Writing off the man in the street

There has been wide coverage in the media lately, of the several 'written-off loans' over the past many years. Now that one looks over one’s shoulder, this issue has been cropping up on and off, but no serious notice appears to have been taken of it so far by the powers that be.

Some years ago, one had come across a somewhat intriguing item in the business news section of the media. It related to a ‘directive’ by the State Bank of Pakistan (SPB) to certain banks to “write-off outstanding loans of rice millers and traders of Sindh and Balochistan”. Not being an economist or a banker, one is not qualified to go into the merits or demerits of this particular directive. But reason demands that the impact of this and similar momentous decisions — not uncommon in this blessed land — be seen from the point of view of the ‘man in the street’, who may be an account-holder in one of the banks in question.

From the logical point of view, the pertinent facts of the case can be summarised as: 1) the client entrusts the bank with his savings on the understanding that the latter would invest the same and in due course share the profit with him or her; 2) the bank accepts the amount from the account-holder on a more or less similar understanding; and 3) the bank lends the money to certain entities in an endeavour to earn profit for the joint benefit of the bank and the account-holder. So far so good!

Having said this, for the record, one can hardly help but notice that a new variable has apparently entered the equation. The SBP has used its privileged position to issue a directive to banks that certain loans are to be 'written off'. The result would be that the bank in question would lose a considerable amount of money — money that it did not own in the first place but was merely holding in trust in the accounts of its clients. The question that presents itself is: how is the bank expected to make up the shortfall as a consequence of this write-off? Surely, the bank will not dig into its own coffers to offset this loss. It would be logical to assume, therefore, that the ultimate losers would be the account-holders in question.

The case cited earlier is merely an instance, with a view to looking into a question that is of much wider dimension and import. Over the past years and decades, the man in the street has witnessed a myriad of cases of write-offs of the loans of entities of all ilk and shades at the behest of successive governments. Several fortunes have been made out of money borrowed from banks and never repaid, thanks to the generous write-offs. And inevitably, it has always been the small account-holder who is short-changed in the process. Has anyone in the corridors of power or out of it ever questioned the propriety of such precipitate acts? It would appear not!

This gives rise to a fundamental question that needs to be answered in this context. The money in a bank represents the sum total of the savings of several thousand small account-holders. This money should be seen in the nature of an amanat deposited with the bank (the latter being regarded as the ameen). The banking transaction is between the aforesaid two parties. The question that presents itself begging for an answer is: what gives a third party the right to tinker with the amanat to the benefit of a fourth party?

The aforecited argument may be full of holes in the eyes of the whiz kids of banking and accountancy, but still deserves a cogent answer to the satisfaction of the said man in the street, since it is he who is ever on the receiving end. It may well be argued that the possibility of ‘bad loan’ in the banking lexicon should not be discounted. Granted; but at the same time it would not be proper to confuse ‘bad loans’ with those written off at the behest of an ‘outside’ authority. It must be added that the ‘beneficiaries’ of such favours are invariably the big fry and never small borrowers!

The question to be answered is: who will safeguard the interests of the small account-holder against such outrageous acts? Or are his or her fundamental rights to be allowed to go by default? 

Published in The Express Tribune, August 8^th, 2016.

Like Opinion & Editorial on Facebook, follow @ETOpEd on Twitter to receive all updates on all our daily pieces.