Sunday, August 6, 2017

Dividend and Pension Scheme for middle-income Keralites proposed

 Millions of expatriates from the southern Indian state of Kerala living across the globe will be able to get an attractive lifelong monthly dividend-cum-pension with a one-time deposit if their government accepts a proposal in this regard.

The proposed ‘Dividend and Pension Scheme’ targeting middle-class Non-Resident Keralites (NRKs) aims to offer them an investment vehicle to secure their future, even if they lose their livelihood, a senior official told.

“I have seen tragic lives of many expats who were earning well in the Gulf but later had to live at the mercy of others because they did not save anything for themselves. Even their own children ditched them when they got old. Those experiences prompted me to think about such a scheme,” said P.T. Kunhi Mohammad, chairman of the Kerala Non-resident Keralites Welfare Board, a government agency implementing welfare and pension schemes for an estimated 3.5 million non-resident Keralites across the globe, including over a million in the UAE.

“I have submitted the proposal to the Kerala Chief Minister Pinararyi Vijayan and am expecting a positive response from him,” Mohammad said on phone from Kerala.

A comment from the chief minister’s office was not immediately available.

More than 160,000 non-resident Keralites have already joined a welfare and pension scheme run by the same government agency for low-income employees who have to pay Rs300 (Dh17) per month for at least 10 years. This payment makes the individual concerned eligible for a monthly pension of Rs2,000 (Dh114) per month after the age of 60.

The proposed new scheme for the middle-class NRKs gains relevance as the profile of Keralite migrants to the Gulf has improved over the years from unskilled workers to skilled employees and professionals.

The scheme envisages collecting a one-time deposit of between Rs500,000 (Dh28,607) and Rs5 million (Dh286,091) from NRKs, which could also be paid in six instalments in three years, the chairman said. After an initial three-year lock-in period, the deposit will start yielding a fixed monthly dividend between Rs5,000 (Dh286) and Rs50,000 Dh2,860), depending on the deposit, until the investor’s death, he said.

The scheme will be able to ensure such a high return on the deposit will be locked in during the lifetime of the depositor and his or her nominee. “This means the government gets the deposit for a long time; probably in many cases up to 20 or 40 years! The government can utilise that money for productive purposes including development projects for a long time,” Mohammad said.

“If approved, we expect to attract Rs100 billion deposit from NRKs to the scheme,” he said. If the government wants, it can hand over that money to other official organs such as KIIFB [Kerala Infrastructure Investment Fund Board — a government arm to facilitate the development of both physical and social infrastructure in the state], he added.

Government guarantee will be key

The proposed ‘Dividend and Pension Scheme’ for Non-Resident Keralites (NRKs) envisages a lifelong lock-in mechanism for deposits because it is crucial to secure the depositor’s future, a senior official told Gulf News.

“Many expats are able to save a few lakh [hundred thousand] rupees in their bank accounts and similar saving schemes. But they keep on withdrawing it for one or other urgent needs [mostly unproductive],” said P.T. Kunhi Mohammad, chairman of the Kerala Non-resident Keralites Welfare Board.

Expatriates are always flooded with financial demands from family, relatives and friends back home and most of them are receptive to such demands, which in turn keep them under constant financial strain, he explained. Many other expats who save money join businesses run by relatives or friends in the Gulf or back home as dormant partners. “Sometimes they are cheated or the business fails,” Mohammad points out.

Expats returning home for good from the Gulf also lose their money by getting into business ventures back home they never had any experience or expertise operating.

Proposed government guarantees for the deposit will help depositors accept the lifelong lock-in clause on their investments that will help them avoid the undesirable habit of emptying their savings. “It is a win-win situation for both the government and the depositor,” Mohammad explained.

After the death of the depositor, the monthly dividend would continue to go to his or her nominee, probably the depositor’s spouse, until the nominee’s death. After the nominee’s death, the deposit will be handed over to the legal heir, children or whoever they are, he said.

He observed why the scheme made sense for expatriates. “Finally the expat who had a handsome income ends up with nothing. I have seen such tragedies in my 12-year-long expat life in Abu Dhabi [as an administrator] and later as a political activist, filmmaker and TV-show host,” he said.

Mohammad also served as an elected state legislator in Kerala. As a noted filmmaker, he has also been hosting a popular TV show titled ‘Pravasa Lokam’ (the world of migrants) on the Kairali channel since 2000, which has helped trace more than 500 missing migrants in the Gulf.

Scheme could tap billions in NRI remittances with banks

The proposed ‘Dividend and Pension Scheme’ for Non-Resident Keralites (NRKs) is an attempt to utilise billions in remittances flowing to Kerala, of which a very small part ends up as deposits in banks.

Still, bank deposits by NRKs reached Rs1.48 trillion (Dh84.84 billion) in December 2016, according to data collected by the State Level Bankers’ Committee (SLBC). This is just 18.5 per cent of the total Rs8 trillion NRI remittances received in the past 14 years, based on the figures provided by the Centre For Development Studies (CDS) in Kerala. More than 80 per cent of the remittances is spent by families of NRKs, mostly for non-productive purposes such as extravagant weddings and on the construction of grand houses, according to social workers. Remittances account for around 35 per cent of the Gross Domestic Product (GDP) of Kerala.

P.T. Kunhi Mohammad, chairman of the Kerala Non-Resident Keralites Welfare Board, said that successive central and state governments had never formulated any schemes to utilise remittances from NRKs to secure their own future and support the development of the state.

The proposed ‘Dividend and Pension Scheme’ will serve both these purposes, he said.

However, Kerala finance minister Thomas Isaac, in his 2017 budget speech on March 4, had announced a similar plan to raise Rs100 billion from NRKs for the construction of two highways through a chit fund scheme.

“The entire money collected would be invested in the NRI bonds of state-owned KIIFB [Kerala Infrastructure Investment Fund Board] in the name of KSFE [Kerala State Financial Enterprise], which runs chit fund schemes,” the minister had said.

  • Dividend and pension scheme — in numbers
  • Rupees 500,000 (Dh28,607) — minimum deposit
  • Rupees 5 million (Dh286,091.56) — maximum deposit
  • Maturity time to start getting dividends — 3 years
  • Projected deposits from NRKs in new scheme — Rs100 billion
  • Expected lock-in period of deposit — 20 to 40 years
  • Bank deposits by NRKs in Kerala — Rs1.48 trillion (Dh84.84 billion)