Credit....

Late last year the Ministry of Finance introduced regulations on credit card. In short, (quoting a notice from a bank), “to qualify for a credit card, you will have to be at least 21 years old, have a minimum gross salary of B$500 per month with your salary credited into your account with the bank issuing the credit card or maintaining a deposit amount equivalent to your card limit.”

How about the credit limit? Below B$1000 will only get one month gross salary. Two months for gross salary between $1000 and $9,999. Anybody with gross salary above $10,000 can get anything the bank wish to give. Lucky them. Or shall we say unlucky them?

How about the minimum payment? This will interest a lot of people. Currently some banks charge as low as 2.5% of outstanding balance. But from January to March, it will be 5%. After that, it will be 8%. For a lot of people this means the minimum payments they have to make to the bank will be at least three times what they are paying before. More money to service their debt, less money for other things. There goes the luxuries.

What will happen to cardholders who do not qualify with the new criteria? By June 2010, they will have their cards withdrawn or invalidated. The outstanding balance will have to be settled over a period up to 36 months. What will be the interest rate charge? If based on existing credit card rate, people will end up paying a whopping 24% interest annually. Makan darah some people will shout. Hopefully the interest rate will not be that exorbitant. Afterall, the cardholders are no longer getting the full services of a credit card. Just servicing what the owe the banks. Hopefully the banks will not take advantage of the people who will no longer be their loyal customers after three years.

As in many things, everything has its pros and cons. So do these new regulations. Some says in short term, at least for the next three years, some will suffer. But after 2013, people will have less debt. What is a short term suffering compare to long term prosperity? Some says there will be increase of people declaring themselves fakir and miskin which will allow them access to “al-gharimin credit”. Some even says this regulation is only favouring the rich, the well paid people. Giving them more opportunities to credit and access to the luxuries of life while the not so well off can only watch in the sideline, gigit jari. Some says this will make people treasure the luxuries and pleasures of life, not easy to get hence we will appreciate them more. Right now, swipe your card, you can get 42” plasma TV, the latest smartphones, self lighting always visible watches and many more. Worry about paying for them later. In the future, we will have to work hard for it. The argument goes on and on.

How about the economy? Will it be affected? Not knowing any data, and not bothering to look up, lets deduce what is the worth of the credit card industry here. Assuming population of Brunei is 400,000. With 50% above 21 years of age and average minimum income of B$1,000. Assuming everyone, which is not impossible, every single one, has one credit card each with B$1,000 limit. That will be B$200 million worth of credit monthly. B$2.4 billions worth of business annually. What is B$2.4 billions? That’s about half of the Government’s annual expenditure, more than double the total investment in Brunei in 2005. Can the economy cope with loss of B$2.4 billion worth of credit from the consumers?

P.S.

This whole thing reminded me of the curb on personal loans. Based on that experience, is anybody willing to bet against the bank industry coming up with ways around this or finding creative, alternative ways to give us, the consumers, credit? Debts will live on I suppose.....