Committee parties are a great social activity, but are they the best way to invest money? T. U. Dawood explores how some women manage money and get the most out of it.
It’s a fact that men and women are different. Everyone from Cosmopolitan to Dr John Gray have made millions writing on this very topic. How are the sexes different, however, when it comes to the big M: Money?
Traditionally, Pakistani women have kept their extra money hidden in closets and invested in jewellery. Pundits all over the world have claimed that gold is an outdated mode of investment but as gold prices have risen drastically over the last few years, women who chose to invest in jewellery have benefited tremendously. However, gold is not a liquid investment and generally when you sell your jewellery you do not get nearly anything near its true value. Another way Pakistani women invest is by placing their funds in committees rather than in banks.
How exactly do committees work? Many committees are one year in length and have either 12 members or 24 members in pairs. A set figure is put into the ‘kitty’ and each member in turn wins the jackpot every month. The winner is usually selected through the process of lucky draw and she generally hosts a tea or lunch the following month, where she collects the money. Typically, the organiser gets the first committee.
Committees can’t quite be called an investment as the general definition of investment is ‘money or capital that is laid out with an expectation of profit’.
Committees do not give back any additional money or interest, which suits many people who do not want any Riba or non-Shariah-compliant gains.
The members who generally gain the most from a committee are those who get the “kitty” in the first four months of the first quarter of the pool. This enables them to benefit from the time value of money. This means, if they invest the entire kitty when they get it, they can make a tidy profit from it. Even if they use it to make a big purchase, they have benefited because they have saved on the interest they would have had to pay had they borrowed money to make that purchase.
So what is the charm of committees?
People from all sections of society participate in committees, and for various reasons:
Zainab, a maid, earns Rs8,000 a month and places Rs2,000 a month in her neighbourhood committee. She believes in them because she enjoys getting her hands on a large sum when her turn comes.
Faiza, 30, organises a committee of Rs10,000 a month. She uses the money for travelling to America and buying things for herself without having to ask her husband for the money.
Maryam, 55, participates in a dollar committee with large sums of money. She enjoys the fun of being a part of the committees’ monthly social get-togethers and of course, is delighted when her turn comes up. She usually spends the money on buying a nice piece of jewellery for herself.
Razak, 37, is a part of a couples’ committee. He doesn’t know much about finances and investing and finds this a fun, social way to meet his friends and when his turn comes, enjoys spending the money with his wife on something extravagant that they wouldn’t normally treat themselves to.
All those interviewed admitted to not knowing much about financial markets. Most feared stock markets, some worried about Riba being un-Islamic and all enjoyed the ease and simplicity of the committee structure.
However, not everyone subscribes to the committee system:
Mikael, 38, couldn’t understand why people invest in committees. “There are now a variety of investment options for everyone’s needs, including halal munafa, so I can’t quite understand why so many people would invest in committees where you just get back the money you put in.”
Abu Bakr, 29, agrees. “I work for a local bank and there are so many great ways to invest your money that committees really make no sense to me. They are money losers.”
So what are these alternate investment options and is it easy for non-financially minded individuals, especially women, to access, understand and benefit from these options?
There are plenty of investment options out there as alternatives to committees, depending on the investor’s needs, risk appetite and preferences.
There are banks offering 6.25 per cent profit on 10-year deposits, others offer 13 per cent per annum on a fixed deposit for five years and 12 per cent per annum on three years. Most of these products also provide access to your money as and when needed, through cheque or Debit/ATM card.
However, most of these options are for medium to long-term investors.
The only real viable option for short-term investors is open-end mutual funds. Income funds which have no investment in equity are giving between 9-12 per cent with rates expected to increase as interest rates have increased recently. Most income funds should give at least 11per cent (annualised) by December with interest compounded daily.
Mutual funds allow investors the option of accessing their money at any time -–– something a committee does not -–– and it is an easy instrument to add money to monthly.
For those who feel ambivalent about regular investment options, there are plenty of Shariah-compliant term deposit and mutual funds products available that offer halal munafa.
Investment options for women
Other than one mutual funds brand, there are no specific investment options for women, but all financial institutions have casual investment options in which any one is welcome to invest. One of our leading banks has a great poster up in many of its branches stating a woman doesn’t have to invest in committees anymore. However, when they were called, they confirmed that this is just an advertisement for their super value account deposit scheme of 7.25 per cent. They are using women for marketing purposes but the product is not specifically for women as the benefits are the same for both sexes.
Women and money reality
Although many Pakistani women feel that finance is a man’s domain, studies conducted the world over are now showing that once women get started in investing they actually can have better instincts for it than men.
According to Ruth Hayden, author of How to Turn Your Life Around: The Money Book For Women, many of the more appealing ‘female’ characteristics, such as patience, tenacity, and pragmatism give women an advantage over men once they start investing.
She writes, “Women have an intuitive sense. They are practical and understand that things work in stages and are therefore comfortable with volatility. And once they’re in the market, they’ll stay put.”
Although it is much harder to convince women to start investing than men, once they invest, they generally keep their money in for the long haul.
Since most financial planners preach that investors who stay in markets for the long-term generally have the most benefit because they ride out the peaks and valleys, a woman’s patience can serve her very well.
Where women are weaker, generally, than men is in making quick, short-term turnaround cash. Female brokers enjoy trading as a way of life but the average woman does not find this kind of playing the market as practical or appealing.
Merrill Lynch recently did a study of women’s investment patterns and the conclusion was that the majority of American women are “not doing what they need to for total financial independence and retirement.” Although no such similar survey has been done in Pakistan, it is a fact that fewer Pakistani women have a financial plan for the future than their American counterparts.
This Merrill Lynch survey found that in America, 48 per cent of women versus 38 per cent of men do not feel knowledgeable when selecting between investment options.
Women hesitate to investment. While men jump in fast, women are scared to enter because of lack of experience and knowledge.
This made me think. Do women tend to be less daunted by financial planning if they attack the investment beast with a partner?
Professor Hersh Shefrin, the Mario L. Belotti Professor of Finance at Santa Clara University and author of Beyond Greed and Fear: Understanding Behavioural Finance and the Psychology of Investing, has found that when women invest they generally perform better than men. He states, “The average women’s investment club outperforms the average men’s investment club.”
This has led Hayden, in her book, to recommend women begin investing by doing so in a group. She suggests that women treat investing like men treat baseball: “an excuse to get together.”
So, instead of women meeting to place money in a committee, they meet monthly, pool their money together and invest that money together, in Shariah-compliant or conventional instruments, and reap the benefit together. Could that be the future of a committee here in Pakistan?
T. U. Dawood is Chief Executive of Dawood Capital Management Ltd.