Thousands of Saudi families will face the daunting prospect of paying off mountains of debt at the end of this summer, warned bankers, credit officers and installment merchants. They say Saudis have indulged in spending beyond their means because they want to “keep up with the Joneses”, which basically means they have been trying to create a false image of their social status and wealth. Many low and middle income families have resorted to using credit cards to finance their summer vacations. In response to a Saudi Gazette inquiry, Yahya Alasker, a banker for 18 years, said that outstanding credit card debt is estimated at between SR7 billion and SR9 billion. He said there is a need for a national campaign to educate people about the abuse of credit cards. Alasker said he was extremely concerned about the socio-economic problems facing individuals and families who have abused their credit facilities. Alasker explained that banks will have collection agencies pursue people who are in debt. These agencies are paid between 25 and 50 percent of the amounts due. He added that many credit card holders will be shocked by the amounts they owe when they return from vacation. Consumer studies have revealed that there is a marked difference in behavior between people paying by credit card and those using cash. “There is a psychological effect when paying by credit card. The card holder is taken in by the ease with which the transaction is completed and loses track of actual spending,” said Hussain Altihami of Saudi British Bank in Jeddah. “In contrast, when money is taken out of a wallet and the cash dwindles, the customer is instantly aware of his spending.” The other problem facing debt-ridden Saudis is that collection agencies use nerve-wracking techniques to get the bank's money back, said Mahmud Baeisa, professor of accounting at King Abdul Aziz University in Jeddah. “There are frequent phone calls to places of residence, making the entire family aware of the debt situation. This creates unease among family members especially if the spending was for the wife or the children. Collection agents often show up at places of work and intimidate the debtor and make work colleagues aware of the cardholder's financial situation. They also indirectly spread the word that the person owes large sums of money.” In a society where people are concerned about their public image, debtors quickly resort to borrowing from relatives or colleagues. They would also sell some valuables, holdings, cars, land or draw money from their savings. They would also resort to taking out a personal bank loan which results in a vicious cycle of borrowing more to pay outstanding debts. Alasker said that some Gulf Cooperation Council countries are offering credit card debtors the option of government-guaranteed loans, against personal salaries, especially for government employees. But banks “shy away from this because their profit margin on card debt is about 25 percent compared to 3.5 percent on personal loans”. Al-Khraiji, a retail banking officer with Al-Rajhi in Jeddah for 20 years, said that Ramadan, Eid Al-Fitr holiday, the post-Ramadan summer vacation and the return to school will contribute to greater debt. “We have four consecutive occasions marked by high personal and family spending and unless credit facilities are used rationally, the result is unfortunately swelling of personal debts at the national level.” Nabil Al-Mubarak executive-director of the Saudi Credit Bureau, SIMAH, confirmed his agency's policy regarding credit card debtors. “SIMAH's policy labels card debtors as defaulters under two conditions – if they have not paid for six consecutive months and if the amount due is SR500 and more.” __
