Interview: High inflation, interest rate choke off investment flow: Al Meezan CEO

High inflation in country has caused disposable income, capacity of investors have come down sharply.

KARACHI: Owing to high inflation in the country, the disposable income and capacity of investors have come down sharply, which is not a good sign for investment companies, said Al Meezan Investment Management Limited Chief Executive Officer (CEO) Mohammad Shoaib.

In an interview with The Express Tribune, Shoaib said that high levels of interest rate and inflation will continue to affect savings and investment until the government tackles these problems.

“When the stock market performs well, investment companies perform well, but the real test of investment funds comes when the market dips and how they perform in difficult times,” he said.

He said the company is trying to offset the negative impact of inflation on investors, but if the high inflation persists, investors and companies will continue to be affected.

“In 2008, when the financial crisis hit world economies and when our stock market declined, we were the last to feel the effects. However, when the markets recovered, we were among the first to return to profits,” he added.

“This is how investors moved to us and our investment has jumped to Rs25 billion in 2010 from Rs15 billion in the preceding year. When stock markets dipped, we introduced new products at the right time that helped in improving our assets and overall business,” said Shoaib.

Talking about the increasing popularity of Islamic banking in the country, he said that over a period of 15 years Al Meezan has earned a respectable name in the financial sector.

“There are two kinds of investors – those who prefer Islamic investment even if returns are significantly lower compared to conventional products and those who opt for Islamic products when both provide similar returns. Today, our returns are higher than some of the conventional investment firms, which was not the case in the early years of business,” Shoaib explained.

In response to a question, he said the company is trying to create awareness and highlight the importance of investing in stocks through mutual funds.

He was of the view that disposable income in rural areas has improved following an increase in prices of agricultural produce. However, the disposable income in the informal sector has grown significantly over the last two years when compared to the formal sector.

Regarding security of small investments, Shoaib said the company cares for all investors and does not discriminate on the basis of investment size. “Our investors, regardless of their investment, receive an equal share of profits.”

He said people prefer investing in low-risk areas but “what is unfortunate is that if you invest today even at around 12 per cent, you will eventually lose because the inflation rate is over 15 per cent.”

A recent study by the company shows that on an average 40 per cent of investment is made in the high-risk category in bourses globally. However, in Pakistan the average investment in the category is just 17 per cent.

He said the company has set an aim to increase its investor base from the present 20,000 to 30,000 by 2013 and boost assets from Rs25 billion to Rs40 billion.

Published in The Express Tribune, January 29^th, 2011.