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It is a finance to consumer for the purchase of semi durables and durables by paying a part of the total Price Reavis Cox, an authority on economics of consumer finance defines consumer finance as Business procedure through which the consumers purchase semidurables and durables other than real estate, in order to obtain from them a series of payments extending over a period of three months to five years, and obtain possession of them when only a fraction of the total price has been paid.
According to E.R.A. Seligman, an authority on consumer finance, the term consumer finance refers to a transfer of wealth, the payment of which is deferred in whole or in part, to future, and is liquidated piecemeal or in successive fractions under a plan agreed upon at the time of the transfer.
A bipartite transaction involves two parties i.e. 1. dealer-cum-financer and 2. Borrower or customer. A tripartite transaction involves three parties 1. The dealer 2. The financier 3. Borrower or customer
Transactions can either be structured in the form of hire purchase, conditional sale or credit sale, but a majority of the tripartite consumer finance transactions are of the hire purchase type.
The down payment varies from initial payments ranging from 20%-25% of the value of goods and financing is available for 75%80% or as the case may be. In a deposit-linked scheme, the down payment in the form initial deposit varying from 15% and 25% of the total value of the asset. The financier pays the full amount to the seller. Deposits carry a prescribed interest rate. Zero Deposit schemes are also available, under which the Equated Monthly Installment (EMI) is higher than the EMI under normal deposit schemes.
(d) Security
The asset is secured through first charge on it for the credit provided. The borrower is prohibited from disposing, pledging or hypothecating the asset during above said credit period.
India has registered a very impressive growth of its middle class a class which was virtually nonexistent in 1947 when India became a politically sovereign nation. the start of 1999, the size of the middle class was At unofficially estimated at 300 million people. middle class comprises of three sub-classes: the The upper-middle, middle-middle and lower-middle classes. upper-middle class has an estimated 40 million The people. middle-middle class has an estimated 150 million The people, lower middle class comprises an estimated 110 The million people.
a. Consumer finance today helps everyone to upgrade his standard of living right now instead of waiting for years for his savings to accumulate. For manufacturers, it stimulates demand and lowers inventory For middlemen, its a sales boosting device For players of consumer finance, its a means of profit generation. b. The culture of buy-now-pay-later is fairly present in India, evolving through various forms like consumer lending, consumer credit, consumer loans, friendly and family borrowings, daily payment schemes etc.
c. The basic objective of consumer financing is that the consumers present spending habits tend to be geared to expectations of future income. They are losing their fear of borrowing of consumer finance. d. Along with buying a home, consumers prefer consumer finance to buy home appliances and vehicles, opting for finance based on the rate of interest, administrative fee, processing fee, commitment charges, pre-payment penalty, types of facilities, standard and kind of services mix other terms and conditions. e. These are members of a growing breed of normally conservative middle-class Indians who are opting for consumer finance loans despite the high interest cost being charged.
(b) Key Issues and Success Factors For the consumer finance companies to flourish, there is need to develop a credit information system, which will ease the process, making it faster and easier to determine the creditworthiness of customers. Ability to offer simple, convenient and innovative consumer finance products, a wide distribution network and choice of repayment tenor, documentation and loan offer. a result of the large number of players, market pressures, As increased competition, increased awareness and wider offerings consumer-financing activities need to become customer-oriented and user-friendly. One of the perceived problems relating to consumer finance is the absence of credit bureaus to rate the creditworthiness of consumers. As of now, the advent of information technology has paved way for sharing data about defaulters among private sector banks. Any loan proposal is based on this shared information before further process.
e) Consumer Preferences
Indian consumers identify ease and speed of the loan application and approval process, as well as flexibility of evaluation procedures, as the key drivers of financing satisfaction. Consumer financing Satisfaction performance is measured by four factors : Application process (44 %); Approval and documentation (22 %) Finance advisor (18 %); and Loan value (16 %).
(c) Consumer Durables Banks have entered almost all the segments in retail finance. They are gaining share from NBFCs. Private Banks have started offering loans for lowticket items like consumer durables and two-wheelers, besides personal loans. Some schemes of some banks are given below : has struck a preferred-financier arrangement with carmaker Maruti, SBI and now markets these can loans from more than 2,000 branches. The bank has also tied up with Bajaj Auto and TVS Motors to finance two-wheelers. is offering 3-year two-wheeler loans at an interest rate of 10% across all SBI sales outlets of these companies. These alliances are significant, because they have extended the availability of car and two-wheeler finance to second-and third-tier towns. Axis Bank has tied up with Ford Credit as a preferred financer for Ford cars. Punjab National Bank has struck a similar arrangement with Hyundai. More such alliances are expected between carmakers and state-owned banks. These arrangements will drive strong growth in car finance market over the years to come.
CREDIT CARDS
Origin of Credit Cards In India
Sim card in the mobile phone is an example for the use of Smart cards in the telecom sector. There are 3 types of Smart cards. Storage card has an inherent monetary value associated with it. Intelligent card acts as a store-house of information. Hybrid card contains a micro processor chip and a magnetic strip and bar coding.
Other applications of smart cards consist of : (a) Public telephone (b) e-Commerce (c) Electronic wallet (d) Cable TV (e) Internet banking (f) Transportation This card can be used in different modes of transport. (g) In health card, a patients blood pressure, sugar, blood group and other Vital data could be obtained. (h) Miscellaneous, such as insurance, club subscription and school fees, etc.
BILL DISCOUNTING
Gets financial accommodation Drawer Seller Drawee Buyer Financial Institution
Best option
Discounting Bill
Features
1. Discount charge
Original Value
Margin
2.Maturity
30,60,90,120 days.
Popular
3.Ready finance
Customer will get immediate finance from bank.
Send
Bankers branch
6.Dishonour
Separate register Debit the account
BILL SYSTEMS
Drawer Bills System (Based on supplier) Drawee Bills System (Based on buyer credit worthiness)
BILL SYSTEMS
Drawer Bills System Drawer Bills System is characterized by : 1. Bills being drawn by the sellers of goods on the buyer of the goods 2. Bills being discounted or purchased at the instance of the drawer of the bills 3. The banker primarily taking into consideration the credit of the drawer of bill, while discounting or purchasing these bills This system of financing goods is quite popular in our country.
Drawee Bills System Drawee Bills System is characterized by : a. The banker accepting the bill drawn by the seller at the instance of the buyer (the drawee) b. The banker providing assistance, primarily on the strength of the creditworthiness of the buyer The two types of the drawee bills system are as follows :
1. Acceptance credit system : Under this system, the buyers banker accepts the bill of exchange for the goods purchased by the drawee. Such a bill may either be drawn on the buyer or the banker. The banker also requires the borrower to show separately, the goods purchased under acceptance credit in periodical stock statements submitted to the banker.
2. Bills discounting system : Under this system, the seller directly draws the bill on the buyers bank. The buyers bank discounts the bill and sends the proceeds to the seller. The buyers banker will show the bill as bill discounted. under both the systems, the banker keeps a record of the bills, both accepted and still outstanding. This is to ensure that the advance sanctioned does not exceed the credit limit.The main advantages of the Drawee bill scheme are as follows :