Yellow Cab Scheme Hits Financial Hurdles

September 1, 1993

PAKISTAN has been flooded with about 51,000 new, fancy yellow cabs in the last two years, thanks to a scheme begun by Nawaz Sharif, the former prime minister.

From the largest urban centers to the remotest villages, it is hard not to see a slick yellow cab, mostly of Japanese or Korean make. But now the scheme has been stopped by Prime Minister Moeen Qureshi's government, largely because owners could not keep up with payments.

Many Pakistanis breathed a sigh of relief when the newer cars first replaced the battered old cabs which were in poor running condition, and some more than 20 years old.

Mr. Sharif hailed the scheme as one of his most important achievements, serving both the public interest and providing jobs to the unemployed. Owners were required to pay only 10 percent in down payments, with the rest financed through bank loans.

But the massive investment to import the new cabs and the failure of owners to keep up with payments finally broke the resolve of Pakistani banks to continue the program. At least 15 billion rupees ($500 million) was given in loans. Senior bankers say, however, that almost 70 percent of the cab owners have failed to maintain adequate payments.

In part, that is because Pakistani banks have had a poor track record of taking over defaulted assets and liquidating them. Further, the importation of a large number of cabs has meant falling business revenues for cab owners. However, the yellow cab federation - a national association of cab owners - claims that up to 14,000 new vehicles are lying at the sea port in Karachi, because the banks are not sanctioning new loans.

AJAM SAQIB, chairman of the cab federation, said this week: ``The cabs in the pipeline must be given, because otherwise this will affect the 14,000 people who have been waiting for many months.''

The federation says that it has received several complaints from members who are neither getting a refund of their down payments nor fresh bank loans. Owners are considering filing lawsuits and launching public demonstrations. ``People will protest. What else should poor people do who have lost their money,'' Mr. Saqib added.

But the government has given no sign it will reverse its decision. Says a senior official, ``It is time to shape up the economy. Instead of giving new loans which don't have a good chance of being paid back, we have to find ways to recover bank loans which have already been given.''