Small savers\' woes

Mr. Hemeyet Udddin is a retired mid-level government official. He has his wife and a daughter. The daughter is still studying in a public university. He does not own any house or residential flat in Dhaka city. His major source of earning is the return he gets from his Sanchayapatra (a government savings tool). Mr. Hemayet is worried about the prospect of further lowering of the yield rates of the sanchayapatras by the government coming under pressure from the banks, trade bodies and the International Monetary Fund (IMF). 

 

Mr. Hemayet is not the only man to be anxious. Others in their thousands are no less concerned. Retired private and public servants, widows and other fixed income people have already seen erosion in return they used to get a year back on their investment in government savings tools. 

 

The average rate of return was then over 13 per cent. Now it is little over 11 per cent. Besides, there is a cap on individual investment in such savings instruments. One cannot just put in as much as money he or she likes in the Sanchayapatras unlike the government bonds. Savers avoid the government bonds since the country's bond market is very much underdeveloped. Unloading of bonds remains a problem for the investors. 

 

The government's savings tools though attractive, in terms of return, have one flaw -- its tenure. The minimum tenure of a Sanchayapatra is three years. Many people cannot afford an investment for three to five years. These people used to prefer time deposits with banks over savings tools. Banks did pay interest at rates as high as 10 to 11 per cent and non-banking financial institutions 1.0 to 2.0 per cent higher. But the banks in the name of narrowing their spread are now offering a maximum of 7.0 per cent on fixed deposits as against the official rate of inflation at 6.2 to 6.5 per cent. It does mean that one gets nearly zero return on one's fixed deposits. If the money is kept in savings accounts, the return is in the negative --minus 2.0 to 3.0 per cent. The banks offer 3.0 to 4.0 per cent interest on savings deposits. But some banks under different pretexts deprive the savings accountholders of his/her due interest. The issue has remained unaddressed as the central bank is not adequately attentive to protect the interest of the depositors, particularly the small ones. 

 

In fact sceptics who have doubts about the genuineness of the inflation estimate done by the state statistical organization---the Bangladesh Bureau of Statistics BBS) -- do claim that the return on fixed deposits with banks is also in the negative. 

 

With return on investments in banks and savings tools drying up, the stock market remains to be the third available option for investment for the small savers. However, not all people invest funds in stock market. Some do avoid it for the risk factor and some others consider it as a house of gamblers. 

 

But, presently, the Bangladesh stock market is not liked by any investor, old and new. It is more like an abandoned house. The damage caused to it by the manipulators in their latest plot to fleece the investors, particularly the new entrants, has been extensive. The government through the securities regulator has tried to buoy up the market but it has largely failed. The market has not responded. With daily turnover remaining low, the investors are showing no signs of a comeback anytime soon. 

 

Notwithstanding the claim often made by some market insiders that it was time for the investors to put in their money in stocks, the fact remains that issues that are offering better return are over-priced. The return investors concerned would be getting from investment in these stocks would be highly negligible. They might expect better return later. But for that investment has to be for longer period. 

 

Usually, mutual funds (MFs) are best investment options for small savers. Worldwide MFs are considered the safe investment tool for small savers since it does have investment in a wide variety of stocks. Besides, it puts a part of its money in safe money market instruments. The MFs are expected to offer a reasonable, if not big, return on the issue holders. 

 

But in the case of Bangladesh, among all segments of the listed issues, the MF industry has been the worst-hit following the collapse of the market in 2010. The majority of the close-end MFs have the market worth well below their face value. Mismanagement of the funds, allegedly, by the asset-management companies (AMCs) concerned is blamed for the deplorable state of the MFs. Lately, the Bangladesh Securities and Exchange Commission has taken a few steps to revamp the industry. But the overall situation prevailing in the market does not make one that much optimistic about any turnaround soon.

 

So, the small savers, as of now, do not have that many viable options to put in their money that would fetch a respectable return at the end of the day. All concerned, the banks, the government and the AMCs do their part of arithmetic in relation to business, but they hardly take into cognizance the problems the small savers are facing now. 

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