When interests rates are really low and inflation is perceived to be very high, phony finance companies and brokerage firms spring up, making all kinds of offers to the troubled people. And that has been happening for a few years.Earlier,a great many people had been cheated in this manner in the 198O’s and most of the swindlers had got away with it.

Now when the interest rates are very low, and the government is adding taxes on interest earnings, and the banks are levying penal charges on low deposits, the prospects for such companies to flourish have increased a great deal.

But in recent times the emphasis is not so much on local currency but on transactions in foreign currencies through brokerage houses, and in the process they have sent a good deal of money to Dubai and other Sheikhdoms in the Gulf. But the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP) are far more vigilant than before and have now identified 55 non-banking companies which are doing illegal banking transaction, and the FIA headquarters in Islamabad has directed two Circles —CCl and CC21 in Karachi to start inquiries into the allegations against the suspect forex and brokerage companies.

Such inquiries are going on along with the inquiries into the operations of the old Alliance Motors of Samad Dadabhoy and others who cheated thousands of persons of billion of rupees in the 1980’s. The inquiry against Alliance motors had come to a tragic end when the police officers holding the enquiry ultimately transferred all the assets from Karachi to their homes in the interior of Punjab. The racketeers had also made use of the Taj Company, which prints the Holy Quran and other Islamic books. Finance minister Shaukat Aziz told the National Assembly last week, the company held in great reverence by the public earlier, had to pay Rs2.5 billion to 23,078 persons— while millions of rupees had been paid to some persons, billions remain to be paid.

The operators made full use of the cooperative banks and societies in the Punjab and the National Accountability Bureau (NAB) has now submitted two references against the defaulters in the defunct Services Cooperative Credit Cooperation before an accountability court in Lahore. They are accused of misappropriating Rs52.4 million out of the cooperation’s funds and Rs18.6 million which has now become 21.4 million including the mark-up.

The depositors are very disappointed with the low interest. offered by the banks on their savings which can be around four per cent. In addition, the banks propose to charge Rs50 to Rs300 a month as penalty for keeping low deposits without directly communicating the same to the depositors. Many of the banks want the savers to have a minimum deposit of Rs5000, while the foreign banks expect a larger deposit.

All this is a large leap from the 1950s when school children were being urged to open bank accounts with Rs1 to popularize the saving habit. Low national savings is still a major problem of the country and a national saving of 15 or 16 per cent is too low, compared to the national savings of other developing countries in the region.

Now that more and more banks are being privatized or private banks are coming up, they have purely a commercial approach to their transactions and high profit is their ultimate objective. They are not ready to sacrifice profits for the sake of popularizing national savings.

The National Savings Organization (NSO) has also slashed its interest rates on savings, while the 10 per cent tax on interest earnings discourages savings further. And the government has exempted only deposits up to Rs150,000 of widows and pensioners from its ten percent tax. But this is token relief and not helpful enough to even low income pensioners and widows.

Instead of promoting savings in a poor developing country, Pakistan is seeing a consumer spending spree and consumer banking is being popularized particularly to buy foreign luxuries. As a result there has been small productive investment and economic expansion outside the agricultural sector is small in a country with a population growth of 2.5 per cent annually if not the old 3 per cent.

The government may argue there is so much surplus cash available in the market, as a result of a good deal of money coming from outside as home remittances on an average of $300 million a month. Hence it proposes to come up with jumbo bonds for Rs30-40 billion. But Mr Shaukat Aziz who announced the news of the bonds has not spelt out the terms, particularly its duration and the interest rate. But this is a small amount compared to the overall supply of money available in the market and the monthly inflow of $300 million.

Upper middle class elements rushed to the stock exchange as the KSE index began going up, in fact, sky rocketing by our standards. But after the KSE 100 index slipped down by 207 points on Wednesday following its prior rise to 4600 points, the investors on the stock exchange or speculators are bound to watch. Anyway the rise in the stock exchange cannot be a one way street always, as they say, what goes up fast has to come down.

Mr. Shaukat Aziz says the government wants to retire the costly debt, first particularly of the IMF, after borrowing from the market at a lower rates can make use of some of the surplus funds in the market.

There is a great deal of talk about public-private partnership by the officials. That appears to be a new world trend. But how that can be achieved successfully in a country in which both the private and public sector have dark chapters remains to be seen.

Anyway the present trend is an unhealthy one. Consumer banking which helps house-building is something to be welcomed, but if that means more of mindless consumer luxuries on credit which are imported that is not to be welcomed. The local industry needs help including a larger investment through higher savings, which have to be assiduously promoted by the government. And since the banks will now be promoting mainly commerce and trade, the NSO has to play a more positive role in encouraging savings regardless of what the World Bank or the IMF may say in this area.—S.A.