'Savings culture is critical for sustainable growth,' Executive Vice Chairman, Arif Habib Investments Limited

"We don't save enough as a nation," contended Naseem Beg, executive vice chairman of Arif Habib Investments Limited, in a recent interview with BR Research. Drawing attention to the savings rates of regional peers and other developing economies, he highlighted that the relatively low incidence of savings as a percentage of national income, has led to poor capital formation in the country over the past years.
"Besides limiting the prospects for economic growth, the lack of savings culture also puts average citizens at risk as often they may not have adequate savings to sustain their lifestyles after retirement," he said. Naseem Beg also pointed out that taking on risky investments in the hopes of enlarging a modest sum of savings does not yield results for most people. "Most investments made by retail investors only manage to compensate for inflation over the long run. It is a fallacy for an average person to assume that despite failing to put away an appropriate sum of income as savings, he or she would be able to amass a large sum of savings for post-retirement consumption," he said.
He stressed the importance of government's role in creating avenues for investment and for encouraging a culture of savings in the country. Drawing attention to the Independent Power Producers (IPPs) operating in the country, Beg observed that although the first of these projects was launched amid much fanfare, the fact remains that the requisite investment came in dollars just as the dividends from that installation are also dollar denominated.
"If instead of relying on imported furnace oil for power generation, and foreign funds to set up a power plant, we had relied on developing indigenous solutions, the government could have fixed an attractive tariff in rupee terms that would make projects like wind power, feasible and would also attract savings from within the economy," he said.
"How long can the economy be sustained by begging to multilateral donors and lenders?" he questioned rhetorically, adding that by inculcating a culture of savings in the country, Pakistan can garner funds for investment in new and existing projects that can not only address the current energy crisis, but also provide jobs for the booming youth population.
Trust: The irreplaceable asset "Garnering trust among clients through fair and transparent dealing is a basic requisite for any financial intermediary;" said Beg, stressing the need for professional management of mutual funds, brokerage companies, banks and other financial institutions. Calling on the regulator to maintain a vigilant stand over existing and emerging markets, he lauded the Securities and Exchange Commission of Pakistan for its efforts to promote transparency and fairness.
He, however, lamented that law enforcement agencies are often wanting in the face of political pressure and patronage. "There have been cases where even after finding irregularities, law enforcers have not been able to prosecute guilty parties," he said.
Beg expressed optimism towards the future prospects of the mutual fund industry, while accepting the fact that unscrupulous activities of a few in the past had tainted the image of industry to an extent. "The Mutual Funds Association of Pakistan has made some headway with awareness drives and other investor education campaigns and the industry as a whole is being managed by professionals," he said.
Drawing attention to his firm's commitment to transparency, he said that AHL had institutionalised the practice of changing its external auditors every three years, back in 2000. "When Enron happened in 2001, the world woke up and many advanced economies introduced requirements for changing the external auditor at least once every five years," he said. AHL also pioneered the practice of publishing a monthly report to keep investors posted on the progress of their investments. Later on, the SECP made this practice mandatory for all mutual funds.
Teaming up Arif Habib Investments and MCB Bank merged their respective asset management companies in January this year. Questioned about the rationale behind the move, the executive vice chairman of AHL said that, "we had an eye on the 1,100 branches that are operated by the bank". He explained that AHL is keen to offer one-on-one services to prospective investor which requires the availability of physical infrastructure in the cities and towns of Pakistan. "The distribution strength of the bank is the real sweetener for us, not any expectations of funding from the bank," he clarified.
Beg rejected the argument that offering investment services to bank customers would cannibalise its banking products. "Banks have many clients with many different demands. If a bank is offering up to 8 percent return to account holders, but there is demand for higher returns by some clients, the bank can present a money market fund which offers higher returns to its customers," he said, adding that, "in such a situation, the bank is retaining its client and earning a fee from us, the customer is getting a convenient choice for the return he requires and we're providing that service to him; it's a win-win situation for all stakeholders".
Gaining access to clientele in smaller cities, particularly agriculturists requires going through a bank, according to Naseem Beg. He explained that, "people are used to walking in to their bank, talking to the manager and discussing alternatives with him. So if the bank manager is adequately informed to be able to help such clients, there can be significant headway for mutual funds in such areas".