JEDDAH, 7 April 2007 — Low-income people in the Kingdom expressed concern at the high profit margin of financing plans offered by the banks and the installment companies. They say the high rates have made it difficult for them to buy cars, household appliances and wedding accessories and apartments in Jeddah where rent prices are perceived to be skyrocketing.
Many people, including those that find it difficult to pay their installment dues and those who want to take out loans but are afraid of being left unable to meet payments, are requesting the authorities to put guidelines in place and control the rates, which are the main reason for many people in the Kingdom falling into debt traps.
Banks in Islamic countries often go around religious prohibitions on usury by calling these charges “fees” or “commissions” rather than “interest”, even for consumer credit cards with annual percentage rates based on the amount of debt.
Osama Al-Filali, a lecturer at King Abdulaziz University in Jeddah, said the rates added by banks on both Islamic and conventional loans are very high. “These companies seem to be seeking extremely high profit at the cost of people in dire need. They take advantage of the unavailability of specialized institutions that are funded by Zakah and government aid money to grant long-term real estate loans,” he said.
Al-Filali recommends that the government establish a lending system to cover the needs of a growing Saudi population instead of allowing installment companies and banks to exploit the public.
“In the least, the government can force the companies and banks to provide loans at reasonable rates and for longer periods,” he added.
Members of the public shared Al-Filali’s views. Essa Al-Sheikh expressed his resentment at the high margins kept by companies that take advantage of people’s needs in the absence of any proper monitoring agencies. “The government should intervene to limit the impact of this phenomenon,” he said.
Ali Awad Al-Harbi echoed his views. “We are fed up with the high ‘interest’ on loans that range from 6 to 12 percent. If you include the high rates on credit cards, which are sold by manipulative bank representatives, then the debts just keep on adding until they take control of our salaries,” he said.
Khaled Younis, a sales manager at an installment company in Jeddah, said the extra charges are in place to meet the cost of hiring loan collectors, late payments and defaulters.
“The profit margin for companies range from 8 to 12 percent. Banks charge 5 to 6 percent. Allowing more companies to establish themselves in the market will bring down the rates and result in better service for customers,” he said.
