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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