Dawn Editorial 15th July 2023

Killer loan sharks

WITH many working- and middle-class families battling high inflation and/or unemployment, people are taking desperate measures. Amongst these are some opting to borrow money from digital loan apps, many of which seem to operate outside of any regulatory control and criminally exploit borrowers.

The recent tragic death of a man in Rawalpindi, who reportedly took his own life after being hounded by digital loan sharks, highlights the need for the state to rein in these exploitative operations, and for people to exercise caution before turning to too-good-to-be-true lenders, who promise ‘easy money’.

As reported, the victim had taken a Rs13,000 loan through a digital app to help pay the rent and his children’s school fees. The victim had been unemployed for several months.

However, due to extortionate interest rates, the dues rapidly increased, and after borrowing more money from another app, the victim’s liabilities had ballooned into tens of thousands of rupees. Threats and blackmail by the loan sharks ultimately led the desperate victim to take his own life.

The FIA has moved in and reportedly raided the offices of the loan sharks. However, more thorough steps are needed to put these exploitative enterprises — which prey on desperate people — out of business.

Last year, the SECP had said that digital lenders had been forbidden from taking coercive steps while making recoveries, while the Competition Commission of Pakistan had urged people to exercise caution before approaching online lenders.

Clearly, the regulatory framework has failed to monitor these dubious operators, as the death of the Rawalpindi man shows. App stores, SECP and FIA all have a role in ensuring that digital lenders are registered, comply with national laws, and display terms in clear language the common man can understand.

People also need to steer clear of questionable enterprises that offer instant cash, and should opt for established microfinance institutions, while the state should also support financing options that can help people tide over difficult times.

Published in Dawn, July 15th, 2023

SME growth hurdles

A NEW study by the Competition Commission of Pakistan has once again highlighted the “lack of access” to private sector credit as the key barrier to SME growth. The study — Enhancing Economic Efficiency of SMEs in Pakistan — notes that the SME sector receives a mere 6-7pc of private sector financing despite “policy measures” — introduced mainly by the State Bank — to raise their share to 17pc of the total private sector credit. This compares with a 25pc share of SME financing from private sector credit in Bangladesh and 18pc in India. It points out that 93pc of the SMEs surveyed had complained that it was “cumbersome” to avail credit facilities from banks and that 80pc of them had not utilised formal financing. The study recommends that the central bank should consider allocating to the financial institutions separate lending targets for small enterprise and medium enterprise, set sector-specific goals, provide separate financing facilities (for poor districts) and introduce standardised pricing of insurance and evaluation reports. It says that non-bank financial institutions can play an “important role” in providing credit to start-ups and SMEs.

Sadly, neither the diagnosis of the main factor stunting SME growth, nor the treatment suggested to facilitate their access to formal credit is new. Successive governments have repeatedly pledged to increase SME credit as well as create ease of doing business for them in the last three decades. The first ‘concerted effort’ to achieve this objective was made in the mid-1990s when the government created a dedicated organisation, Smeda, to design and implement policies for the development of small to medium businesses. Ever since its inception, Smeda has done many things except that. The major reason behind the slow development of SMEs is related to the country’s tax regime that treats large corporations and small businesses alike, and carries a regulatory burden that even big companies find hard to comply with. That is good enough reason for SMEs to stay undocumented even if it means no business expansion. On top of that, the State Bank’s prudential regulations and commercial banks’ aversion to risk is hampering the supply of formal credit to SMEs that normally don’t have collateral to pledge against loans. SMEs will remain underfunded, inefficient and small unless the government and industry regulators formulate a separate, progressive taxation regime and an uncomplicated regulatory structure to support their growth.

Published in Dawn, July 15th, 2023

An opportunity?

WITH several important questions still hanging over the upcoming election, the prime minister has an opportunity to do some lasting good.

On Thursday, Shehbaz Sharif reiterated his government’s intention to pack up and hand the reins over to a caretaker set-up upon the expiry of its term in August, yet offered little indication of when and how the handover process will begin.

With just four weeks remaining in the 15th National Assembly’s tenure, the legally required consultations that must take place between the prime minister and opposition leader in the National Assembly over candidates for the caretaker government have yet to begin.

The nation waits with bated breath to know who will be ruling while the political parties campaign, and for how long. The names of several controversial characters have been doing the rounds, and it is with quiet trepidation that many have been speculating the actual ‘mandate’ of the interim set-up that will be announced.

Given the absence of any real opposition in the National Assembly, the consultation process, at the moment, appears to be a mere formality. The opposition leader, a PTI turncoat keen on securing a ticket from another political party, is unlikely to have any strong or independent opinions on the matter.

In any case, the PML-N and PPP seem to have already discussed, if not decided, the nominees between themselves during a recent huddle in Dubai. Must it be so, though?

The appointment of any individual whose credentials are not beyond reproach would mark the first step towards a questionable election, the implications and consequences of which will be impossible for the next government to escape.

On the other hand, this could also be an opportunity for Mr Sharif to salvage his rather troubled first stint as the country’s chief executive.

The outgoing prime minister has already redeemed himself somewhat by ensuring a degree of economic stability with the last-minute IMF deal. He can now end his first government on an even stronger note if he can bring back some political stability before wrapping up.

To this end, Mr Sharif must consider convening a multiparty conference to take a joint decision regarding the caretaker set-up. Doing so could be the coup de grâce to what has been a dark and regrettable chapter in the country’s political history.

Of course, he has no compulsion to do so: the PTI abdicated its right to have a say in the matter when its members resigned en masse from the National Assembly last year. But Mr Sharif has a legacy to consider.

He leads one of Pakistan’s largest political parties and should not call curtains on his government looking like a villain. The upcoming elections should promise a fresh start, not the rerun of an already failed experiment.

Published in Dawn, July 15th, 2023

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