Pakistanis quickly learn to love plastic

Miranda Kennedy Dec 26, 2006

BOB MOON: Some Americans are coming down from their shopping high today, while others are out there stampeding for those massive markdowns we mentioned earlier. This year, holiday shopping fever has spread even to the Islamic Republic of Pakistan, where the flood of consumers has doubled the prices of some things like cell phones and real estate.

Miranda Kennedy reports that newly minted credit cards are burning holes in some Pakistani pockets.

MIRANDA KENNEDY: The city’s shoppers don’t even notice the armed men guarding the entrance to the Levi’s outlet in Karachi’s premier shopping district. They’re used to guns and anti-American protests, regular occurrences outside McDonalds and KFC. Pakistan’s new consumers aren’t gonna let that possibility deter them from buying jeans.

ZAHIR RAHIMTOOLA: Levis t-shirts, the polo shirts, the PK shirts…what you see up here is the Dockers area.

The place is filled with teenagers, browsing the racks of American brands. Zahir Rahimtoola, who owns the Levis franchise, says the Pakistani elite can shelter themselves from Pakistan’s radicalism and poverty. But they all have satellite TV. Sex and the City reruns have inspired a new generation of Pakistani shoppers, and that’s been good for business.

RAHIMTOOLA: Unfortunately we have this perception that everyone just wears the…the burka, which is not true. I mean if you walk into this area…

KENNEDY: Anything but burkasa€¦

RAHIMTOOLA: Yeah, wnything but burkas. We have short tops, we have hipster jeans.

KENNEDY: Lots of very tight t-shirts…

RAHIMTOOLA: Yah, take your pick.

When he opened shop ten years ago, this was the first branded western clothing store in the country. It was a risk. Stores could be defaced by radicals, or western-style clothes simply wouldn’t catch on with Pakistani consumers. But now, Rahimtoola sells a hundred units a day in each of 30 Levis stores across Pakistan. In recent years, he’s seen a difference in how people pay for their jeans, too.

RAHIMTOOLA: Most of our sales were on the basis of cash. And to give you an example, our credit card sales to our overall sales was just 5 percent. Our credit card sales have gone to as high as 55 to 60 percent.

That’s partly because the Pakistani government has cracked down on black market purchases and tax evasion. Five years ago, the state-owned banks simply wouldn’t give out loans or credit to anyone other than politicians or millionaires. But then the government privatized many banks and let in foreign financial services companies. Suddenly, interest rates are lower than ever before, and banks are handing out credit cards to almost anyone who applies for one. Last year, consumer loans more than doubled, to 4 and a half billion dollars.

SHERYAR AHMED: You never had credit cards be that readily available in Pakistan, car loans being readily available, you never had mortgages…

The boom drew Sheryar Ahmed back from the U.S. a couple of years ago. He came to work at a big investment firm in Karachi.

AHMED: It’s basically exploded our economy. Because this demand’s always been there. That’s a genie that you can’t put back in the bottle, hopefully.

The government is determined to continue economic reforms to meet the exploding demand, because all that consumption is fueling Pakistan’s growth. But not everyone thinks the buying spree should continue at this pace. John Wall is head of the World Bank in Pakistan. He says Pakistanis should be cautioned against falling deeply into debt — and the same goes for the overall economy, too.

JOHN WALL: People who aren’t used to it, and banks who aren’t also as used to it, and therefore don’t know what are good credit risks or not, can lead to people getting in over their heads.

He thinks the government should raise interest rates to cool down some of the spending.

WALL: That’s not to say that you should be Maoist about this, you know, cut out all spending that makes people happy. But you just need to govern it. There’s just too much of it. So it’s much better to slow it down so it’s sustainable, than to let it roll, let it boom and then bust.

Wall’s been telling the government for months the economy’s overheating. But he says everyones too excited about all the spending and the growth to really care.

In Karachi, I’m Miranda Kennedy for Marketplace.

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