20000301

Banks lottery schemes

offered low rate of

return to investors

KARACHI: The lottery schemes that were floated by three commercial banks from July 1998 and closed on December 31, 1999, provided a very poor rate of return to the investors, according to a study of deposit mobilisation schemes of the commercial banks in Pakistan done by Mohammed Munir Ahmed, joint director of the National Institute of Banking and Finance of the State Bank of Pakistan.

Giving his personal views, Munir Ahmed said that these schemes could not be termed as a long-term deposit mobilisation programme offering a reasonable rate of return to the depositors as envisaged by the State Bank of Pakistan while granting permission for such schemes.

It may be mentioned here that following the decision of the Islamic Ideology Council and the courts that such schemes were contrary to Islamic tenets, these schemes were done away with effective from December 31, 1999.

The study said that except a few winners, the remaining investors did not get even the prevailing rate of return on their placement. A hidden feature of these schemes was that these carried a few winners at the cost of increasingly large number of losers. Every new draw under these schemes used to increase the number of losers in a large way.

He estimates that the Crore Pati scheme of Habib Bank Ltd had on a sample survey basis only 1.34 percent winners out of the total population of investors. The rate of return on their investment to the non-winners under the Crore Pati scheme was just 4.7 percent.

The study shows that the lottery scheme of UBL under Zar-Amad gave a nil return on their deposits to the non-winners, while the rate of return to non-winner on Car-Amad of UBL was just 3.8 percent.

In the case of MCB's Mal-a-Mal, the rate of return to non-winner was only 6.5 percent in the real term.

The study said about the lottery system that the initiative was a bubble which was destined to burst with a bang one day. The sooner it burst the lesser painful it was to adjust to.

The study concludes that in the coming competitive environment of the financial sector, where survival of the fittest would be the rule of the game, deposit rates offered by banks would largely be in line with market forces of demand and supply.

It also showed that deposits of banks on June 26, 1999, were Rs 430.3 billion, while these were Rs 414.3 billion a month earlier, showing phenomenal growth of Rs 16 billion in just one month due to lottery schemes.

Interestingly, the deposit mobilisation by the National Bank, Askari Bank and Allied Bank showed marked performance in increase in deposits without offering any lucky winner schemes.ÑUPP