PEW calls for improved collateral laws, proper implementation

Lahore: The Pakistan Economy Watch (PEW) on Sunday said lack of access to credit is on the key factor keeping Pakistan underdeveloped.

Like many other developing countries, private sector in Pakistan is facing problem of insufficient collateral which has restricted its access to loans, it said.

Some banks in country would prefer to lend against real estate discounting other assets like machinery or inventory which sometimes worth more than land, said Dr. Murtaza Mughal, President PEW.

In a statement issued here today, he said that assets of a company other than land should not be considered as dead capital that can only be used for production.

Assets other than property like goods etc. have the debt capacity that must be utilised by lenders to give a boost to economy, he said.

Dr. Murtaza Mughal said that the situation calls for a shift in the existing pattern, improved collateral laws and its proper implementation.

Movable assets should be also be regarded as important so that the same could be easily pledged against collateral improving access to credit.

The tendency of some bankers forces firms to acquire extra land wasting money while under investing in up gradation compromising competitiveness while a change would help firms that make extended use of machinery and equipment, he noted.

The involvement of courts and decades of litigation in case of a default makes it difficult for the lenders to secure assets of the borrower which should be streamlined following the practices applied in developing countries.

Reforms and reducing legal constraints to credit expansion will have a positive impact on access to credit which will make them more productive, improve investment and employment and trigger overall economic activity.