Thursday, August 17, 2017

Hire purchase deals on consumer goods falter

Hire purchase agreements that allow consumers to buy goods – even property – with bank financing might have made a return for the first time since the 2003 banking crisis but are not flourishing yet, bankers said last week.

They say the three-way agreements that link banks, sellers and buyers have not yet gained the public’s trust.

Spokespersons for several banks said consumers have not forgotten the problems that dogged the hire purchase agreement system before its axing by the Central Bank of Myanmar in 2003.

Then, hire purchases were limited to electronic goods and a combination of faked receipts and lax scrutiny by the banks left those institutions hefty debts.

Co-operative Bank (CB) managing director U Phey Myint said his bank has so-far only offered hire purchases to company employees but is negotiating to expand those services to customers outside the bank.

“If someone wants to buy a mobile phone by hire purchase, he or she needs a regular income and a letter of recommendation from their guarantor,” he said.

The buyer must also place K10,000 in an account with the bank, pay a downpayment of at least 30 percent of the item’s cost and arrange for a guarantor to deposit the remaining 70pc with the bank. On top of that are annual interest fees of 10pc and a service charge of 1pc.

He added that he was not in favour of such restrictions, which were put in place by the Central Bank.

Kanbawza Bank senior general manager U Chit Myat Noe Thu said the hire purchase system was useful for middle-income earners, banks and the companies that are able to sell more goods.

However, Ko Sithu, the manager of Mr Phone mobile and accessories said middle-class buyers resented the paperwork needed to access the agreements. He added that his company is negotiating with banks to ease the restrictions and had recently stopped offering hire purchases to customers.

“Nobody wants to go through the hassle of putting the paperwork together for something small but we don’t have any choice in this – we must check all the documents carefully in every case,” he said.

Ko Sithu said hire purchases for cars or apartments made more sense.

He added that hire purchases agreements were a “culture shock” to consumers, although they are widely offered in other nations, adding that the banks needed to do more to educate the public about them.

A 28-year-old woman who works for a media company said she knew little about hire purchases.

“I heard that hire purchases were available for K500,000 mobile telephones but I couldn’t decide whether I should buy it through that system. Also, I was worried because I’d heard that the price will fall to K300,000 in February,” she said.

She added that she distrusted some of the companies that were offering hire purchases, believing that they were just trying to offload old products quickly.

“Hire purchase agreements must have some form of insurance because they are based on the trust of the people involved,” said U Htun Min, the manager of Crown Electronic Company on Theinbyu Road.

He said he preferred hire purchases to instalment payment plans because it involved the banks, which kept the sales receipts and reduced the likelihood of disputes between the buyer and seller.