Rate of profit on all savings schemes reduced

Society Pakistan & World Affairs
1

This is yet another bad move by the Government… Removing duty on lavish cars does not help the poor. In Pakistan, I have seen alot of widows and old aged people using these savings schemes as their only means of survival… The Government has been reducing these ever since 1999… The new scheme that they initiated for widows has a low profit margin, and the initial cost is way too much, besides the maturing time is 10 years!

Rate of profit on all savings schemes reduced

By Khaleeq Kiani

ISLAMABAD, June 30: The federal government reduced on Monday the rate of return on all National Saving Schemes (NSSs) between 0.9 per cent to 1.53 per cent and launched a new saving scheme, specifically for the widows.

The reduction in the rate of return would, however, reduce the take-home income of the people between 8.7 per cent to 20 per cent if compared with their earnings under the existing rates.

According to the official announcement, the rate of return on the Defence Saving Certificates has been reduced from 10.03 per cent to 8.5 per cent, causing a reduction in take-home income by 15 per cent.

The return on the Pensioner’s Benefit Account has been reduced to 10.08 per cent from existing 11.04 per cent, bringing the take-home income down by 8.69 per cent. The interest on the Regular Income Certificates has been reduced to 7.68 per cent from existing rate of 9.12 per cent decreasing take-home income by 15.8 per cent.

Similarly, profit on the Special Savings Certificates (Regd)/Special Savings Accounts has dropped from 8.5 per cent to 7.67 per cent, reducing the take-home income by 9.76 per cent. The return on the Saving Accounts has been decreased from 5 per cent to 4 per cent, thereby, reducing the take-home income of investors by 20 per cent.

In overall terms, the rate of return on the Defence Savings Certificates has come down by 1.53 per cent, the Pensioners’ Benefit Account by 0.96 per cent, the Regular Income Certificates by 1.44 per cent, the Special Savings Certificates (Regd)/Special Savings Accounts by 0.83 per cent and the Savings Accounts by one per cent.

FOR WIDOWS’ BENEFIT: The government also launched an exclusive savings scheme for the benefit of widows - the Bahbood Savings Certificate. The scheme is of 10 years maturity and promises profit on monthly basis at the rate equivalent to the return on the Pensioners’ Benefit Account (PBA), i.e., 10.08% per annum.

For the convenience of widows, the deposits shall be maintained in the shape of registered certificates in the denominations ranging from Rs5,000 to Rs500,000.

There shall be no deduction of Zakat on these certificates while tax shall be deducted as per rules.

These certificates are of 10 years maturity, but can be encashed at any time after the date of purchase on payment of prescribed service charges.

Officials said the reduction in return on saving schemes had been rationalised in the context of recent decline in various interest rates in the banking and financial sector.

The certificates purchased and accounts opened prior to July 1, 2003, shall earn profit at the rates prevailing on the respective dates of purchases.

FACILITIES FOR SENIOR CITIZENS: It said the government had also decided to immediately improve facilities at the Savings Centres so that the senior citizens and other clients could feel comfortable while interacting with the National Savings Centres.

The automation process which is in process will enable the National Savings Organization to provide all other facilities currently available to the clients of the commercial banks.

The project is likely to be completed within the scheduled time.

http://www.dawn.com/2003/07/01/top10.htm

P.S. Please dont comment if this is haraam or halaal… All I know is that the poor people in Pak use this as a means of income… I dont want to see them depreved of this…

2

The problem is that we can't afford to keep such high rates...and the reason being...for example the market demand interest rate on bonds is what 5%, while treasury bills is around 2% or something like that...and the government is there giving interest of 10%, u see the ineffiecincy of resources... The government could borrow at rate of 5% yet it is being forced to pay 10%. then we have dubious caracters in teh market, who can borrow at 5% and make money at 10%...there by generating 5% income free of cost.... this is not the way to run a modern competitive market...I mean I can go in to whole theories and make this many pages long..but the point is that if u want Pakistan's economy to florish u won't want inefficent use of limited capital...

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[QUOTE]
*Originally posted by Bhadsha: *
The problem is that we can't afford to keep such high rates...and the reason being...for example the market demand interest rate on bonds is what 5%, while treasury bills is around 2% or something like that...and the government is there giving interest of 10%, u see the ineffiecincy of resources... The government could borrow at rate of 5% yet it is being forced to pay 10%. then we have dubious caracters in teh market, who can borrow at 5% and make money at 10%...there by generating 5% income free of cost.... this is not the way to run a modern competitive market...I mean I can go in to whole theories and make this many pages long..but the point is that if u want Pakistan's economy to florish u won't want inefficent use of limited capital...
[/QUOTE]

Baadsha... Why not? Keep in mind that these defence saving certificates mature after a while, presently 10 years... Until these 10 years, the Government has got its hands a formidable amount of money... It adds to the financial backbone of the country, and since it was mostly the poor people (and the middle class to some extent) who were benefitting from this scheme, I'd say it should be promoted... Keep in mind that most of these investers in defense saving certificates are people who have no other means of income, and do not have the resources and energy to invest their money in the business, hence they look towards such schemes. Why not make it mutually beneficial for both parties, i.e. the people and the treasury...

4

Economically speaking this is good. The original interest rates are appallingly high. Badsha makes the correct assessment. If you rent at 5 but you will pay back 10, you are making a loss of 5%. That loss once multipled with the population size could easily result in millions of rupees of lost revenue, forcing us to borrow even more internally and abroad.

Our internal debt is so huge that we could never pay it off, yet we are paying interest on it when we dont have the cash to do so. Pakistan is not a social welfare state. It doesnt have the foundation or the social structure to do so. Let alone the money. If it is possible we should do it by all means. But until then people have to tighten their belts.

Though completely morally unacceptable the government has no choice.

5

[QUOTE]
*Originally posted by Spock: *

Baadsha... Why not? Keep in mind that these defence saving certificates mature after a while, presently 10 years... Until these 10 years, the Government has got its hands a formidable amount of money... It adds to the financial backbone of the country, and since it was mostly the poor people (and the middle class to some extent) who were benefitting from this scheme, I'd say it should be promoted... Keep in mind that most of these investers in defense saving certificates are people who have no other means of income, and do not have the resources and energy to invest their money in the business, hence they look towards such schemes. Why not make it mutually beneficial for both parties, i.e. the people and the treasury...
[/QUOTE]

Thing is that inorder to fund this additional surcharge that the government has to pay it has to borrow, yet falling into the cycle of debt trap. The middle-class or the poor would be better advised to invest this money in businesses directly if there requirment is not being paid by the interest. that will generate business activity and create addititonal jobs. And I can ask u a reverse question. Primarily in Pakistan it is the middleclass that is taking the brunt of taxes. Why should they be asked to pay tax that will fund ineffiecient use of there hard earned money, shouldn't there tax revenue be better spent on roads, schools etx... rather then runniing an ineffecient scheme.

6

[QUOTE]
*Originally posted by CM: *
Economically speaking this is good. The original interest rates are appallingly high. Badsha makes the correct assessment. If you rent at 5 but you will pay back 10, you are making a loss of 5%. That loss once multipled with the population size could easily result in millions of rupees of lost revenue, forcing us to borrow even more internally and abroad.

Our internal debt is so huge that we could never pay it off, yet we are paying interest on it when we dont have the cash to do so. Pakistan is not a social welfare state. It doesnt have the foundation or the social structure to do so. Let alone the money. If it is possible we should do it by all means. But until then people have to tighten their belts.

Though completely morally unacceptable the government has no choice.
[/QUOTE]

I dont care if its economically good or not... In case you didnt know, most people are withdrawing and shying away from this means of income now... A relative at the National Defence Savings Certificate himself told me that these days everyone is cashing in on their certificates, which have not yet matured. We used to have 10 of these 5-thousand certificates, and we cashed them in, last time the government decreased the profit margin, and increased the maturity rate. There are foriegn banks like Standard Chartered which are offerring better schemes. So beta, economically it aint that good, since all the people are bestowing less and less trust upon the Government with their capital. Its just like how uncle Nawaz freezed all the foriegn currency accounts, shattering the little trust people had in the Government. Hell, people werent even sure if they could safely keep their jewellery in Government owned bank lockers, let alone investing... And you think its a good thing? You are right, morally its not acceptable, but removing duty on lavish cars and lessening the profit for poor people doesnt really make sense. I say hunt down the rich, not the poor... Kher, I am also looking for an opinion from someone who has invested in these savings certificates...

7

And you think its a good thing? You are right, morally its not acceptable, but removing duty on lavish cars and lessening the profit for poor people doesnt really make sense. I say hunt down the rich, not the poor... Kher, I am also looking for an opinion from someone who has invested in these savings certificates...

My aunty invested her retirement savings in the saving certificates. She's 70 plus, a widow, this cut will hit whats left of her savings as well and don't forget it's summer in Pakistan. 50 Celsius and electricty bills are sky high. I know the economic reasons but the effect will be devastating on the people worst off.

8

[QUOTE]
Originally posted by Zakk: *
*And you think its a good thing? You are right, morally its not acceptable, but removing duty on lavish cars and lessening the profit for poor people doesnt really make sense. I say hunt down the rich, not the poor... Kher, I am also looking for an opinion from someone who has invested in these savings certificates...

My aunty invested her retirement savings in the saving certificates. She's 70 plus, a widow, this cut will hit whats left of her savings as well and don't forget it's summer in Pakistan. 50 Celsius and electricty bills are sky high. I know the economic reasons but the effect will be devastating on the people worst off.
[/QUOTE]

Exactly... The Government calls this an income source scheme for the widows, aged/retired people... Now income sources are supposed to go up, along with these utility bills and rising costs. They are not supposed to go down, like this, so that we can post better figures on economy on gupshup, while people in pakistan die of hunger... We should have some sympathy with these people...

9

I think that we as Pakistani's have to make a decide which way we want to run our country. Do we want to run it on a capitalist economy, where the market will be given the choice to determine the price or as a failed socialist nation. Heres the problem Mr. Spock, (keep a cool head for a second)...what is happening is that the government is being forced to borrow at high interest rates thereby raising debt. Which leads to higher inflation. You see the problem... here.... I feel sorry for these people but they would be better advised to invest in other areas, stock market is booming so why not there. Or perhaps other areas. THe gov't should invest in roads to remote villages so that agrcutlutre can be trasnsported creating jobs. So lets drop these old policies which have led us to our present state, and invest smartly, put the nations interest first.

10

[QUOTE]
*Originally posted by Bhadsha: *
I think that we as Pakistani's have to make a decide which way we want to run our country. Do we want to run it on a capitalist economy, where the market will be given the choice to determine the price or as a failed socialist nation. Heres the problem Mr. Spock, (keep a cool head for a second)...what is happening is that the government is being forced to borrow at high interest rates thereby raising debt. Which leads to higher inflation. You see the problem... here.... I feel sorry for these people but they would be better advised to invest in other areas, stock market is booming so why not there. Or perhaps other areas. THe gov't should invest in roads to remote villages so that agrcutlutre can be trasnsported creating jobs. So lets drop these old policies which have led us to our present state, and invest smartly, put the nations interest first.
[/QUOTE]

Baadsha, well you advised that the people should look elsewhere... Mutually, this will not help either the Government, or the people... The capital is likely to go elsewhere, and believe it or not, alot of businessmen in Pakistan are accepting large amounts of money from people, and giving them huge profits in return, much much more than these certificates, but then again, the people are robbed of the security that comes with having invested with the Government, and the Government is void of the capital.

You advised these people should invest in the stock markets etc. I wish you could get the chance to visit a defence savings office, located throughout the country, and see the people who invest in it. Most of them do not have the resources to deal with the hassles of the stock market, which involves a risk. Alot of these people are retired personnel, widows etc; and alot of them are not educated. This scheme used to be a magnificent, yet easy oppurtunity for them to keep their 'choolhas' burning. Its just that the Government has targetted the wrong people this time. I

11

Apparently someone doesnt know about the majority of the people investing in NSS. i dont know where you are right now, but if you were in pakistan you would know what goes on behind the garb of income for the poor gimmick. i am all for the govt reduing the interest rates.

low interest rates should, theoratically induce investment. If those same people who were doing nothing but sitting on their asses making easy money from NSS started investing in pakistan, it'd not only do them good but also to the country.

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[QUOTE]
*Originally posted by ChthonicPowers: *
Apparently someone doesnt know about the majority of the people investing in NSS. i dont know where you are right now, but if you were in pakistan you would know what goes on behind the garb of income for the poor gimmick. i am all for the govt reduing the interest rates.

low interest rates should, theoratically induce investment. If those same people who were doing nothing but sitting on their asses making easy money from NSS started investing in pakistan, it'd not only do them good but also to the country.
[/QUOTE]

Yar, people with huge capital, can probably (and do) invest their money in something that yields them alot of money, alot more than what this scheme offers. My house is right next to a defence savings certificate center, and as a general observation, mostly old/retired people are the regular visitors to that place. There are occasional middle class people, but generally the big shots like to invest where they get more 'rokhra'...

Assuming what you said is true, why not put some restrictions on the purchase of these schemes, for instance, one has to be above certain age limit, or has to be a widow to be eligible to buy these certificates?

13

If those same people who were doing nothing but sitting on their asses making easy money from NSS started investing in pakistan, it'd not only do them good but also to the country.

So my 70 year old Aunty who worked as a teacher all her life and who is a heart patient is sitting around doing nothing?

One of the few good things Nawazo did before being booted out was announce a package for pensioners. It was fairly well thought out, unfortunately the whoel thing was shelved because of October '99 coup. It is sad to say but the Mush govt has been fairly anti pensioners.

14

[QUOTE]
Originally posted by Zakk: *
*If those same people who were doing nothing but sitting on their asses making easy money from NSS started investing in pakistan, it'd not only do them good but also to the country.

So my 70 year old Aunty who worked as a teacher all her life and who is a heart patient is sitting around doing nothing?

One of the few good things Nawazo did before being booted out was announce a package for pensioners. It was fairly well thought out, unfortunately the whoel thing was shelved because of October '99 coup. It is sad to say but the Mush govt has been fairly anti pensioners.
[/QUOTE]

You are right... Even the golden hand shake scheme, that he came up was an excellent one, but for some reason, he shelved it in 1998 I believe... The Government has to give more emphasis towards the needs of these reitred pensioneers, as the little amount of money that they get, cannot cope with the present price hikes of today.

15

Anybody heard about riba/interest/usury and its prohibition???

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[QUOTE]
*Originally posted by Spock: *

Baadsha, well you advised that the people should look elsewhere... Mutually, this will not help either the Government, or the people... The capital is likely to go elsewhere, and believe it or not, alot of businessmen in Pakistan are accepting large amounts of money from people, and giving them huge profits in return, much much more than these certificates, but then again, the people are robbed of the security that comes with having invested with the Government, and the Government is void of the capital.

[/QUOTE]

Mr. Spock the government is not void of capital I don't know where u got that from... The government can easily lift the capital from financial market, which it is much cheaper to do..at the present rate I belive is 5%. When people give that money to Businessmen who gives them high returns..it is not only good for that one person but for all of pakistan. As it means higher revenue through taxes, and khusuhhali in Pakistan.
The world of Economics is much more complex then u've made in ur argument..I wish it were that simple that way...all african countries would prosper. these stories of poor old retirees is nice, but the major beneficieries are wealthy families who allready have to much...

17

[QUOTE]
*Originally posted by Bhadsha: *

Mr. Spock the government is not void of capital I don't know where u got that from... The government can easily lift the capital from financial market, which it is much cheaper to do..at the present rate I belive is 5%. When people give that money to Businessmen who gives them high returns..it is not only good for that one person but for all of pakistan. As it means higher revenue through taxes, and khusuhhali in Pakistan.
The world of Economics is much more complex then u've made in ur argument..I wish it were that simple that way...all african countries would prosper. these stories of poor old retirees is nice, but the major beneficieries are wealthy families who allready have to much...
[/QUOTE]

Well, firstly, these people giving money to all these businessmen, nothing in that is legal... To be short, its very insecure.

Oh, and these wealthy families you mentioned, this little 8% return rate after 10 years on these defence certificates is nothing for them, they can make this profit in a few days chanda, I know you support musharraf no matter what he does, but you have to admit, this is one bad move that will affect the poor people.

Even if we go by your logic... This capital ending up in the hands of businessmen, rather than the Government is not a good thing. Look at the East, how their Government has a strong financial back bone, whilst ours doesnt...

18

[QUOTE]
*Originally posted by Islamabad: *
Anybody heard about riba/interest/usury and its prohibition???
[/QUOTE]

Please, go read the last para in my first post... Besides, this is described as profit, that the people get by doing business with the Government, so take this riba stuff elsewhere, we have a country to run...

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[QUOTE]
*Originally posted by Spock: *

Even if we go by your logic... This capital ending up in the hands of businessmen, rather than the Government is not a good thing. Look at the East, how their Government has a strong financial back bone, whilst ours doesnt...
[/QUOTE]

Mr. Spock Pakistan runs on the principle of capitalism. where private industry accounts for majority of industry. Are u proposing that we not lend any money for private investment and lend all to government?

So that the private industries collapse leading to massive unemployment. Regarding illegal nature of certain businessmen that is a problem and rather then investing with them, u should report them to the proper authorities. anyways. I think I have given u my point and the conversation has become redundant. And yes I'm a Musharraf fan, I like sinceere people who work for welfare of pakistan.........

20

[QUOTE]
*Originally posted by Spock: *

Please, go read the last para in my first post... Besides, this is described as profit, that the people get by doing business with the Government, so take this riba stuff elsewhere, we have a country to run...
[/QUOTE]

I think the deniers of riba as interest need to go somewhere else. The Supreme Court in Pakistan had givena verdict about Riba- all kinds of dealings which present day banks engage in is riba!!! What kind of business are you talking about??? Hoarding wealth with a bank and not engaging in any economic activity??

The country can very well be run without interest. For your info, the rate of interest in Japan is 0 % or below it, and the country is running!

Its not a matter of a bunch of people like you un-validating interest in banks as riba. This system which has been running in parallel in Malaysia as well as Sudan. Go look up what the Quran says regarding riba, and open your eyes!