By Yousuf Ibnul Hasan
A healthy economy cannot be built by keeping savings idle
We talk endlessly about investment, exports, taxation, inflation, foreign exchange and economic growth. Yet one of the most powerful resources of any economy often remains quietly parked in bank accounts, or, worse, outside the formal financial system altogether.
The question we rarely ask is simple but fundamental: What are we doing with the money that Pakistanis save?
There is an important difference between saving money and making savings work.
Saving is the act of setting money aside for future needs. But when savings are channelled into productive activity combined with labour, enterprise, goods, trade, technology and investmentthey become capital. Capital does not merely sit idle. It finances businesses, supports production, creates employment, facilitates trade and generates further economic activity.
This distinction may sound academic, but it lies at the heart of Pakistan’s socioeconomic challenge.
From savings to productive capital
A nation cannot expect sustained prosperity if a significant portion of its wealth remains locked away in cupboards, dormant accounts, cash holdings or unproductive financial arrangements. Money has to circulate if the economy is to expand.
A stagnant pool may look full, but it does not turn a wheel.
Pakistan’s financial system should therefore make the formal economy attractive to savers. A citizen who has spent years saving from his income should be encouraged to keep those savings within documented and regulated channels, rather than being pushed towards cash holdings, informal transactions or speculative activities.
When the formal financial system becomes less attractive, money does not simply disappear. It may find another route.
That route can include undeclared businesses, informal transactions, property speculation, cash holdings or other forms of undocumented wealth. When money moves outside the documented economy, the State loses visibility, banks lose deposits, productive sectors lose potential financing, and society loses an opportunity to transform private savings into productive economic activity.
Looking beyond KIBOR
This brings us to a term familiar to bankers and businesses but less familiar to ordinary savers: KIBOR, the Karachi Interbank Offered Rate.
KIBOR is an important benchmark in Pakistan’s banking and financial system. The broader policy question, however, is whether the prevailing interest-rate environment and benchmark-linked financing structures provide sufficient incentives for banks to direct deposits towards productive commercial and industrial activity.
The distinction matters.
A bank that finances a factory contributes to production. A bank that finances a trader can facilitate the movement of goods. A bank that finances a growing business can support investment and employment.
The ultimate purpose of a financial system should be to connect those who possess financial resources with those capable of putting those resources to productive use.
The saver has money but may not have an enterprise. The entrepreneur may have an enterprise but insufficient capital. The bank sits between the two and performs a crucial economic function by connecting savings with investment.
This is where genuine banking competition becomes important.
Banks should compete not only to attract larger volumes of deposits but also to identify and finance productive economic opportunities. Their business models should encourage financing for industry, agriculture, commerce, trade, housing, small and medium-sized enterprises and other sectors that contribute to production and employment.
The objective should not simply be to reduce dependence on any single benchmark. Rather, the financial system should encourage greater competition, innovation and risk assessment so that capital can reach productive sectors on sustainable and commercially viable terms.
The ordinary saver deserves attention
What about the ordinary saver?
Millions of Pakistanis save not because they are wealthy, but because they are prudent. They save for education, marriage, medical needs, housing, retirement and the uncertainties of tomorrow.
For many families, savings represent years of sacrifice.
The formal financial system must therefore recognise that taxation and other deductions can affect the attractiveness of saving through documented channels. If policymakers want citizens to document their wealth and keep their money within the regulated financial system, they should also consider whether the overall tax treatment provides sufficient incentive to do so.
This becomes particularly important for retirees and other people who depend substantially on the income generated by their accumulated savings.
Zakat also has an important socioeconomic and religious role for eligible Muslims. Its treatment, however, should be considered within the broader framework of household finances, taxation and the overall incentive structure for formal saving.
The larger policy question remains: How can Pakistan encourage people to save, document those savings and allow them to become productive capital?
From financing to production
A sensible economic policy should seek to establish a virtuous cycle:
Savings → investment → production → employment → income → consumption and trade → further economic activity.
When financing is available on sustainable terms, businesses can expand. When businesses expand, production and employment can increase. Rising employment supports household incomes and purchasing power. Greater purchasing power supports businesses, trade and distribution.
The benefits can therefore extend well beyond the original saver or borrower.
This is why savings policy should not be treated merely as a technical matter for bankers, accountants and policymakers. It is part of the countrys broader economic architecture.
The Islamic economic perspective
Islamic economic thought adds another dimension to the discussion.
Islam does not prohibit legitimate saving. People naturally save for future needs, emergencies and family security. At the same time, Islamic economic principles emphasise the productive circulation of wealth and discourage the accumulation and hoarding of wealth in ways that prevent it from contributing to wider economic activity.
The principle can be expressed simply:
Money should serve the economy, and the economy should serve society.
When wealth is productively employed, its benefits can extend far beyond the person who owns it. Investment can create employment; employment supports families; families spend on food, education and healthcare; businesses purchase from other businesses; producers employ workers; and workers become consumers.
One unit of capital can therefore move through many hands and generate economic activity at multiple stages.
That is the power of economic circulation.
Pakistan needs productive savings, not merely more savings
Pakistan does not lack people who know how to save. What the country needs is a financial and economic system capable of turning savings into productive capital.
The answer is unlikely to be found simply by removing one rate, reducing one tax or changing one regulation. Sustainable reform requires a broader approach involving:
- competitive and innovative banking;
- productive investment;
- transparent financial documentation;
- sensible taxation;
- efficient regulation;
- stronger financial inclusion;
- improved access to finance for businesses and SMEs; and
- financial mechanisms that connect household savings with the real economy.
The State has a legitimate and essential role in creating this environment. Regulation is necessary. Taxation is necessary. Financial supervision is necessary.
But regulation should facilitate legitimate economic activity rather than unintentionally discourage it. Taxation should generate public revenue while preserving incentives for productive saving and investment.
A healthy State and a healthy private economy are not necessarily competing objectives. They can reinforce each other when policies are designed around sustainable economic activity.
The objective of reform should therefore be broader than simply increasing the returns of depositors or reducing the cost of finance. It should create an environment in which the saver, bank, entrepreneur, worker and State all benefit from productive economic circulation.
Let savings work
Pakistans greatest untapped resource may not always lie beneath the ground or under the sea. A significant part of its potential wealth may already exist in the hands of its citizensin the form of savings.
The money is there. The savings are there.
What is needed is an economic environment that gives those savings an opportunity to move into productive activity, generate investment and support sustainable growth.
Tax policy, financial regulation, interest-rate structures and banking practices all influence that process. Excessive burdens or poorly designed incentives can discourage formal saving and productive investment, while a competitive and transparent financial system can help channel capital towards businesses and economic activity.
When legitimate savings become less attractive, some money may move towards informal or less productive channels. The policy challenge is therefore to make the formal economy sufficiently attractive that citizens have strong reasons to save, invest and participate in documented economic activity.
A wise economic policy should not undermine the source of future investment. It should create conditions in which savings become investment, investment becomes production, production creates employment, and employment contributes to wider prosperity.
Pakistan therefore needs to bring its savings out of the cupboards and into the productive economynot drive them into the shadows.
Let money work. Let that work create production, employment, dignity and prosperity.
The columnist is a Consultant in Islamic Banking and Applied Finance, teacher, trainer, author, banker and broadcaster. He can be reached at pride4pen@gmail.com.
Disclaimer
This article represents the views and analysis of the author and is intended for general information and discussion. It does not constitute financial, investment, banking, tax, legal or religious advice. References to KIBOR, taxation, Zakat, Islamic economic principles and financial policy are presented in the context of the authors argument and should not be interpreted as comprehensive technical or legal guidance. Readers should consult qualified professionals and relevant official sources before making financial or investment decisions. The image is AI-generated and is used for illustrative purposes only
