SBP moves to reduce cost of remittance transfers

[Naveed Yaseen]

Remittance transactions made free of charge

By Saad Hasan
KARACHI: In view of the increasing reliance on the country’s economy on home remittances, the State Bank of Pakistan (SBP) on Monday announced an incentive scheme which will literally make it free for expatriates to send money here from abroad. According to an SBP circular issued here, international money transfer companies have been allowed disbursement of 0.5 per cent to 1 per cent of remittance amount they are able to fetch from a specific country.

“A performance-based scheme has been developed to encourage overseas entities to enhance marketing efforts at the origination end,” it said, elaborating that marketing expenses will be reimbursed as percentage of remittances mobilised. An overseas entity will get reimbursement of 0.5 per cent on any amount it is able to mobilise over $100 million and up to $400 million from a specific country. This will add up to 0.75 per cent reimbursement on incremental increase between $400 million and $800 million.

Similarly, the reimbursement earned for mobilising $800 million will be added to 1pc on incremental amount gathered till $1.2 billion. Any amount above $1.2bn will be eligible for 1pc repayment on total remittances. The scheme, part of SBP’s Pakistan Remittance Initiative (PRI), will be offered to foreign money transfer companies which do not charge Pakistanis sending home money. However, the SBP said the companies which are already wiring remittances through the banking channel would have to bring in 25pc more than the amount they channeled between Oct 1, 2008 and Sept 30, 2009. This incentive will push companies like Western Union and Money Gram having business contracts with local banks to reach out to Pakistani expatriates, bank industry people said. Banks already get a rebate of 25 riyals for every remittance transaction as an incentive of not charging the remittance receiver.

Before today’s initiative, banks use to share part of this 25 riyal with money transfer companies. Now banks can keep the whole amount, something which will motivate the financial intermediaries to improve their service and counter the swift illegal hundi brokers. The SBP says PRI is a way to bring in flow of remittances in to the formal banking channel.

As much as $3.5 billion still miss official record every year because of the illegal hundi brokers who make rupee denominated transactions here against foreign exchange received abroad. Pakistan received record remittances of $806.12m in September, up 22 per cent from same month last year.

Expatriates sent home record $7.811bn during fiscal 2008-09, beating the previous annual high of $6.451bn remitted a year before. The figure has already touched $2.33bn between July-Sep 2009. Remittances have jumped from just over $2 billion in fiscal 2001-02. Home remittances have become lifeline for the economy at a time when the country’s reliance on international lenders has increased to meet its foreign debt liabilities.

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