To borrow or not to borrow
Maswood Alam Khan | Tuesday, 8 July 2008
QUIET as a sleeping mouse you are purring with pleasure by defaulting on a loan, while the lender, tirelessly chasing you as an agitated cat, is in default of his sleep. Meanwhile, interests on the unpaid loan are silently and unceasingly being accrued even after your death---to be borne by your living child or a child yet to be born.
Among animals it is only humans who have developed the habit of lending and borrowing---causing a forced departure from the genetic traits living beings are designed to follow for their natural evolution on this earth. Humans parted with their long habit of living from hands---picking fruits from trees---to mouth when their eyes became bigger than their stomachs and when they found the limited horizons visible too small, their appetite for creature comforts too insatiable and 'today' too short a period.
With fruits too dull to thrive on, humans though herbivores by default borrowed the meat-eating habit from carnivores and mastered the art of defeating the weaklings as a means of satiating their greed by the prowess of their muscles and wits.
When the tussle between humans and wild animals had to take a turn to a duel, first, between strong and weak humans, and then, between humans of the same strength 'cutting a deal' was perhaps the first instrument humans started using to negotiate for resources of tomorrow after resources available today got exhausted: the first stepping stone of a peculiar premises a human set his foot on 'to promise to pay back in future what he has enjoyed at the present moment'; in other words, to mortgage the uncertainty of tomorrow to relish the sureness of today. Thus, a human child had to carry the burden of debts incurred by his/her father, grandfather or his/her nation long before s/he was born.
Subsequently, there has been an increase in the number of people failing to repay their loans because of their escalating debt commitments with limited resources at their custody. Despite lenders tightening their borrowing criteria, it appears that people are struggling to cope with their current debt levels and with days passing are at higher risk of facing bankruptcy or insolvency. Intending borrowers promise the earth before getting their loans; but the reliability of their promises on papers wears very thin.
When you are asked to sign on papers you are supposed to read thoroughly what is written on those papers and your signature on a paper means you have unhesitant consent, with clear and full knowledge, to what is written on the paper for your compliance. But, borrowers in most cases don't wait to read those fine prints of vital documents like "Promissory Note" or "Letter of Indemnity"; eager for grabbing the cash loan, they impatiently ask the banker where to sign and blindly sign wherever he is pointed at, not knowing that those signed papers will one day speak loudly in a court of law against him if he defaults on his promised transactional behaviour.
Just to observe the desperation of a borrower before a loan is handed to him I played a trick on a loan applicant when I was a manager of a branch of Agrani Bank in Dhaka city many years back. One paper trickily chipped in inside a heap of papers presented for his signing was printed with an undertaking that 'in case he defaults on his loan he authorises the bank to sell the whole premises of the High Court building he purchased two years back'.
The loan applicant gleefully signed each and every paper of the heap of documents. Next day as I showed him the signed paper on his buying and selling the High Court building, he cringed with shame and embarrassment.
If today our Board of Revenue issues an ordinance that each person breathing in air will have to pay Taka 10 per day on account of oxygen in urban areas and Taka 5 in rural areas in consideration of high cost of cleansing the breathable air from pollutants, there must be uproars of protests initially, but we will have to taper off our anger after a few days of agitations---the way we painfully took it for granted that drinking water from a wellspring or a mellow guava from a tree in the grove is no more a free commodity. Air which has for ages been our free basic right to breathe in to keep our heart throbbing may one day be as costly as gas we are purchasing to keep our machines moving.
But our genes repel in rebellion whenever we grope our pockets in search of cash to pay for food, water or fresh air we have been so used for millions of years to take for free. It is not simply human nature; rather it is evolutionary nature on the part of any living being 'not to pay back' any money for anything we take for our living.
No wonder we who borrow money try our best to avoid meeting our creditors and detour difficult paths while commuting only to skirt around the bankers who lent us money. We forget who when did give us loans; we hate to remember our credit transactions that have now been turned into debts.
But bankers or moneylenders cannot afford to forget their creditors who owe them money in principal amounts as well as accrued interests. A banker's head reels when he finds a loan, a prime asset of his bank, sliding from its performing status into a non-performing grade.
The banker suffers a splitting headache when the non-performing asset spins first into a Substandard Loan, then into a Doubtful Loan and ultimately into a Bad & Loss Loan. A 'bad & loss loan' is a double whammy to a banker. Not only he is debarred from taking charged interests accrued on the 'bad & loss' loan as income of his business; even worse, he has to make 100 per cent provision, equivalent to the amount of the bad loan, to be extracted from incomes made from other healthy areas of his business. At this juncture the banker, like an agitated cat, bares his fangs and chases up the defaulting borrower who, like a quiet mouse, was purring with pleasures.
Stories of dogfights between lenders and borrowers have long been fodder for gossip columnists, lyricists, playwrights, and soup operas. Many poor became poorer and many rich richer with the culture of borrowing and lending evolved in our society. Countless borrowers and lenders had to embrace their premature deaths from the burdens of unbalanced debits and credits. Many paupers and thugs also morphed into tycoons by short-changing both their debtors and creditors.
We 'need' food to slake our hunger; but we 'want' a brand new car to flaunt our status. When a demand crosses from the domain of 'need' to the insatiable realm of 'want', consumerism wears a borrowing-based character, a departure from nature.
We mostly fail to sort choices between 'needs and wants.' However, most economists remind us that all goods and services are really wants, because it is very difficult to determine what makes something a need. Needs are largely subjective; people differ greatly in what they regard as needs.
Nevertheless, wants---if not needs---can be placed at different points along a continuum of importance. Some wants are more important than others. In most cases, borrowing is more a habit than a necessity. Confronted by a multitude of tempting consumer products, one must learn how to evaluate the options available to him. One who does not know how to spend money wisely falls into the booby trap and becomes a pathological borrower.
Day-to-day decisions, about how much to spend and what to buy, should be made with "real Takas" and not with hypothetical "future Takas" as it is impossible to predict the future. Whenever you use a credit card or borrow money you are depending on your future Takas that may or may not emanate from your next month's pay check.
There are many in our society, especially the elderly people, who dislike the idea of owing another person or any bank any money; they hate the "borrowing money---owing money---paying back" process. Whenever they make a purchase, they simply consider an item's value, its actual cost, and the long-term benefits of the purchase. They enjoy the "simplicity" of using cash and dislike the "emotional burden" of owing money. As for the credit card miles or bonus points, they wouldn't trade the "emotional reward" of being debt-free for all of the bonus points in the world.
Is it not pleasant to spend money that I already have, that I have already earned, and that I have already deposited? There is something exhilarating about "swimming-against-the-tide". We may try to be a little different, a bit of a maverick, by having divorced ourselves from the notion that "the whole world is running on credit culture and we too should follow the crowd". Let's be debt-free!!
Young children often want many things they see in stores and they may give little thought to the cost of the things they want. But they can learn to budget the money they have in order to save for special purchases. Even young people can understand that we live in a world of unlimited wants and limited resources, and that choices must therefore be made.
They can learn how to do comparison shopping in order to make decisions about good and bad buys. The earlier children begin to think about how they spend their money, the sooner they will become wiser and more satisfied consumers. The problem is: people, rich or poor, young or old, want more than they can have---to be happy.
Human life on this earth now revolves around an enigmatic question: who is happier? An American who lives a luxurious life, but dies heavily in debts? Or, a Bangladeshi who burps an air of gratification after having a simple but gluttonous meal of boiled rice, smashed potatoes and lentil soup and enters his grave leaving no debt for his children to shoulder? Pundits around the world have already started whispering about the winner: "The Bangladeshi!"
The writer is General Manager, Bangladesh Krishi Bank, and can be reached at e-mail:
[email protected]
Among animals it is only humans who have developed the habit of lending and borrowing---causing a forced departure from the genetic traits living beings are designed to follow for their natural evolution on this earth. Humans parted with their long habit of living from hands---picking fruits from trees---to mouth when their eyes became bigger than their stomachs and when they found the limited horizons visible too small, their appetite for creature comforts too insatiable and 'today' too short a period.
With fruits too dull to thrive on, humans though herbivores by default borrowed the meat-eating habit from carnivores and mastered the art of defeating the weaklings as a means of satiating their greed by the prowess of their muscles and wits.
When the tussle between humans and wild animals had to take a turn to a duel, first, between strong and weak humans, and then, between humans of the same strength 'cutting a deal' was perhaps the first instrument humans started using to negotiate for resources of tomorrow after resources available today got exhausted: the first stepping stone of a peculiar premises a human set his foot on 'to promise to pay back in future what he has enjoyed at the present moment'; in other words, to mortgage the uncertainty of tomorrow to relish the sureness of today. Thus, a human child had to carry the burden of debts incurred by his/her father, grandfather or his/her nation long before s/he was born.
Subsequently, there has been an increase in the number of people failing to repay their loans because of their escalating debt commitments with limited resources at their custody. Despite lenders tightening their borrowing criteria, it appears that people are struggling to cope with their current debt levels and with days passing are at higher risk of facing bankruptcy or insolvency. Intending borrowers promise the earth before getting their loans; but the reliability of their promises on papers wears very thin.
When you are asked to sign on papers you are supposed to read thoroughly what is written on those papers and your signature on a paper means you have unhesitant consent, with clear and full knowledge, to what is written on the paper for your compliance. But, borrowers in most cases don't wait to read those fine prints of vital documents like "Promissory Note" or "Letter of Indemnity"; eager for grabbing the cash loan, they impatiently ask the banker where to sign and blindly sign wherever he is pointed at, not knowing that those signed papers will one day speak loudly in a court of law against him if he defaults on his promised transactional behaviour.
Just to observe the desperation of a borrower before a loan is handed to him I played a trick on a loan applicant when I was a manager of a branch of Agrani Bank in Dhaka city many years back. One paper trickily chipped in inside a heap of papers presented for his signing was printed with an undertaking that 'in case he defaults on his loan he authorises the bank to sell the whole premises of the High Court building he purchased two years back'.
The loan applicant gleefully signed each and every paper of the heap of documents. Next day as I showed him the signed paper on his buying and selling the High Court building, he cringed with shame and embarrassment.
If today our Board of Revenue issues an ordinance that each person breathing in air will have to pay Taka 10 per day on account of oxygen in urban areas and Taka 5 in rural areas in consideration of high cost of cleansing the breathable air from pollutants, there must be uproars of protests initially, but we will have to taper off our anger after a few days of agitations---the way we painfully took it for granted that drinking water from a wellspring or a mellow guava from a tree in the grove is no more a free commodity. Air which has for ages been our free basic right to breathe in to keep our heart throbbing may one day be as costly as gas we are purchasing to keep our machines moving.
But our genes repel in rebellion whenever we grope our pockets in search of cash to pay for food, water or fresh air we have been so used for millions of years to take for free. It is not simply human nature; rather it is evolutionary nature on the part of any living being 'not to pay back' any money for anything we take for our living.
No wonder we who borrow money try our best to avoid meeting our creditors and detour difficult paths while commuting only to skirt around the bankers who lent us money. We forget who when did give us loans; we hate to remember our credit transactions that have now been turned into debts.
But bankers or moneylenders cannot afford to forget their creditors who owe them money in principal amounts as well as accrued interests. A banker's head reels when he finds a loan, a prime asset of his bank, sliding from its performing status into a non-performing grade.
The banker suffers a splitting headache when the non-performing asset spins first into a Substandard Loan, then into a Doubtful Loan and ultimately into a Bad & Loss Loan. A 'bad & loss loan' is a double whammy to a banker. Not only he is debarred from taking charged interests accrued on the 'bad & loss' loan as income of his business; even worse, he has to make 100 per cent provision, equivalent to the amount of the bad loan, to be extracted from incomes made from other healthy areas of his business. At this juncture the banker, like an agitated cat, bares his fangs and chases up the defaulting borrower who, like a quiet mouse, was purring with pleasures.
Stories of dogfights between lenders and borrowers have long been fodder for gossip columnists, lyricists, playwrights, and soup operas. Many poor became poorer and many rich richer with the culture of borrowing and lending evolved in our society. Countless borrowers and lenders had to embrace their premature deaths from the burdens of unbalanced debits and credits. Many paupers and thugs also morphed into tycoons by short-changing both their debtors and creditors.
We 'need' food to slake our hunger; but we 'want' a brand new car to flaunt our status. When a demand crosses from the domain of 'need' to the insatiable realm of 'want', consumerism wears a borrowing-based character, a departure from nature.
We mostly fail to sort choices between 'needs and wants.' However, most economists remind us that all goods and services are really wants, because it is very difficult to determine what makes something a need. Needs are largely subjective; people differ greatly in what they regard as needs.
Nevertheless, wants---if not needs---can be placed at different points along a continuum of importance. Some wants are more important than others. In most cases, borrowing is more a habit than a necessity. Confronted by a multitude of tempting consumer products, one must learn how to evaluate the options available to him. One who does not know how to spend money wisely falls into the booby trap and becomes a pathological borrower.
Day-to-day decisions, about how much to spend and what to buy, should be made with "real Takas" and not with hypothetical "future Takas" as it is impossible to predict the future. Whenever you use a credit card or borrow money you are depending on your future Takas that may or may not emanate from your next month's pay check.
There are many in our society, especially the elderly people, who dislike the idea of owing another person or any bank any money; they hate the "borrowing money---owing money---paying back" process. Whenever they make a purchase, they simply consider an item's value, its actual cost, and the long-term benefits of the purchase. They enjoy the "simplicity" of using cash and dislike the "emotional burden" of owing money. As for the credit card miles or bonus points, they wouldn't trade the "emotional reward" of being debt-free for all of the bonus points in the world.
Is it not pleasant to spend money that I already have, that I have already earned, and that I have already deposited? There is something exhilarating about "swimming-against-the-tide". We may try to be a little different, a bit of a maverick, by having divorced ourselves from the notion that "the whole world is running on credit culture and we too should follow the crowd". Let's be debt-free!!
Young children often want many things they see in stores and they may give little thought to the cost of the things they want. But they can learn to budget the money they have in order to save for special purchases. Even young people can understand that we live in a world of unlimited wants and limited resources, and that choices must therefore be made.
They can learn how to do comparison shopping in order to make decisions about good and bad buys. The earlier children begin to think about how they spend their money, the sooner they will become wiser and more satisfied consumers. The problem is: people, rich or poor, young or old, want more than they can have---to be happy.
Human life on this earth now revolves around an enigmatic question: who is happier? An American who lives a luxurious life, but dies heavily in debts? Or, a Bangladeshi who burps an air of gratification after having a simple but gluttonous meal of boiled rice, smashed potatoes and lentil soup and enters his grave leaving no debt for his children to shoulder? Pundits around the world have already started whispering about the winner: "The Bangladeshi!"
The writer is General Manager, Bangladesh Krishi Bank, and can be reached at e-mail:
[email protected]