Bucking the trend of declining household debt

Marksman | Published: October 02, 2018 21:16:34 | Updated: October 02, 2018 21:25:23

Well, ordinarily, personal or family indebtedness is considered a liability but it has an important economic function in a broader perspective.

The famous Shakespearean words -"Neither a lender nor a borrower be"- were worldly-wise counsel to keep inter-personal relationship above trouble by individuals neither giving nor taking loans. But the gem of a quote, howsoever timelessly relevant it might have been for a pair of individuals, is unworkable in applied economics. For, lending and borrowing are parts of a functioning, more to the point, a developing economy.

The country's household debt as percentage of gross domestic product (GDP) has shrunk over the years from its peak in 2005, reported The Financial Express on Sunday.

Household debt meaning contracting loans for purchase of residential property, car or other life-style assets had been 5.1 per cent of the GDP in 2005. From 3.5 per cent in 2015 this dipped to 3.3 per cent in 2018, the lowest in 14 years.

The data prepared by Washington-based Institute of International Finance (IIF), the global association of the financial industry with about 450 members from 70 countries, helped portray a comparative household indebtedness picture among some important countries. The trend is upward in India; though Pakistan is going down but not as badly as Bangladesh. Indonesia, one of the fastest growing economies of Asia, has a markedly higher household debt figure. The irony here is that while Bangladesh economy is expanding too which should have induced growth in family debts but it is showing a downtrend.

On the one hand, the falling debt trend 'signifies that people's involvement with the financial sector is declining. But, on the other, we have an International Monetary Fund (IMF) study underlining that people's access to financial products increased 'significantly in Bangladesh in five years to 2017 indicating the country's march towards financial inclusion.' The Financial Access Survey (FAS) released last Friday by the IMF showed increases in terms of the number of branches of commercial banks, deposit accounts with commercial banks, mobile money agent outlets and automated teller machines with the last-named two quadrupling and doubling per 100,000 adults respectively.

As if to synchronise with family debt downslide, 'loan accounts with commercial banks per 1000 adults dropped three percentage points to 90.23 during the five-year period.'

The FAS, launched in 2009, is said to be 'a unique supply-side dataset that enables policymakers to measure and monitor financial inclusion and benchmark progress against peers.'

What is then Washington-based IIF's survey of household indebtedness trends supposed to do? Clearly it provokes thoughts about the disconnect between an expanding economy and the shrinkage in household debt as percentage of GDP.

What is of guiding significance, though, is the emphasis on the causative factors: Burdened with non-performing loans, the banks are less focused on the household debt affair.

Mortagage is under-developed or virtually non-existent so that an important device is unavailable as a window of home-related financing.

Household loans mostly depend on immovable property as collateral, a constraining factor in extending loans, which is why World Bank Dhaka Office's lead economist Dr. Zahid Hussain recommends a switch-over to moveable property as security to diversify the 'age-old collateral system.


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