DOHA: Qatar Central Bank's restrictions on consumer lending have dealt a major blow to the small but thriving financial services sector in the country as companies will be forced to limit their financing which would likely affect their profitability.
The financial services companies--though quite a few in number and Shariah-compliant--have been charging relatively higher margins on their financing and providing millions of riyals of consumer financing mainly to Qatari families.
They provide financing for cars, household items, home décor, jewellery and even overseas travel, among other things. Defaults have also been lately on the rise as a result of their liberal financing as families have not been able to repay.
"Almost every day we are forwarding default cases to the court," a source told The Peninsula.
According to sources, the QCB directives issued on April 10 asking banks and financial institutions (which include Islamic financing entities as well) to reduce interest rates on consumer lending to 6.5 percent, have literally come as a shock for the financial service providers.
The profits of these companies mainly come from consumer lending and with no other income sources like returns on investment (as is the case with the banks), these companies fear their profitability would be considerably affected due to reduced margins.
A source from one of the companies said that since the QCB issued the circular, senior officials of the firm have been holding meetings almost every day to discuss ways to cope with the 'new reality'.
"Of course, their profitability is going to be severely hit as these companies have literally been exploiting consumers charging exorbitant margins," said a source.
"Also, these companies cannot now provide loans to a family liberally as the QCB has specified upper limits," said the source. Earlier, they provided millions of riyals in consumer lending to a single family.
The companies face a huge dilemma and the way they did business would change due to the QCB restrictions which aim at combating the rising indebtedness in the community, the source added.
These companies, being Islamic financial service providers, were very happy that the QCB had ordered the conventional banks to close their Islamic branches by the year-end, and hoped that much of their (the closed units) business would come to them.
But suddenly their happiness has evaporated with the latest QCB diktat coming into force from April 10, sources said.
Major players in the financial services sector are First Finance and Aljazeera Finance.
When contacted by The Peninsula, an official at First Finance said that the company has not received any circular from the QCB and declined to elaborate.
© The Peninsula 2011
