Consumer credit driving consumer expenditure

Consumer credit driving consumer expenditure
Published: 19 September 2013
Introduction of the multi-currency regime evidently brought stability in the country and also boosted consumer confidence.

In as much as multi-currencies regime are a significant contributor to the drive of consumer expenditure, consumer credit has been igniting the upward trend in consumer spending.

Consumer credits/loans in Zimbabwe are offered on both informal and formal platforms, there has been misconduct in the credit facilities offered informally and the Government to mitigate this misconduct introduced the Microfinance Act which was published in August. However there are other informal credit initiatives that have been established long back but are becoming more common than before these include the curb market or "chimbadzo" as it is called in Zimbabwe.

Under the formal sector we see that the level at which different retailers and service providers are promoting hire purchase sales is increasing and these initiatives have had a significant drive in the levels of household expenditures.

Individuals constitute the highest proportion of loans and advances distributed by merchant banks What then should be taken note of is that, there are both benefits and costs of driving consumer spending through consumer credit.

The first cost to be aware of is that high levels of consumption may reduce bank saving deposits which may translate to the reduction of funds available for lending the deposits are reduced through stop order arrangements made to clear debts.

For example a household with a credit clothing account, a furniture credit account, a food outlet credit account, and other credit accounts that have stop orders when his/her salary or income enters the bank account this would immediately reduce the balance in the account.

On the other hand the process may benefit banks in that the demand for liquidity would decline retaining as much liquidity as possible within the banking system to create money.

Consumer credit may drive aggregate demand which should promote productivity within our economy but because the local industries are failing to meet the local demand the increased demand may translate to increased levels of imports and widen the current account deficit.

Therefore there is a need to seriously balance the costs of consumer credit allocations and the benefits so as to come up with a feasible strategy to promote economic growth.
- herald
Tags: Consumer,


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