CDNS profit-collection system draws mixed response

By Kazim Alam

KARACHI: Thanks to a recent change in the profit distribution mechanism, widows and pensioners do not have to line up outside 485 offices of Central Directorate of National Savings (CDNS) across the country to collect their monthly returns.

All they have to do is take profit coupons and withdrawal slips of CDNS-run Pensioners Benefit Accounts (PBAs), Behbood Saving Certificates (BSCs) and Saving Accounts (SAs) to their respective banks, which will then credit money into their regular accounts.

While the move is supposed to minimise the manual handling of cash, many investors have shown scepticism.

“Dealing with banks is a headache. They need so many verifications. I like the present system because it is quick and hassle-free,” Hisamuddin, 52, told Dawn outside the National Savings Centre in Gulistan-e-Jauhar.

He said he helps his elder brother, who is over 60, manage his deposits in PBA that offers senior citizens and widows a return of 9.36 per cent per annum on a monthly basis.

Mr Hisamuddin said CDNS staff offered little help to make him understand the new profit-collection procedure. “A security guard handed me a form and told me to fill it out. I would rather stick to the old mechanism for as long as possible,” he said.

Returns on most CDNS schemes are notably higher than ones offered on regular savings accounts at commercial banks. In contrast, mutual funds managed by mostly private asset management companies (AMCs) offer relatively high returns on investment through their asset allocation funds. However, the CDNS is backed by the government and thus guarantees risk-free returns.

Not all CDNS investors are afraid of switching to the new system though. According to 35-year-old Fahd Ali Khan, the new system is going to save him a monthly visit to the savings centre to collect the profit on his parents’ investments in BSCs.

Although the new procedure will reduce cash handling at CDNS offices to a considerable extent, critics say bringing the Central Depository Company (CDC) into the loop would have eliminated the need for visiting the bank to deposit the CDNS-issued instrument. The securities depository is responsible for sending shareholders’ dividends directly into their bank accounts. Its partnership with CDNS can ensure the transfer of monthly profits directly into investors’ bank accounts.

The Regional Directorate of National Savings in Karachi refused to comment, saying it needs approval from the Ministry of Finance. However, mid-level officials in CDNS said the reluctance to switch over to the new profit-collection mechanism stems from a number of factors.

“Old people are naturally hesitant. Plus, our experience is that most senior citizens like to visit savings centres in person. It’s an activity they look forward to doing every month,” said one CDNS employee while requesting anonymity.

Another reason for some investors’ reluctance to opt for the new system is their desire to avoid the banking system. Unlike banks and AMCs, CDNS has fairly low know-your-customer requirements.

Out of roughly one million CDNS investors in Karachi, more than 460,000 have investments in these three schemes, according to a CDNS official. The maximum investment limit for a single investor is Rs5 million and a joint investor is Rs10m for both PBAs and BSCs.

Designed for widows and senior citizens, some people use these schemes to invest in the name of their ageing parents and other relatives. This enables them to earn relatively high, tax-free and guaranteed returns without having to declare their source of funds to the government.

“Up to 25pc of investors in these schemes are those who have parked funds in someone else’s names,” the CDNS official said.

Published in Dawn, February 10th, 2017

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