SBP cuts interest rate by 100bps to 7%

[Mumm-Ra]

around 6 months ago I tried to get a loan for starting a business but the loan was very costly so i abandon the idea.
just a week ago i checked it again it was on 10%.i hope they will bring it on reasonable level so people can benefit it.
and this it will be real reduction not just on papers.

Which business are thinking of opening?

They're the modern version of brick kiln owners. They'll chain you and your future 5/6 generations in perpetual slavery.

That's a rather unfortunate view. Banks will facilitate you but you have to smart in utilizing the money. If I give a person a loan, I would also expect it to be repaid by him or in case of death, by his children. Though one of the reasons interest was forbade in Islam as interest payment keeps a high original principal in the initial years of the loan. But you can always go to Islamic banks and explore Shariah compliant loans.

 

[Enigma SIG]

That's a rather unfortunate view. Banks will facilitate you but you have to smart in utilizing the money. If I give a person a loan, I would also expect it to be repaid by him or in case of death, by his children. Though one of the reasons interest was forbade in Islam as interest payment keeps a high original principal in the initial years of the loan. But you can always go to Islamic banks and explore Shariah compliant loans.

Due diligence on part of the prospective debtor is obvious and the bank wouldn't approve a loan which they think that you could default on.

Islamic banking is sugar coated. They charge you interest as well.

 

[My-Analogous]

A very good news to the Economy and the country, should never had been to raised to 13.75%. A sigh of relieve to the business community indeed.

Indeed. But still to high, Govt should tell all investors that Rate will not exceed 5% and this will give them big boost

 

[Mumm-Ra]

Due diligence on part of the prospective debtor is obvious and the bank wouldn't approve a loan which they think that you could default on.

Islamic banking is sugar coated. They charge you interest as well.

The chief difference in Islamic banking is that all loans must be backed by assets. Hence, you would not find clean lending in the purest sense. The profit being charged is the cost of business and can either be fixed or floating. At present, most Pakistani Islamic banks follow Kibor rate but there are mechanisms being developed to ensure that Islamic Banks have separate benchmark rate.

Indeed. But still to high, Govt should tell all investors that Rate will not exceed 5% and this will give them big boost

Government won't commit to that as the only authority to reduce or raise policy rate is SBP. Since, the IMF demands that the central bank be made autonomous, any such instructions from the government will not sit well with IMF.

 

[Enigma SIG]

The chief difference in Islamic banking is that all loans must be backed by assets. Hence, you would not find clean lending in the purest sense. The profit being charged is the cost of business and can either be fixed or floating. At present, most Pakistani Islamic banks follow Kibor rate but there are mechanisms being developed to ensure that Islamic Banks have separate benchmark rate.

This is why I said sugar coated. It is all the same, unless they stop using western banking standards.

 

[Jungibaaz]

Thank you for writing this. Many people do not understand the relationship between inflation and lending rate.
One slight correction, the inflation target for SBP is between 4%-6%.

Almost all developed countries have interest rates in 0-0.25 range and record stimulus meaning central banks are buying govt./ Corporate bonds. Though, I doubt what will be the effect of any stimulus in Pakistan as such

Thanks for your input, wasn’t aware that our target inflation rate was 4-6%, but of course it makes sense!

 

[Mumm-Ra]

This is why I said sugar coated. It is all the same, unless they stop using western banking standards.

Slow and steady. Rome wasn't built in a day and we truly started in the 2000s.

 

[Morpheus]

We should think about why the poor don't get loans. Why are there barriers to finance for small and medium sized industries in our country? Maybe it's the culture of the banks, maybe it's the undocumented nature of the economy, maybe it's a lack of education of what is available in the part of the businessman.

There exist such programs for the poor. Interest free loan for poor. The money is given in hopes of pulling those poor families out of poverty. The repayment has much easier rules, so not a lot of pressure is on the person. I know one institution that has 20 million rupee in loans that they have lent out over 15 years. They were returned 98% of all loan amounts. The Gov has such programs.

https://akhuwat.org.pk/homepage/

http://www.ppaf.org.pk/

https://www.thenews.com.pk/print/591064-islamabad-disburses-rs500mln-interest-free-loans-in-sindh

 

[313ghazi]

There exist such programs for the poor. Interest free loan for poor. The money is given in hopes of pulling those poor families out of poverty. The repayment has much easier rules, so not a lot of pressure is on the person. I know one institution that has 20 million rupee in loans that they have lent out over 15 years. They were returned 98% of all loan amounts. The Gov has such programs.

https://akhuwat.org.pk/homepage/

http://www.ppaf.org.pk/

https://www.thenews.com.pk/print/591064-islamabad-disburses-rs500mln-interest-free-loans-in-sindh

Thanks that's useful to know. I wonder if they lend to middle class too?

 

[Morpheus]

Thanks that's useful to know. I wonder if they lend to middle class too?

Average amount of these loan is 50k rupee. Normal its for like fixing a tractor, truck, buying a sewing machine, buying a cart, loan to cover unexpected emergency, etc.

For middle class, they can try banks that are giving loan under different schemes. They allow a much higher amount of loan to be taken compared to those (up to 2million rupee).

https://kamyabjawan.gov.pk/home/yesprogram

https://www.hbl.com/primeministeryouthbusinessloan