Those of us who have off-late ‘attempted’ borrowing from a bank in the recent past have all heard of the mysterious KIBOR. All banks nowadays peg their lending to the KIBOR & then add their spread to give their customers a flexible rate. Since KIBOR has off-late been rising steeply (atleast during the calendar year 2008) banks have minted quite a few ‘extra’ bucks by merely re-pricing their loans as part of their ‘deal’ with their customers.
Now what the hell is KIBOR you may ask. For the uninitiated (which means the most of us - non-bankers) KIBOR is an acronym standing for Karachi Inter-Bank Offer Rate. KIBOR isn’t a new phenomenon either. It has been around for atleast a dozen years but its impact on the consumer finance sector is a relatiely new phenomenon.
Bankers have lent to ‘each other’ (read: inter-bank i.e. bank-to-bank) by using KIBOR since the early 1990s when this emerged as a substitute for the LIBOR (London Inter-Bank Offer Rate) which though more stable was definitely not in sync with our ‘local’ money market therefore the local banks all got together and came up with KIBOR.
Banks initially lent using KIBOR rate to their Corporate Customers for what became known as Money Market loans (meaning: loans against borrowing from other banks). This was extended to the Commercial/SME segment during the early years of the 21st century. Once the KIBOR became high due to the geo-politcal economic reasons the banks were left with no choice but to abandon fixed-pricing altogether in faour of KIBOR-linkage (meaning: KIBOR-plus-bank’s profit spread).
Further variants of KIBOR that evolved later were attributed to its tenor (which should either match the tenor of the short loans or should be atleast half-year i.e. 6-months or 1-year i.e. 12-months).
People worried by high markup rates can finally heave a sigh-of-relief as the ‘dreaded’ KIBOR has somewhat nosedived from its New Year 2009 peak of around 16% to somewhere around 11% as of 31-July-2009. (%age rate pertains to the most widely used 6-months KIBOR ask rate).
People requiring further clarifications regarding KIBOR in particular & other advice regarding Car Leasing in general are invited to leave a message alongside this post for a ‘prompt’ reply. Next post in this series will cover flexible tenures & downpayment options.
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