Zafar Masud was appointed Director General, National Savings, for a two-year term in August 2016. The corporate & investment banking veteran has previously served in leadership positions at top international banks like Citibank, Barclays and Dubai Islamic Bank. A co-founder of Burj Capital (private-equity firm), Mr. Masud has been actively involved in raising and developing capital market instruments, including Sukuks, both at home and abroad. Currently serving as Member, Board of Directors at the OGDCL, he has previously been Member, Board of Directors, State Bank of Pakistan (2013-16) and Member, Independent Monetary Policy Committee (2015-16).

Mr. Masud has a Bachelor of Commerce from the Hailey College of Commerce, University of the Punjab (Lahore) and an MBA in Banking from the Institute of Business Administration (Karachi). Below are selected excerpts from BR Research’s recent sit-down with the saving czar in Islamabad:

BR Research: Pakistan’s domestic savings had dropped from 9.7 percent of GDP in FY11 to 7.5 percent of GDP in FY17. Where do you think the government and the private sector have proven inadequate at mobilising savings to fund the needed investments in the economy?

Zafar Masud: National Savings, which comprises about a third of the banking deposits, is Pakistan’s leading institution to mobilise savings. However, nurturing and promoting savings is the collective responsibility of the entire financial sector, particularly the banks, which have the requisite infrastructure, depth and breadth to take the savings rate to the next level.

They are surely much more desired across the board, specifically to attract non-interest-rate-sensitive savings, to bring the savings rate in Pakistan at par with the regional countries. The recent fall in domestic savings is fundamentally a profit-rate-driven phenomenon, which still dominates the savers’ mind in Pakistan.

Having said that; National Savings is very proud to state that it has been meeting, in fact, exceeding, all its targets every year to make up for the shortfalls from other sources. It is also making concerted efforts to diversify its product-basket in order to include untapped, less rate-dependent sectors, such as Islamic on the domestic front and attracting external savings from overseas Pakistanis. In addition, customer reach and convenience are being improved substantially by the use of technology.

BRR: The National Savings portfolio stood at Rs3519 billion as of January 2018. How much of it is individual investment and how much is institutional investment? And what is the growth trend-line for the two streams?

ZM: Out of the total portfolio, 84 percent is invested by individual investors. Just 16 percent of the portfolio is invested by the institutions, which are basically the welfare funds. Banks, insurance companies and mutual funds are prohibited from investing in the National Savings.

The main focus of National Savings is to target the individual investors in accordance with its objective to inculcate the habit of thrift among masses and remain a formidable vehicle for financial inclusion. The growth trend-line for both types of investors has been very healthy, and the institutional-to-individual investment has been hovering around a ratio of 15:85.

BRR: What is your view on stopping institutional investor access and limiting all individual investment to Rs5 million?

ZM: Institutional investment is already limited and only registered individual funds are allowed to invest in National Savings Schemes. Further, since the preferential rates are offered (up to almost 2%) on Behbood Savings Certificates and Pensioners Benefit Accounts, over and above the product of similar tenor (Defense Savings Certificates), those two investments are already limited to Rs5 million per individual. There’s no investment cap on other schemes.

BRR: What, in your view, is the potential quantum of Pakistanis’ savings that can be tapped through the National Savings platform?

ZM: National Savings is very much aware of the potential quantum of savings in Pakistan, which could be doubled in the next three to five years, if certain aggressive structural changes are undertaken. We have, however, adopted the following three-pronged strategy in order to capitalise on the untapped potential. One is the access-points’ enhancement, where National Savings is expanding into digital channels to improve its outreach.

Second is product portfolio expansion, keeping in view the elements of financial inclusion and social safety net. We are going to extend Behbood Savings Certificates to Persons with Disabilities. Besides, we will launch Shuhada Family Welfare Account, a dedicated savings scheme for family members of martyrs in both security forces and civilians. National Savings has also designed products for two major sectors, which are currently out of its ambit: Overseas Pakistanis Savings Certificates and Sarwa Islamic Savings Account.

And as for marketing and awareness initiatives, the organisation has lately made its presence felt through an effective use of the social media and print media. Recently, National Savings has also started its media campaign in the international print media in order to make its mark and fetch more savings for Pakistan from abroad.

BRR: What kind of cultural aspects are keeping people from investing in National Savings?

ZM: The major aspect is the non-existence of Shariah-compliant products. National Savings, by end of the current fiscal year, aims to address this particular cultural aspect of lacking product. Other than taxation, the very interesting and important aspect peculiar to Pakistan is that we as a nation are very flamboyant people and enjoy lavish lifestyle and tend to spend more than save unlike other regional countries such as India, Bangladesh and Sri Lanka.

BRR: You mentioned awareness campaign. But what steps have been taken under your leadership in the area of financial literacy?

ZM: After my taking charge at National Savings, different steps have been initiated to increase the awareness. Marketing campaign was almost non-existent. The marketing budget has been increased multifold to enhance customer awareness through different channels. Different events like World Savings Day have been celebrated to communicate the benefits of savings. The 12 regional directorates have been mobilised to extend their outreach by local marketing and events. However, there is still a need for more of such initiatives for this important area. National Savings made most of its limited resources to make its presence felt in the non-traditional channels instead of only being in the traditional channels.

BRR: Since saving schemes are sensitive to profit rates, what is National Savings doing to reduce the rate sensitivity?

ZM: National Savings is making efforts to mobilise savings through enhancing its customer service by introducing technological initiatives instead of interest rates only. It is totally committed and currently focusing on digitization. Out of 376 National Savings Centers, we have thus far digitized 223. The recently-launched complaint resolution system and call center will help customers resolve their complaints in the most efficient fashion. Customers will soon get to use financial version of Qoumi Bachat Digital, which is our mobile application.

BRR: What is your view on linking National Savings schemes’ profit rates to secondary market PIBs and T-bills?

ZM: The pricing of National Savings is already linked with PIBs and T-bills’ primary auctions. For the time being, there is no decision to change the linking arrangements to secondary market yields.

BRR: Given Pakistan is facing a forex crunch, when do you plan to launch the Overseas Pakistanis Savings Certificates? What will be their features?

 ZM: The Overseas Pakistanis Savings Certificates (OPSCs) are aimed for launch in May, 2018. Advisors have already been appointed. Initially, the certificates will be launched in the GCC market. Later, OPSCs will be launched in other countries, in different phases. They will be scrip-less and will be offered in both US dollars and Pakistani Rupees. We hope to raise between $500 million and $1 billion in the first year of launch. The operational aspects of these certificates will be managed by a third party.

BRR: There has been some talk regarding launching diaspora bonds. What role can National Savings play there?

ZM: There has been talk about it, but there has not been significant progress on it so far, as we understand.  National Savings is not involved it in directly. However, we work very closely with SBP/PRI and if there is any need for our role, we will be very pleased to assist in any way required. Until now, only OPSCs are under active consideration.

BRR: What role can National Savings play in developing Pakistan’s debt capital market?

ZM: National Savings Bond, which was launched in 2010, was the fundamental offering of National Savings for the debt capital market. National Savings plan to re-launch the product in cooperation with other partners like USAID who has offered to assist us to restructure it and offer it on a regular basis in order to develop the debt capital market of Pakistan.

BRR: Let’s turn to internal operations. Are the 376 National Savings branches enough to service the existing clients? And how efficient are those operations?

 ZM: Yes, presently the current branches are sufficient to serve the customers and further brick-and-mortar can also be added through establishment of strategic alliances. However, the Alternate Delivery Channels will remain the mainstay to acquire more customers in a most cost effective way

Normally, throughout the world, the saving institutions, like National Savings as an attached department of the Ministry of Finance, do not operate at branch level. It is worth mentioning that National Savings is perhaps the only organisation of its kind globally that has its own branch network. It also has distribution relationships with Pakistan Post Office, commercial banks and the State Bank of Pakistan.

As for operational efficiency, if we analyze the total portfolio of savings, we will figure out that more than 75 percent of the savings are generated by National Savings itself through its savings centers spread all across Pakistan, at a mere cost of 0.34 percent per annum. This is the most cost-effective source possible.

BRR: What is your view on rationalising the Organisation’s geographical footprint to focus mainly on rural and underserved areas?

ZM: National Savings aim to target other untapped markets through the use of technology, which is being developed to advance outreach in rural areas to the next level. National Savings is also considering fostering relationships with its existing organisations like Pakistan post, and adding more partners like courier companies, etc. to extend its outreach, particularly in the far-flung areas of the country.