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with handy bits of plastic It is hard to think of having ever lived without credit cards. They offer holidays, Rs. 50,000 spending money, discounts on travel and hotel accommodation and many other features. But are these handy bits of plastic a blessing or a curse? A credit card is not just a debt instrument. For many consumers they have become a tool of convenience - an easy way to pay their bills. For those who are able to keep pace with their payments there is nothing to do with debt at all. Credit cards are a safe alternative to carrying around lots of cash, especially when big purchases are made. They are also safer than cheques in many cases. Having many credit cards used to be fashionable, but not any more. That's because there are many problems faced by credit card holders, for which the financial institution, which sold them the credit card, did not prepare them. The biggest issue with credit cards is the sky rocketing interest rates. When compared with a personal bank loan, credit card interest rates are high. They are around 33 percent per annum. Although the
Central Bank has cut interest rates, most credit card interest rates
have not dropped. A Sampath Bank official said, “Interest
rates have not yet been reviewed.” Depositors receive around
nine percent interest on their deposits while credit card holders
pay around 33 percent on their unsettled card balances. The biggest worry with credit cards is that it offers unaffordable lifestyles that seem affordable. It tempts people to make lavish purchases without the money. When you use plastic instead of cash, you spend more because you don't feel the same as when you give a Rs. 1,000 note. The pain is not felt. People end up borrowing money to fund their lifestyle. And may run into problems if their credit card balances escalate and are unable to repay the debt. However, banks claimed that their recoverable rates are manageable. Today, some banks have third parties promoting the credit cards on behalf of the bank. Such third parties get a commission on the cards they sell. Some banks have a promotion team that goes to workplaces and offer credit cards. In such circumstances the people making the sales pitch do not fully inform the consumers of their responsibility with regard to credit cards. The credit card system requires no guarantors, unlike bank loans. One bank official said, “The system requires no guarantors, that's how it works.” Compare the hassle of finding guarantors to sign our personal loan applications with the ease with which we can apply for a credit card, which requires only proof of income, and copy of the identity card or passport. With the proof of the income we get tempting credit limits. A person who earns Rs. 30,000 - 40,000 a month is generally given a Rs. 150,000 200,000 credit limit. These limits are very tempting and the cardholder can very easily find himself in a situation where he is unable to settle the card balances. Most banks require cardholders to make only a minimum payment of five percent of their balance at the end of the month. These ridiculously low minimum payments required on credit card balances are a real issue. With minimum payments, some consumers who keep spending and paying the minimum end up with a big outstanding balance that they are unable to pay. This then becomes a big issue as bills have mounted to a point where you can't meet all your obligations; credit card payments become a low priority. When customers unable to pay their credit card balances try to convert it to a loan, the banks, which issued them credit cards with no guarantors, then ask for guarantors. Late charges, over the limit fees, and very high annual charges are other problems with credit cards. As any financial instrument has its own administrative fees, some may say these charges on credit cards are reasonable. But when comparing loan administration fees with a credit card annual fee, one might know the difference. There are many reasons a consumer should be careful in getting a credit card and using the credit card to make payments. Avoid using the credit card on everyday expenses like food, electricity, and water bills. If one has to use a credit card, it is better to settle the bills before the end of the interest free period as it is unnecessary to pay 33 percent interest to meet one's everyday expenses. Forget the principal, spend now and pay later. It is better not to spend unnecessarily on offers like Exquisite French Cuisine, pay with your credit card, 10 percent discount or be enticed by a 15 percent discount on shoes. Just because you have a plastic card, don't spend unnecessarily. It might be a good idea to think twice before using it. Comparing annual fees, interest rates and other charges associated with the card is important. It is better not to get cards for the wrong reasons, such as raffle draws and loyalty points. By paying more than the required minimum payment one can avoid mounting credit card balances. Analysing the payments done by credit card is also important. In other countries like the US, Australia and the UK, credit bureaus and other agencies have conducted surveys that indicate the number of people who have accumulated huge debts by not using credit cards wisely. Such surveys caution the public on using credit cards and accumulating debt. In Sri Lanka it might be high time to conduct such surveys and inform the public on making prudent decisions pertaining to their credit cards.
The fund, which is a global fixed income fund is the first of its kind to be introduced in Sri Lanka. By investing in global exchange traded futures and options the fund will add value to the existing offshore banking fund of Seylan Bank that exceeds $60 million. Lalith Kotelawala,
Chairman of Seylan Bank said, "The international bond fund
is a unique product to be introduced in Sri Lanka. It is an achievement
not only for the bank, but also for the country. The country is
ready to enter international markets". A Tyndall official said that these additional instruments would give the bank's existing investments more value in a rising or falling market scenario. He added that a local future's exchange is 'absolutely essential' to hedge losses as interest rates fall. Asked whether
the bank would open its doors to retail customers, Ms. Rohini Nanayakkara,
General Manager and Chief Executive of Seylan Bank said that the
fund would initially utilize the bank's own funds, until it achieve
its targets. State
owes Rs. 1 bln to private contractors
As a result state agencies, noted Surath Wickramasinghe, president of the Chamber of Construction Industry (CCI) of Sri Lanka, were in a position to quote higher-than-the-market rates as there was no competition, which meant the country was the loser. In an interview Wickramasinghe, who has been pushing for open competition in state contracts, said the biggest stumbling block in the progress of the industry has been the government, its inefficiency, inadequate funds, bureaucracy and red tape. He said the government is also guilty of breach of trust by not paying the contractors running into billions. Under the normal law if a citizen defaults a loan or any other payment, the person would be prosecuted and punished. But the government defaults billions of rupees of private citizens and go scot-free. He said the CCI was set up at a time when the economic growth of the country was falling with a severe cut back on investments in the construction industry about three to four years ago culminating in minus growth rates in 2001. Conditions have not improved, since then due to the government's inability to embark on any major development projects owing to lack of financial resources. "This has caused severe hardships to those involved in the construction industry. The situation has been further aggravated due to consultants and contractors not been paid by the government over the past several years. The estimated payments due from the government is about one billion rupees," he said. Banks were not sympathetic to the plight of members of the industry and were demanding the repayment of the loans obtained for government projects. The pressure by banks has in some instances led these borrowers to sell their personal properties to pay the debts. "Architects are also in a similar plight because foreign consultants are given a free hand to practice in Sri Lanka. BOI/BII authorities doesn't advice them that it is a requirement for all architects to register with the Sri Lanka Institute of Architects," he pointed out. Wickramasinghe said that if the foreign consultants were permitted to practice freely in Sri Lanka then at least they should do so in partnership with their local counterparts. Local contractors were facing similar constraints since foreign contractors enjoyed much freedom forcing local professionals involved to the construction industry to go overseas. New
GM, AGM at People's Bank
A graduate
of the University of Ceylon, Peradeniya, he joined the People's
Bank in 1973 as a management trainee and served in various parts
of the island, during the formative years before moving into Head
Office to assume executive responsibilities. De Silva is a member of the governing board of the Institute of Bankers of Sri Lanka. He is also a Director of the People's Leasing Company and other subsidiary companies of the People's Bank and the Sarvodaya Economic Enterprise Development Services (Guarantee) Ltd. He is also an alumni of the Harvard Business School. Meanwhile W.J.M. Fernando assumed duties as the new AGM at the People's Bank. A graduate of the University of Ceylon, Peradeniya, he joined the bank and after a five-year stint as a Branch Manager came on the bank's pioneering team, on Small and Medium Industrial Development in 1979. He was promoted as the Executive Deputy General Manager (Credit and Finance) in 1999 and has been Senior Deputy General Manager since April 2001, responsible for smooth functioning of credit and branch operations. ACCA
launches Certified Accounting Technician qualification Open to students from the age of 16 years the CAT programme comprises nine exams in three levels that need to be successfully completed to obtain the certification. The subjects cover a wide range of accounting and non-accounting areas to compensate for the absence of prior knowledge. The exams are offered bi-annually where a student may sit for a maximum of four subjects. Alternatively the students may also sit for the exams through the computer-based testing mode as and when they are ready. Successful CAT students could gain direct entry into Part 2 of ACCA's professional qualifications with one year's supervised work experience. The CAT programme was introduced worldwide by ACCA in 1997 and has over 27,000 students preparing for its examinations. Locally, the Academy of Business Studies (Pvt) Ltd and Mercury Management Institute (Pvt) Ltd have been authorized to train students for this qualification. T.L. Raj, President of ACCA's local body said that the launch of this programme is much required as a recent Asian Development Bank study identified the need for qualifications in the middle tier level especially in the public sector. He added that
this qualification is also helpful as it is recognized internationally. CIM
education from The Knowledge Factory Ltd The panel of lecturers has produced more than 30 Sri Lankan prizes across all subjects in the last three years and have a pass mark averaging above 70 percent for all the subjects. It includes Ravi Banuthevan and other senior CIM lecturers. MTL
Mountain Hawk changes name The name change reflects the change of ownership of the company to Bureau Veritas, a leading French conglomerate with over 500 offices worldwide. As in the past the company continues to engage in quality testing, inspections and social auditing. The company conducts testing to US, European, Japanese, and German testing standards and has an extensive client base which includes Marks and Spencer, MAST, Disney, Liz Claiborne and many others. The company also announced that it has recently obtained accreditation as an Auditing body under the WRAP programme which is a widely accepted US based factory accreditation programme for Social Compliance accepted by many US retailers and buyers. Foreign
strategist for CIM finalists at Synergy The input will be in the form of an experienced strategist at LSM who will visit and conduct a three-day residential workshop for students sitting the subject. George Panagiotou who will lead the workshop is an author, lecturer and examiner with an established track record having expertise in the areas of Business Strategy, Strategic Management, Marketing and Travel and Tourism. Popularly known as the 'case study' among students, the exam centres around a real-life business problem that is given to students a few weeks ahead to be studied. Thereafter as an open book exam students are required to answer questions related to strategy for the particular business case. The exam calls for a practical application of the student's knowledge gained throughout the other 11 subjects in the CIM syllabus. This exam model has been recognized by many and is now being followed by other professional institutes like CIMA (Chartered Institute of Management Accountants). According to the directors of Synergy the entire value addition will be at no additional cost to its students. Michael Ranasinghe and Mohamed Adamaly who also lecture at the institute explaining the concept said that their objective was to maintain the independent thinking of students but guide them in strategy making by exposing them to an international perspective. The subject
has no 'one correct answer' and is tested for thorough completeness
of concepts in their answers. "Therefore we can only prepare
and train them to combat the paper. This innovation makes their
combat easier," added Ranasinghe. |
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