As long as real inflation is high and interest rates of banks on deposits are very low, and the rates of the National Savings Schemes are only slightly better, the people will take undue risks to earn far more on their saving deposits.

That is all the more so when the food inflation is high, around 10 per cent, as it is now, which affects 60 to 70 per cent of the people harshly in a country with large families.

In such an environment, phoney schemes promising to pay far more on deposits come up in plenty to grab the deposits and misuse them after a couple of attractive initial payments. The people who have been duped more than once in this manner blatantly do not become wiser as they hope to do better this time.

Warnings of the government, the State Bank of Pakistan (SBP) and cautious elders in families against such South Sea Bubble schemes with their lavish promises have small impact on the people with small or substantial savings. And they include widows who ought to be more cautious and the pensioners who should know better.

The latest in such series of deceptions are some phoney foreign exchange companies who collected the dollars promising large returns and then vanished from the Punjab.

The government is now coming up with schemes to pay better dividends to the savers without it having to shell out the extra money from its coffers. One of the major proposal is to make the National Savings Organization (NSO) into a corporate entity.

Dr Ishrat Husain, governor of the SBP, wants to turn the Rs900 billion deposits of the NSO into equities. That means the large fund becomes a mutual fund, like the NIT, and enables the deposits receive better dividends through investing the fund into the equity market with its high current divided.

Simultaneously the SBP wants to introduce the bank deposits insurance scheme to protect the deposits of the people. This proposal had been mooted from time to time since the process of denationalisation of banks began and a large number of private banks too, came up, some to collapse too quick.

The move for deposit insurance has gained new urgency following 80 to 90 per cent of the bank shares coming into private hands. The latest to be privatized are the Habib Bank and the United Bank and the left-over shares of the Allied Bank.

When the National Development Finance Corporation collapsed it was merged into the National Bank, which compensated the deposits holders of the defunct non-bank development finance institution.

But now the deposits insurance scheme has to come into its own and protect the depositors, at least the small ones. The State Bank has constituted a working group to initiate the scheme and the group headed by the director of the banking policy department is studying how the scheme operates in nine countries of the world successfully.

What matters for the people is the maximum amount of deposit which could be insured and the rate of premium for the insurance, which should be reasonable. One suggestion is the banks themselves should pay the premium since only the small deposits would be insured, and not the depositors themselves.

Anyway such insurance is a must now following the expiry of the guarantee of the deposits, introduced when the banks were nationalised in 1974, is no longer valid.

Dr Ishrat Hussain wants stock exchanges in Pakistan play a far larger role than they are doing now for the rapid economic development of the country and wants far more companies listed on the bourses. But as the non-listed companies get the same tax treatment like the listed companies.

Now there is no incentive for large companies to get listed on the stock exchanges. The Karachi Stock Exchange has reduced its listing fee by 40 pre cent and yet more companies are not getting themselves listed as they have no tax advantage in doing that.

The KSE and other exchanges want tax relief for companies which get listed on the exchanges and have been clamouring for that for long. And Dr Ishrat has promised to support their demand in the relevant official circles.

We had in the early 1990s the Alliance Motors and other sponsors of phoney finance companies which received very large funds from the people promising to multiply them and then vanished. Those who put their money on Alliance Motors are less unlucky than others as they got a part of the money back recently.

Even the Taj Book Company, printers of the Holy Quran and other religious books, joined in this race and received very large funds. the people who placed their money at its disposal thought the printers of holy books would not cheat them. But the management of the Taj Book Company indulged in excessive speculation.

In the Punjab it was the cooperative societies alone which went for such speculation and swindling of funds. Some of the depositors have been lucky to get some part of that money.

Now come the foreign exchange companies in the Punjab. Some of them who had collected large sums have vanished. The SBP and the Securities and Exchange Commission (SECP) are emphatic these companies had no authority to take to such illegal trade and they must be punished for their serious offence.

While most average investors are keeping away from the stock exchange as it has become too much of a big man's game, more and more people are buying the shares of privatized companies and profiting by them.

A record has been set for the Pakistan Petroleum Ltd. whose 75,500 applicants have deposited Rs21 billion. When the PSO gets privatized the applicants may be far larger.

Though this process the people may get more and more involved in the stock exchanges. Even otherwise their interest in the stock exchanges will increase if the Rs 900 billion is made into a mutual trust whose funds are employed on the stock exchange.

Mr Arif Habib, chairman of the KSE, says during the last two-and-a-half years the KSE's share index grew by 300 per cent, market capitalisation by 400 per cent and average daily turn over of shares by 300 per cent.

And the KSE is encouraging the small share holders through on line trading, and some of its members are opening share selling outlets in various parts of the city and educating the small investors as well.

The very bright picture of the NIT, which was in the dumps until three years ago and the current return of Rs2.55 per unit, have delighted the people who look forward to the conversion of the NSO to a mutual fund or several funds.

The turn around of the NIT became possible through the turnaround in the corporate sector and the robust stock exchange. What would happen if another setback to the capital market comes more like the one we had in the second half of the 1990s after the KSE Index had touched its peak in 1994?

Now the watch dogs of the capital market have increased in number. The banks which lend to the corporate sector are much more vigilant. The SBP far more observant. The SECP is far more active. The KSE with Moin Fudda as managing director of the KSE and its directors are truly vigilant The KSE index may go below 5,000 but not far too low unless there is a serious economic downturn.

Hence mutual funds like the NIT and the NSS with its new name should do well. But as a whole the inflation must be held in check firmly and not merely officially understated.

And food inflation must not be allowed to soar as often as it does. if the inflation rises and is sustained and the government is not seriously interested in combating that but only denying that, the people will take risks to earn far more through phoney ventures.

The government's responsibility in this area is far higher than it is ready to concede. It has to have far more sympathy for the poor and come out to support them more actively and effectively.