Cumbersome process hinders remittances

[Naveed Yaseen]

By Saad Hasan
KARACHI: Khalid Mehmood Chaudhry is a Pakistani businessman who runs a textile company in Riyadh, Saudi Arabia. Every now and then he has to send money back home to his business partners. Last time, he remitted some amount through a local bank to someone in Sialkot, but it got stuck somewhere in the process for four days.

Over four million Pakistanis working abroad face the same problem when they transfer money to their families at home. In these technologically advanced times, such delays are encouraging the use of informal channels for cross-border money transfers.

“All I want is my money to be delivered swiftly,” Chaudhry told The News over telephone from Riyadh, complaining the delay in his case was caused because the bank’s head office sent information to its branch via post. “Can you imagine this is happening when everything is going electronic?”

Pakistan’s banks with their 7,500-plus branch offices spanning across the country should have been the most effective source for expatriates to send remittances. But that is not happening even with incentives for remittance transactions the banks enjoy.

Overseas Pakistanis, who send home remittances, which are now literally supporting the economy by helping to maintain balance of payments, are not getting the government recognition and support they deserve, industry people say.

From little over $2 billion in fiscal year 2001-02, remittances jumped to $6.4bn in 2007-08. The current year has seen a further increase as by April 2009 remittances had already crossed $6.3bn. This makes up 56 per cent of foreign exchange reserves of $11.19bn.

Banking industry officials say remittances coming into Pakistan are required to be filtered through too many cumbersome checks, which drive up human resource and opportunity cost of remittance transactions.

“There is no point in making and marketing products for expatriates,” a branch manager of a local bank said, “especially when banks are conveniently earning higher returns on other financial services.”

Concern over terrorist financing has made the State Bank of Pakistan’s Foreign Exchange (FE) Manual, which governs remittances coming into the country, unworkable. The FE Manual makes it mandatory for banks to report particulars of every transaction to the SBP being made from a remittance account, which is difficult, bankers say.

There are other complicated issues with remittance accounts. An expatriate holding a non-resident rupee account can only use it for remitting money and not for taking deposits.“This means if you are an expatriate who owns a property that has been rented out, you cannot use non-resident rupee account for taking rent from your tenant,” explained an official of a foreign bank.

Such disparities make informal ‘hawala’ channel more favourable and have diluted the effects of the SBP incentive of reimbursing 25 riyals ($7-8) for every transaction to banks for not charging international customers for sending money.

While 80 per cent of the remittances coming into Pakistan are channeled through banks, exchange companies also play a vital role in bringing much-needed foreign exchange.

Since 2002 when money changers were allowed conversion into exchange companies for mobilising remittances, they have helped bring a large part of informal remittances into the productive formal loop. But here again official apathy is obvious as exchange company people complain that no effort is being made to enhance remittances.

Forex Association of Pakistan President Malik Boston estimates that the size of remittances coming from informal channels is double than what banks and exchange companies manage to bring.

“Give us some incentives like rebate which banks get so that we can take the share from hawala,” he said, adding exchange companies need to expand network to deliver quick and quality service.

Paracha International Exchange Director Muhammad Zafar Paracha has reasons to suggest why exchange companies should be given a level-playing field vis-a-vis banks.

“Banks will work to attract remittances to a certain limit because that is not their main source of income,” he said. “Exchange companies are better placed to achieve the target of attracting maximum remittances.”

At a time when experts are voicing concern over sustainability of remittances as Pakistanis working abroad lose jobs in the ongoing global recession, the government must take up the issue on priority basis.

“To start with,” suggested Paracha, “the government can work on preparing a database of expatriate Pakistanis who regularly send money back home so banks and exchange companies can easily approach them.” Despite repeated attempts of The News, Syed Samar Hasnain, SBP’s Director of Exchange Policy Department, was not available for comments.

http://www.thenews.com.pk/daily_detail.asp?id=181930