Monday column: Why is Oman still a debt society?
According to the official statistics, local banks extended a total credit of OMR14.7 billion to private consumers by the end of March this year, which is 7 percent higher than the same period last year.
There are no statistics available how private consumers spend the borrowed money. But looking at the trend, car purchasing certainly is on top of the list followed by holidays and domestic buying like furniture.
No wonder local financial institutions never record a loss. Their profits are always on the rise year on year, thanks to the high impact of consumerism in the country. But there are some questions when you take a look at the population of Oman.
Out of roughly 5 million people, about a million of them are manual workers employed in sectors like constructions, factories and domestic labour. School children and students in higher education are roughly about one and half million while the total number of pensioners are another 600,000. There are just roughly just two million people left who can afford a bank loan.
That means too much money is burdening a quarter of the population, out of their own faults. You may argue that, it is good for consumerism but what about inflation? But when you look at the inflationary rates in the country, you see a small rise month by month.
We are missing something here. Unless a lot of money borrowed from the local banks is being repatriated abroad. If so, then where is it going? Certainly, the inflationary rate is not giving us a clue. It is not the monetary system or local financial regulations are at fault. In any healthy, financial environment, banking systems need to thrive and grow. And local banks get the right support since the sector employs thousands of people in different parts of the country.
Perhaps there should be some kinds of mechanism to educate consumers in the habit of spending. For example, if they don't have the cash to splash out, then they should be cautious taking out unsustainable bank loans. Without any doubt, it is not sustainable for them to rely heavily on loan taking, both for the country or personally.
But who to blame? Obviously, lavish lifestyle encourages excessive borrowing. Also, easy credits from the banks. The latter, is also a problem where local financial institutions make it easier to borrow money that encourages the trend.
Maybe there should be a limit where consumers are limited only 15 times their salaries and payable over 24 months as a condition for taking a loan. I am sure that would help to contain the problem of overspending the money that does not really belong to them.
No wonder many people scratch their heads when the burden is too much. Unfortunately, banks do not write-off the loans once you have borrowed from them. I have not seen the statistics from the courts but I am sure there are thousands of cases pending of people who cannot repay their liabilities.
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