Pakistan Industrial and Traders Association Front (PIAF) has urged the State Bank of Pakistan (SBP) to bring down the mark up on auto financing at par with the recently announced policy rate of 8.5 percent. PIAF Chairman Malik Tahir Javed said on Monday that banks and financing institutions are charging high mark ups and making undue profit at the cost of the industry. The car financing in Pakistan has remained low over the last few years, despite cut of 300 basis points, he said.
Recent statistics show that the option of car financing was only availed by 20-25 percent of consumers purchasing auto vehicles in Pakistan. The period of 2004-2007 had witnessed car financing figures peaking at 70-75 percent of vehicle purchases in Pakistan.
Malik Tahir Javed said that during last few years, the banking sector of Pakistan adopted stringent measures to counter high default rates. For this purpose, the process of seeking car financing has become more cumbersome and expensive for the consumers. Despite reduction in the interest rate by the State Bank of Pakistan to boost consumer lending, banks maintained their cautious approach; as presently the car financing mark-up rates still amount to 14-18 percent.
Additionally, only a few banks offer car financing facilities to their consumers. The reduced competition also plays its part in keeping the sales volume low and mark-up costs high, he maintained. With a view to make available and affordable vehicles to the people, a special consumer finance/leasing schemes with single digit mark-ups should be reintroduced for locally made cars, tractors, and buses to promote the local auto industry, besides creating employment and generating investments in high cost components and assemblies," he said. The cost of vehicle financing automatically pays back with the allied economic benefit in shape of taxes, jobs and technology creation, he maintained.