Question

E1. Mohamed is having his own water purifier shop in Rustaq. There is many number of competitors are existing already in the water purifier business’s, initially Mohamed only prefer to sell the machines only for cash but due to heavy competition he is planning to change the strategy to selling the water purifier machines. So he is planning to sell the machines on credit based system. But before sales, they have decided to check the creditworthiness of their customers before giving them this facility. Before giving any credit sales to their customers their credit worthiness can be verified thru computerized software. That software verifies the customer’s information like how many banks he/she have bank accounts, how many loans currently taken by the consumers, whether they are repaying the loans on time to them all these kind of information’s are verified. Most of the banks are providing credit cards to their customer based on this kind of customer verification. The same procedure followed by the Marwan also in his business. This is the situation.

Read the above case and answer the following questions:

(a). Identify the fact of this case, recommend how the non-banking financial institutions helpful to Marwan’s business?

(b). Do you think that working capital is necessary to Marwan’s business? Why?

Answer 1

a) Through the presence of a software that is able to indentify the credit worthiness of the purchaer across multiple banks the process is much easier for the vendor i.e. Marwan instead of having to individually request information from every bank the purchaser has a credit card in and the bank will always be a bit defensive of its customers in general as their sole purpose is try to get them to borrow more and are less critical than outside parties who have no biases.

b) Yes, some working capital would be required as credit card companies can take a couple of days to fund the money as multiple processes need to be followed unlike cash or debit card sales where the payment is received immediately. Also, the vendor would be a charged an interchange fee which would reduce their total payment by a small percentage.