National Savings plans launching of first Islamic product next year

KARACHI: The National Savings is expected to launch its first Islamic savings product by the start of 2018, the top National Savings official said on Tuesday.

The proposed product would begin with one year maturity and allow investors to earn monthly profit, Zafar Masud, director general of National Savings said in an email response to the questions sent by The News. 

The plan is to issue this product from the National Savings centres. Investors can invest a minimum of Rs10,000 with no maximum investment limit, according to Masud. He also said the government has given an in-principal nod for the launch of the new Shariah-complaint product which would need approvals from the federal cabinet before it’s put on offer in the market.  The structure of the product has been developed. However, final rules and governance structure are currently being drafted.

To structure and offer the new Shariah-compliant product under the aegis of the National Savings, certain amendments to the existing product offering structure needs to be carried out to comply with the principles of Shariah.

Industry insiders said National Savings is underscoring efforts to attract investors deterred by conventional financial products that conflicted with their faiths. “National Savings is most likely to offer an Islamic savings account using a Shariah-compliant window,” said a source familiar with this matter. “A renowned Shariah adviser, Dar Al Sharia, was hired by the Central Directorate of National Savings (CNDS) through competitive bidding earlier for structuring the product.”

Since all of the existing products offered by the National Savings are conventional in nature and have not been structured or certified as Shariah-compliant, it is not able to offer or financially include the segment of the society that intends only to invest in Shariah-compliant products and investments.

Within the total portfolio of National Savings, Behbood Savings Certificates captured the highest share of 22 percent, followed by prize bonds with 21 percent till December 31, 2016.    However, special savings accounts, pensioners’ benefit accounts and savings accounts held 13 percent, seven percent, and one percent shares, respectively last year.   

National Savings manages a portfolio which is around 30 percent of Pakistan’s total banking deposits, and serves more than seven million accounts/certificates holders. With respect to social security net, it fosters the needs of the most vulnerable and neglected segments of the society by offering preferential returns to widows, senior citizens, and retired persons. It operates more than 376 branches spread across the country, including far-flung areas.

Experts see prospects of higher demand for Islamic finance to tap domestic savings. “It’s a positive move that could increase the pie of the Islamic finance market. It is expected to increase competition among conventional and Islamic lenders to offer best returns to the savers on their cash deposited with them [banks],” said a senior banker.

In addition to that, the banker said it was also expected that it would lead banks to introduce more Islamic savings products. The National Savings aims to transform itself from being a debt raising arm of the government to a powerful vehicle for financial inclusion.

However, some analysts said the move was aimed at addressing the concerns of the Islamic scholars that declare prize bonds that produce interest as unlawful.

The CDNS is also in the process of launching Rs0.1 million worth of premium prize bond (registered) to increase savings inflows and help promote documentation of the economy. The CDNS issued the first Rs40,000 premium prize bond in March last year. The government has also approved the onset of Shuhadah families’ welfare accounts and was extending Behbood savings certificates for the disabled persons.