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National Savings – provider of social security to the vulnerable section of society

Over a period of time, particularly in the last decade, National Savings has transformed itself from a retail debt raising arm and the source of infrastructure funding of the government into a formidable vehicle for financial inclusion, particularly women, and a provider of social security to the vulnerable sections of the society. Pakistan has one of the lowest saving rates in the region which has direct relationship with the economic growth rates. Whilst National Savings, as an institution, contributes less than 1% towards the GDP and around 10% in the Domestic Savings to GDP Ratio of 7.5%; however, there’s substantial room for improvement on these ratios over a period of time.

The strength of the product bouquet of National Savings is such that it provides an inherent balancing act – when the demand for one product is down, the other becomes more attractive – e.g., in the low interest rate environment, traditional products of National Savings take a beating; whilst demand for prize bonds move up as the appetite of the investors to take a chance on the prizes, and to forego the fixed return on their investments, goes up. The social welfare products of National Savings remain largely insensitive to the interest rates. The fact is that there are a very large number of investors of National Savings who live off, and meet their ends through the monthly return on their investments in these social welfare schemes. The government is aware of the investors’ situation and ensures that the rates remain at desirable levels. The greater idea is that NSS provide the investor a decent/ valuable amount of profit every month to live in the society with respect and dignity. Almost 50% of the total profits that National Savings pay-out every year go towards these welfare schemes which show government’s unwavered commitment towards the deserving sections of the society.

The supply-side — access points, marketing/investor education and products — other than taxation and cultural aspects, are the main constrains for the subdued saving rates in Pakistan. On the distribution front, other than automating IT systems, possibilities of appointing non-financial sector agents to get to the door-steps of the existing and the potential customers should be explored. National Savings is also coming up with numerous Alternate Delivery Channels, like access of accounts by the investors through cellphone and internet, and introduction of debit cards for direct access to the ATM/POS network, and active agents of mobile banking, etc., which will act as cornerstone for achieving financial inclusion targets.

 

With enhanced distribution network of National Savings, there will be an opportunity to cross-sell other products like health and life (3rd party) insurance policies and tying up with international remittance companies like Western Union and others to deliver the remittance to their customers and collection of utility bills etc.

Shariah products are taking firm roots in Pakistani society and National Savings is cognizant of the fact and working on the possibility of launching a much demanded Shariah Compliant Savings Certificates. Launch of overseas Pakistanis certificates/bonds, on the lines similar to Pakistan Banao Certificate, exclusively for non-resident Pakistanis, is also under active consideration.

The role of local banking industry, mutual funds and stock market players in promoting savings culture in Pakistan remains the most important element, particularly given the footprint and the presence of these institutions and their contribution into the country’s GDP. The account penetration of Pakistan is too low at 16% as opposed to its peers. This poses a significant opportunity for the financial sector in Pakistan as over whelming number of potential account holders are up for grabs. This may require some policy changes which should be initiated by the financial sector on various platforms through their respective regulators.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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