Lahore: Only 300,000 people of over 200 million population of Pakistan go to capital market to invest their savings, says Haroon Askari, Deputy Managing Director of the Pakistan Stock Exchange.

The ‘Capital Market Development Plan (2016-18) issued by the Stock Exchange Commission of Pakistan early July also stated that an insignificant number of retail investor invest through the market.

Munawar Irshad runs a small business in Lahore. All her life she had been a housewife until her husband fell ill and she started making bed sheets at home. Initially, all her investment went to buying a home and settling down in a new life pattern. When the time arrived for saving, she found herself in a quandary. Having an Islamic background, she firmly believes that saving money in commercial banks is haram (forbidden). The only resort left was Islamic Banks.

“Though I was satisfied that I had saved my money in an Islamic Bank, I was not happy with the rate of return nor with the services being provided. Sometimes they would give me interest at the rate of eight per cent, at times 7.5 percent and at another occasion nine per cent.”

Whenever she asked them that why would the interest rate fluctuate only half percentage up and half percentage down and not more than that, they would simply give a smile and said that it was Islamic way of not providing fix profit rate, Irshad said.

Eventually, Irshad took the money from the bank and invested it in National Defence Certificate. She was not happy with the interest rate either.

“I am not market savvy and do not know where else could I put my money for a better return.”

Arif Habib, a corporate chief executive, said the predicament faced by Irshad is what an ordinary person in Pakistan faces when it comes to making choices about where and how to make the investment.
“Pakistanis still do not know how to make the investment,”he told News Lens Pakistan.

“Our people lack proper knowledge about the capital market the reason why they either invest their money in banks that give a very meager return, or they invest it in real estate or only buy gold or foreign exchange.”

There is a lot of potential for the ordinary investor in the capital market. Media, he said, could play a role in educating and informing the public about the potential of investing in stock market. People usually avoid taking risks and fear that equity markets are necessarily fluid. A good exposure through media could alleviate this apprehension and may open new avenues for investments.

The average saving rate as a percentage of Gross Domestic Product in Pakistan is as low as 13.92 per cent compared to 31.9 per cent in India, 29.7 per cent in Bangladesh and 24.5 per cent in Sri Lanka.

“The capital market in Pakistan has a minuscule investor base,” said Qais Aslam, Professor of Economics at the University of Central Punjab Lahore.

Aslam told News Lens Pakistan that less than 50 per cent of national savings goes to financial sector. The rest finds its way to other capital formations.

“When people are not exposed to investment opportunities and when there are no incentives by the government either, small investors find the informal sector attractive both in term of low entry barriers and less legal formalities. It is this reason why our informal economy makes 70 percent of the entire economy,” Aslam said.

He said this undocumented economy could be providing job opportunities to many people, but it is not adding value to the economic well-being of the country due to tax evasion.

Experts are unanimous that when domestic savings decrease, countries tend to look to foreign donors for loans that put pressure on budgetary allocations for development projects. Pakistan gives almost 60 per cent of its budgetary funds to retiring debt.

Small saving is also attributed to low income in Pakistan. Per capita income is $1152.14. By any standard it is low income and one of the main reasons why saving rate is so low in Pakistan, said Qais.

According to empirical evidence, per capita income and household’s saving have an active relationship between them. If the per capita income increases, household savings also increase and vice versa.
Shakeel works in a garment factory. According to government’s wage policy, he should be drawing Rs 13,000/month, which though is not sufficient since he has to look after his parents and four siblings, still it is worth taking something substantial back home. He gets only Rs 9,000/month.

“I have been trying to get a job of Rs 13,000, but nobody was willing to pay me that much, at least this factory is paying me Rs 9,000,” Shakeel told News Lens Pakistan.


“I am a poor man. My entire day is spent earning for my family. I know that if I ever file a complaint against my boss, I would end up nowhere. The government will not do anything, and I will lose my job. The chances are I will earn a bad reputation and might not get any job in future,” Shakeel said.

Shakeel does not save anything because he does not earn even as much as to fulfill his basic needs, while women like Irshad find it hard to invest in a productive place.


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