Provident Fund Balances of the Employees

At present, the provident fund balances of the employees of the banks are required to be invested in approved securities. These securities are again the government papers which are based on interest. If the entire provident fund balances are invested in the shares of the joint stock companies this may amount to exposing the provident fund balances to unnecessary risk. At present, some employees of banks and other departments give an option that they will not receive interest on their provident fund accounts. As a compensation they are entitled to receive certain types of interest-free loan facilities. This system needs to be reorganised so that the arrangements are fair and equitable to everyone.

The provident fund and pension fund balances of all employees (government servants or of other public and private organisations) should by law be required to be deposited with a government agency to be created for the purpose. These balances will be kept on interest-free basis but the government shall give a retirement grant to every retiring employee. The amount of the retirement grant will be worked out according to the length of service and the salary bracket of the employee concerned. Maintaining of the provident and pension fund balances of all employees on a national scale should pose no accounting problems in the present age of computer technology. Certain private organisations are reported to have misused or squandered the provident fund balances of their employees. The proposed arrangement will also obviate such cases of misuse. As experience is gained, part of the provident and pension fund balances may be invested by the concerned agency in profitable ventures.

Dr Ziauddin Ahmad

Source: Elimination of Riba, Khurshid Ahmad, Khalid Rahman and Zahed A. Valie. Republished with permission.