Economy, Business And Markets

Credit Card Scheme Draws Fire

Credit Card Scheme Draws FireCredit Card Scheme Draws Fire

A prominent economist has warned against rent-seeking that the recent credit card scheme may lead to, website reported.

Mousa Ghaninejad believes that the government’s new credit card scheme for stimulating consumer spending, namely boosting sales of home appliances made by domestic manufacturers “opens a new path for rent-seekers who have almost always outsmarted policymakers in seizing such opportunities.”

He criticized the involvement of the Ministry of Industries, Mines and Trade in the implementation of the scheme and said “Credit cards are popular in the world but it is the commercial banks that offer them not ministries.”

The involvement of the ministry, Ghaninezhad argued, is an indication that rates are cheaper, giving rise to rent-seeking activities.

He recommended the government to assign the implementation of the scheme to commercial banks where the financial position of applicants could be verified and interest rates adjusted accordingly.

He regretted that the benefits of similar schemes to support the low-income strata in the past ended up in the pockets of influence-peddlers. “Full public satisfaction for such plans has never been secured because there always are some deserving groups left out of the incentive program.”

Ghaninezhad also warned that the plans similar to credit card and the recent car loans may undermine the government’s achievements in taming inflation because  “they eventually increase the money base.”

The credit card scheme is a part of the Rouhani administration’s incentive package, unveiled in October, to help domestic manufactures unload their bulging inventories, promote consumer spending and stimulate growth.

According to the CBI website, the new credit cards will initially planned to be valid only for purchasing home appliances made by domestic companies but later foreign products were added to the scheme at a higher interest rate.  

Credit card debts are to be cleared within 12 months at 12% and in case cardholders fail to pay their bills within six months, banks are allowed to withdraw the amount from their bank accounts. The central bank would finance the scheme up to 42 `trillion rials ($1.38 billion) through the interbank market and the authorized companies -- enlisted by the Ministry of Industries, Mines and Trade -- will be granted 5% discount.