Small savers, particularly the pensioners, are now in a quandary about the destination of their funds.
They have three investment options -- time deposits with banks, stock market and the state-owned savings instruments -- before them. But all the options have, apparently, lost the ability to lure because of their unattractive rate of return.
The interest rates offered by the banks on time-deposits are highly unappealing. If adjusted with the current rate of officially estimated inflation, the return a saver gets from his/her fixed deposit with banks is either very marginal or in the negative territory.
Notwithstanding the risks, a section of elderly people and retired government or private sector officials used to invest a part of their funds in stocks. Being informed and long-term investors, they were not in the market to become rich overnight. Two particular reasons worked behind their coming to the stock market. One was the income they used to earn from dividends and stock trading and the other was the opportunity to spend their idle time discussing stock-related issues with fellow investors at stock brokerage firms.
The collapse of the market in December 2010 had driven these people out of the market and they are finding no justified reasons to make a comeback. The so-called reforms, including demutualisation of the bourses, have failed to buoy up the market even after more than five years since the crash. So, investment in listed stocks is no more on the savers' list.
The third option -- government's savings instruments -- remains to be the best of the lot. The government though coming under pressure from the bankers and the International Monetary Fund (IMF) has reduced the yield rates, the savings tools are still providing a little bit of comfort to the small savers.
However, given their tenures -- from three years to five years -- the rates of return from the savings instruments is low. The actual average rate of return from investment in savings tools is around 5.0 per cent following their adjustment with the current rate of inflation, estimated by the state statistical organisation, the Bangladesh Bureau of Statistics (BBS). Many, however, tend to take the data compiled by the BBS with a grain of salt.
Many savers, particularly the elderly people, tend to avoid the savings tools because of the long maturity period. They here usually take into cognizance the possible health-related emergency situation. Also there is a limit on an individual's holding of the government's savings instruments. That limit has not been raised though the yield rates have been lowered. As such, there is no way for the elderly people who are dependent on some steady level of monthly earnings for their livelihood to maintain now the same level of such earnings as that of what they could do earlier, following the cuts in yield rates. That also illustrates their predicament now. They cannot invest even their white money in government's savings instruments beyond the limit that was set a long time back.
Yet under the prevailing circumstances, many savers do find such instruments better-paying. This is evident from their sales in recent months. The government had fixed a target of selling the savings certificates, known as Sanchaypatras, at Tk 150 billion during the current financial year (2015-16). But because of higher demand, a decision, reportedly, has been made to raise the target to Tk 210 billion. The actual sale might even surpass the revised target.
The government would not mind paying a few extra bucks on account of higher payment of profits to the buyers of the instruments in view of the lower-than-expected mobilisation of tax revenue by the National Board of Revenue (NBR). Moreover, it is now paying a lesser amount as profit to the holders of savings instruments than before.
In fact, the small savers are in a very difficult situation. The banks are virtually paying no return to the depositors in the name of lowering their so-called spread. The government does pay some return. But that is not enough for survival.
The banks are doing business. Legally, it is hard to blame them if they fix the market-based lending and deposit rates. These days, there are no many takers of bank loans. In a depressed market, obviously, both lending and deposit rates would go down. However, in Bangladesh market, the spread is relatively high, partly because of the greater provisioning requirement on account of classified loans.
But the government is not a bank. It has the constitutional responsibility to look after the welfare of the people, including the small savers. The buyers of savings instruments would have been happy with the current rate of return or even less, had the inflation been at a level between 2.0 and 3.0 per cent. But the government has failed to bring down the inflation to such a low level.
However, nobody minds a 6.0 to 7.0 per cent inflation if the economy is vibrant enough to attract sufficient investment and generate a greater number of employment opportunities. The Bangladesh economy has been growing at a 'decent' pace. But what is, apparently, missing in it is the much-needed 'warmth'.