Intel alliance offers sharia-compliant laptop loans

Intel is working with an Islamic bank to offer consumers Pakistan’s first large-scale hire purchase scheme for personal computers, aiming to increase its market share in the country.

The US chip group hopes its partnership with Karachi-based Meezan Bank will boost sales of laptops to buyers who would otherwise struggle to afford a computer in the country of 180m people. It is also considering expanding the scheme to other emerging markets.

Hire purchase plans, not uncommon in developed markets, tend to be more complicated to implement in many emerging markets. In an effort to bolster its appeal, Intel’s scheme will also be compliant with sharia, or Islamic, law and its prohibitions on paying or receiving interest.

While a shift by consumers towards smartphones and tablets has hurt PC sales in Europe and the US, demand in emerging markets such as Pakistan, Turkey and Indonesia remains strong, buoying global chipmakers and PC brands.

Naveed Siraj, Intel’s Pakistan country manager, told the Financial Times that “less than 5 per cent of households in Pakistan own a PC. That in itself is a big opportunity for companies like Intel.”

Mr Siraj said demand was “tremendous” as people in Pakistan became “increasingly aware of mobility and mobile products”. The majority of Pakistan’s population was under 25 years old, but only about 13 per cent of the populace had access to the internet, he said.

At its last results conference in July, Paul Otellini, chief executive, said “healthy and growing” emerging market sales were one of the reasons for his bullish forecast for the second half of the year.

The plan reflects the difficulties involved in selling to emerging markets. The Hewlett-Packard laptops offered by Meezan and Intel typically retail for about 40,000 rupees ($460), a price beyond the reach of most Pakistanis. Per capita income stood at $1,254 in the 2010-2011 financial year, according to official data.

“Critically important for us is affordability of a PC for a first-time buyer,” said Mr Siraj.

Pakistan has some of the lowest consumer finance penetration rates in south Asia, due in part to a traditionally conservative lending culture and stubbornly high interest rates. Plans by banks to expand consumer financing were hurt by a sharp slowdown in economic growth in 2008 linked to political instability, high inflation and insurgent violence.

However, Pakistan’s Islamic banking sector has seen significant growth in recent years. Meezan, which started operations as Pakistan’s first Islamic bank in 1997, is vying for market share with a range of international Islamic banks based in Gulf countries that now offer their services in Pakistan.

For its part, Meezan wanted to promote Islamic finance, said Irfan Siddiqui, chief executive. “Our main objective is to use this for people to understand more of what the bank is doing generally.” The lender hopes that laptop customers may in turn take bigger loans from its existing range of sharia-compliant car loans and mortgages.

Meezan said it had signed hire purchase agreements for computers with 400 people since launching the scheme in May, via promotional drives at Pakistani universities. The bank is aiming to sign another 3,000 such agreements in 2012.

With the agreements typically running for 12 or 24 months, the repayments work out at roughly 100 rupees per day for the computers.

Mr Siddiqui said that so far there had not been a single default among laptop buyers. “Our default rate on this product up to now is zero – people have repaid us without any problem,” he said.

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