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

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 L&A 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 PROTECTION IN CONSUMER FINANCING

7. IS NOT LIKE THIS

8. BUT LIKE THIS

9. NOT EQUITABLE? 0 x x’ CREDIT SCORE INTEREST RATE r

10. REALLY EQUITABLE? 0 x CREDIT SCORE x’ INTEREST RATE r r’

11. LET’S EVALUATE? 0 CREDIT SCORE INTEREST RATE Prime Rate Risk Premium Undue bank profit Policy area for consumer protection Interest rate/Credit score relationship Assumed level default risk r’’’ r’’ r’

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