Banking transactions during Eidul Azha

Published July 26, 2021
Gross withdrawals from bank accounts a month before Eidul Azha give a crude hint of spending on sacrificial animals through banking transactions. — Reuters/File
Gross withdrawals from bank accounts a month before Eidul Azha give a crude hint of spending on sacrificial animals through banking transactions. — Reuters/File

Every year, hundreds of billions of rupees are withdrawn from bank accounts before Eidul Azha. But it is difficult to quantify the drawdown on deposits to finance the purchase of sacrificial animals. Life beyond the trading of sacrificial animals continues, necessitating banking transactions.

Gross withdrawals from bank accounts a month before Eidul Azha, however, give a crude hint of spending on sacrificial animals through banking transactions. Trading in these animals financed through movements of funds out of the banking system, due to the presence of a large informal economy is totally different. And that constitutes a large part of spending on Eidul Azha economy. An interesting part of the story is that even the money circulating in the informal economy and changing hands during Eidul Azha partially flows towards the banking system. And conversely, part of the money withdrawn from banks ahead of Eidul Azha gets lost in the vortex of pre-and-post Eid transactions outside this system.

During Eidul Azha of 2020, gross withdrawals totalled Rs327.6 billion two weeks ahead of the Eid, a careful reading of the State Bank of Pakistan’s (SBP) stats show. A large part of it can be linked to the trading of sacrificial animals. But this happened just after Pakistan’s economy declined by 0.5 per cent in 2019-20. (Last Eidul Azha was celebrated on July 31, 2020 — exactly a month after June, the last month of Pakistan’s fiscal year).

This year the situation is far better. Pakistan economy grew by about 4pc in 2020-21 that closed in June. We can rightly expect expansion in the trade of sacrificial animals and, hence, larger gross withdrawals from bank deposits. But one will have to wait till mid-August to see the impact of Eidul Azha 2021 on banking deposits because by that time SBP would have hopefully updated the stats on gross deposit withdrawals immediately before Eid.

Money circulating in the informal economy and changing hands during Eid partially flows towards the banking system and conversely, part of the money withdrawn from banks ahead of Eid gets lost in the vortex of transactions outside the system

Regardless of how effectively movements in banks’ deposit base can reflect larger spending on sacrificial animals this year compared to the last year, reading of those movements would be interesting.

What is going to make that reading more insightful and interesting is that unlike during last Eidul Azha a unique factor had already caused a surge in banks’ deposits ahead of this Eid.

Apart from economic growth that leads to natural growth in bank deposits, the gushing flow of foreign exchange via Roshan Digital Accounts of overseas Pakistanis caused an expansion in the deposit base of banks. These accounts became operative after the previous Eidul Azha, in September last year. Their impact on Eidul Azha 2021 related drawing on deposits will be felt for the first time now.

As mentioned earlier, gross withdrawals from bank deposits ahead of Eidul Azha can crudely indicate the extent of withdrawals meant for the purchase of sacrificial animals. But the SBP, economic think-tanks and reputed institutions of higher studies in economics and finance can develop statistical research models and tools to quantify such withdrawals with some accuracy. Readings of the movements of bank deposits with the help of such models and tools will be helpful in developing a more informed opinion of how much money changes hands via banking transactions during Eid-ul-Azha.

Some economic think tanks and institutions of higher studies have already conducted studies to estimate overall Eidul Azha spending in Pakistan and its impact on the redistribution of resources. The development of analytical tools and statistical models for estimating money circulation via formal channels ahead of Eidul Azha seems to be the natural follow-up of those studies.

The phenomenal growth in electronic banking and e-commerce has facilitated the trade of sacrificial animals just as it has facilitated the entire spectrum of all trade transactions. At the same time, it has also changed the dynamics of banking transactions ahead of Eidul Azha.

Previously, there used to be a time lag of four to six weeks between pre-Eid withdrawals and their ultimate return to the banking system after changing hands and after partial loss to the undocumented economy. But e-banking has reduced this time lag. It is difficult to ascertain how quickly the money withdrawn from banks ahead of Eidul Azha now finds its way back into bank deposits.

But a careful reading of the relevant stats of last year reveals the time lag was no more than three to four weeks. For this year, this time gap may turn out to be even shorter — thanks to a meteoric rise in e-banking amidst the Covid-19 pandemic. (At the end of June 2020, ie just before Eidul Azha 2020, mobile phone banking users and internet banking numbered 8.188 million and 3.814m respectively. By the end of March 2021 ie more than three months before Eidul Azha 2021, these numbers surged to about 9.858m and 4.979m, according to the latest SBP stats).

In addition to movements in banks’ deposits, another thing that is important to notice ahead of Eidul Azha is banks’ agricultural lending in general — and their lending to the livestock sub-sector in particular, growth in personal loans as well as growth in lending to small- and medium- enterprises (SMEs), particularly trading SMEs.

Increased or decreased general lending to agriculture may partly explain changing financial needs of agriculturists ahead of Eidul Azha.

And, increased lending to the livestock as well as a larger offtake of personal loans can be attributed, at least partially, to spending on sacrificial animals.

Similarly, increased lending to trading SMEs a few months before Eidul Azha may also be attributed, to some extent, to the financing of sacrificial animals’ trade. But these proxies have their limitations. It is difficult to assess, for example, how much of general agricultural lending in a year of high agricultural growth is taking place due to this sectoral growth and how much in relation to Eidul Azha. Or, how much of higher lending to the livestock sector ahead of Eidul Azha is due to investment being made in sacrificial animals and how much due to other factors. Larger personal loans offered before Eidul Azha may also show an increasing trend for other reasons like people’s and businesses’ fight against Covid-19 induced joblessness with the help of extra-concessionary loans being offered under the government’s economic stimulus package.

Published in Dawn, The Business and Finance Weekly, July 26th, 2021

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