Download Investor empowerment - a survival essential

Investor empowerment - a survival essential
August 27, 2015 ARTICLE by SANI-E-MEHMOOD KHAN
Lack of awareness about the Financial Markets hinders the growth of capital market and adds to the
problems of an ordinary man on the street. Because the covert potential of directing the savings of a
growing middle class into the capital market has not been harnessed, the economy is unable to create jobs
for 50,000 youths who cross the age of 18 every month, and enters the job market.
In a country with an estimated 22 million households, (of 8 persons on average) the top ten percentile
means 2.2 million households in Pakistan which can be deemed as middle to upper income savings surplus
units. While the per capita income is approximately $1300/= (Rs 12,000/= per month) for the population as
a whole, the estimate for top 15% of the populations' per capita income is around $6000/= (approximately
Rs 600,000/= per month). If one assumes 15% net savings rate for this group, it implies savings of almost
Rs 2.3 trillion per annum. If we target 10% of this as potential size that can be invested into the capital
market we are talking of almost Rs 230 billion potential ANNUAL inflows into the market which is not being
harnessed right now. This is the potential we plan to capture over the remaining decade.
Investor education not only
enhances investor sophistication
but also helps regulators and
financial service providers to
maintain market discipline as
investor protection in essence is
achieved through the pillars of:
self-discipline, market discipline
and
regulatory
discipline.
Investor protection is crucial to
the development of capital
markets. Investor protection
promotes investor confidence by
reassuring investors that their
interests are being safeguarded
against market malpractices and that recourse against such malpractices is available. Therefore, a delicate
balance between strong regulations, which does not impede growth in the market, on one hand and
protection measures to promote fairness and transparency in the market on the other needs to be taken
up by regulators.
Economic growth depends on resilient capital markets which investors at home and abroad can have
confidence in. Investor education, therefore, has a key role to play in creating resilience and providing a
basis for trust and confidence to investors that spurs economic growth through vibrant and inclusive
capital markets. Investment is the key to economic development, Income in an economy flows from one
part to another whenever a transaction takes place. Fresh spending generates new income which
generates further spending and additional new income and so on. Spending and income continue to
circulate around the macro economy in what is referred to as the circular flow of income. Saving led
growth in emerging market economies implies that the economy is not catching up with the technology
frontier and hence growth is not driven by the innovations that are taking place worldwide. The results
indicate that though the Indian economy is opened to foreign investments, growth is still driven by
domestic savings. Furthermore, local firms may not be absorbing the technology which comes through the
foreign investment in order to undertake more profitable innovation projects.
Investor education empowers investors
to look after their own interests and
minimizes their reliance on the
regulator to examine each investment
for its merit. Indeed, consumer
education is important in disclosurebased regimes, as consumers need to be
empowered to know how to deal with
disclosed information.
The
latest
Investor
Awareness
Generation Program has been re-launched after a lot of homework by the KSE and is expected to meet the
challenges currently being faced by the Pakistan's Economy in general and Capital Markets in particular,
the most important challenge being the creation of resilient capital markets by boosting investor
confidence. This goal can only be achieved by enhancing the investor base, a pre-requisite for which is
investor protection. Nobody wants to invest their 1 / 2Supplements - Investor empowerment - a survival
essential hard earned money where they feel "it is not safe". Hence, if investors are assured that their
funds will be adequately safeguarded, capital markets as well as Pakistan's economy as a whole will
flourish, undoubtedly.
Because it is empirically evident (in case of India too) that private corporate sector saving does not lead to
economic growth, and saving led investment of the sector collectively leads to economic growth, the
ministry of finance officials in Pakistan should take concrete measures for capital market development
through wider participation of the masses and empowerment of capital market participants