT SCORE
10
REALLY EQUITABLE?
INTEREST RATE
r r
0 x CREDIT SCORE x
11
LETS EVALUATE?
INTEREST RATE
Assumed level default risk
r r r
Undue bank profit Policy area for consumer
protection
Risk Premium
Interest rate/Credit score relationship
Prime Rate
0 CREDIT SCORE
12
AGENDA
  • Through this forum, we should encourage
    banks/central banks to work for
  • INTRODUCING
  • POSITIVE CONSUMER CREDIT BUREAU
  • UNIFORM CONSUMER CREDIT SCORING LIKE FICO SCORING
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