No doubt, SBP has been playing a very important role for the disbursement and effective utilisation of financial resouces. The creation of a conducive environment to establish new banks for the last 10 years is proof of this. Today, borrowers have several options to get loans from financial institutions.
SBP has set mandatory targets every year for the provision of credit to important areas including agriculture keeping in view the economic requirements. Billions of Rupees has been disbursed by Financial Institutions every year in order to boost and uplift economic activities.
Point of concern is that in spite of disbursement in billions, the pace of growth of business and agricultural productivity is negligible. The amount of Non Performing Loans (NPLs) is rising every year. There are a number of reasons behind all this but one major factor is the utilisation of borrowed money. The credit amount is beneficial only in Pakistan for big corporations and landlords because this giant group has enjoyed undue favours in the domain of acquiring loans at concessionary markup rates, credit guidelines, waivers and having their loans written off in case of default. This class is too influential in Pakistan, being facilitated from the initial documentation from local officers to repayment.
Due to lack of knowledge, non cooperative attitude by the Financial Institutions staff and intervention of middlemen between borrowers and the Financial Institutions it sows the seeds of default at the time of disbursement. In my assessment, the borrower has spent equivalent to one year markup at the time of initial disbursement in shape of documentation expenses, frequent visits and role of middleman.
Now, the next important phase is for utilisation of this credit amount for the borrower. Due to lack of financial awareness, importance of credit, proper guidelines for utilisation of credit, financial Institutions along with the borrower think of it as a soft grant.
Since the credit amount has been utilised in a manner that is unproductive for the borrower, the visit of recovery teams, dispatchment of legal notices and threats of legal action may further exacerbate the problems of the borrower.
Now, the role of middleman again starts. The middleman assists him to delay one installment but advises him to dispose off his personal belongings in the shape of jewellery, land, house etc. At the end, loan becomes a dangerous and double edged sword which does not contribute towards improving his living standards but also deteriorates his life and social status.
Borrowing with the hope of happiness and prosperity leads to his ruin and puts the borrower in a vicious trap.
In conclusion, Financial Institutions should adopt prudent lending procedure laid down by SBP and monitor the disbursed loans during courtesy visits to make sure that loan is being used for the purpose for which loan it has been obtained.
The writer is branch manager, MCB
