Aug 11 - 17, 2008

Where to invest money is a question which is posing problems for small investors belonging to middle and lower classes mostly comprising retired people living on the income from their lifelong savings. Their first preference is safety and security of their investment followed by a reasonable return on regular basis. For big money, it is no problem they earn reasonably well in every field they enter. Even during the crashing conditions in the Stock Markets, the losers are the small investors. Big money is still safe even there.

Because of pro-rich and pro-elite economic policies followed during the last 7/8 years of Musharraf/Shaukat Aziz Government, this scenario developed rapidly making rich richer and poor poorer. Rate of profits in National Saving Schemes operated under Government control mainly for retired and elderly persons were reduced significantly by the Government. Following the trend the Government as well as private commercial banks through a clandestine collusions reduced the rate of profit on saving accounts drastically (bringing it down to about 3 to 4 percent) leaving them high and dry. For years the spread between what banks were paying to their depositor and what they were changing from their borrowers ranged between 8 to 9 percent against normal and internationally accepted standard of 2 to 3 percent. In the process the banks swelled their profits to a level unprecedented in the banking history. This continued for years under protection of the Government and the regulator of the banking sector in Pakistan i.e. the State Bank of Pakistan.

Credit goes to the newly established Competition Commission of Pakistan (CCP) which took notice of this cartel like behaviour of the banks depriving the depositors of their due. The CCP imposed heavy fines of Rs.25 Million each on seven banks Rs.30 Millions on Pakistan Banking Association (PBA) for being the main player in the game, the PBA has challenged the CCP decision in the High Court, but the basic objective of the CCP action to break the cartelization in the banking system and protect the interest of the depositors has been achieved.

During the last 3 months, many commercial banks have not only announced increase in the rate of profit for their depositors; they have come out with new scheme for their depositors ranging from 8 percent to 16.25 percent putting an end to the problem where to invest money. Investors now have many options.

Amongst the commercial banks, the United Bank Limited (UBL) seems to be leading so far in offering attractive options to the investors. It has announced many schemes of term deposits offering payment of interest on monthly basis. Variety of tenors ranges from 3 months to 10 years. Under Mahana Munafa Plan, a depositor gets Rs.910/- per month tax free profit on a deposit of Rs.1 Lac only. You can withdraw your amount anytime without any fine or penalty. On a fixed deposit for a period of 10 years, the rate of profit is 16.25 percent. If a depositor wants interest to be paid on monthly basis, he will receive Rs.950/- per month for every Rs.100,000/- deposit. These rates of profits being offered by commercial banks are almost equal to rates of profits on investment in National Saving Schemes except Behbood & Pensioners Accounts which are meant for only retired (from Government Service) or Senior Citizens above 60 years. Others cannot benefit from these schemes. Returns on other type of deposits in National Saving are almost the same being offered by the commercial banks like UBL. In saving schemes, however, you cannot withdraw your deposits before maturity without paying a penalty.

What is happening in the Stock Market these days, you cannot recommend it as place to invest specially to small savers who do not belong to big money class. Incidentally the Competition Commission of Pakistan has issued notice to Karachi Stock Exchange (KSE) for misusing its dominant position in the stock markets. The KSE has also gone to Sindh High Court against CCP.

Addressing as a Chief Guest at a seminar arranged by the CCP on Importance of Competition Regime" last week, the Chief Justice of Pakistan Mr. Abdul Hameed Dogar commended the initiatives taken by the CCP in various fields. He, however, urged CCP to look into working of stock markets, saying that "it is common knowledge that the prices of shares in the stock market are under the control or influence of big brokers. The small investors take their hard earned and life long savings to the stock market with the hope of earning profits, but they are deprived of the principal amount of their investments even. The intricate gimmicks of the big brokers in the stock market dealings are a mystery to the common man. I wonder whether the Competition Commission has the means and capacity to play a role in this big drama where the one and only loser is a small investor. This is a big challenge for the regulators of the stock market and calls for a remedial measure at the appropriate levels. It is a just expectation of the common man that he will not be plundered in the broad daylight in public".