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Govt offers more incentives for financial firms to lift legal remittances

By Our Correspondent
September 22, 2023

KARACHI: The government announced on Thursday a series of incentives for financial institutions to increase remittances from overseas workers, which have fallen sharply amid political and economic turmoil and a widening gap between official and unofficial exchange rates.

The State Bank of Pakistan (SBP) said it would reimburse telegraphic transfer (TT) charges at a rate of 30 Saudi riyals for eligible home remittance transactions of $100 or more, up from 20 riyals previously.

The amount of incentives is estimated in Saudi riyals because the majority of remittances come from the Middle East. "It has been decided that reimbursement of TT charges rate for eligible home remittance transactions, shall be SAR 30/-. This increase in TT charges rate will be effective for home remittance transactions, received in Pakistan, after thirty days from the date of issuance of this circular," the SBP said in a circular.

The SBP instructions for authorized dealers and microfinance banks on eligibility and claim submission, as well as related requirements, have been compiled and reproduced. Home remittance transactions that meet certain requirements will be eligible for TT charge reimbursement.

"The bank and their overseas correspondent entity have not charged their customers (beneficiary & remitter) any fee, commission and charges etc. at any stage of sending or receiving home remittance transactions," said the circular.

Banks will suitably incorporate a clause in their home remittance disbursement agreements with overseas correspondent entities to ensure compliance of above condition, it added.

"The amount of home remittance transaction is not below USD 100 or equivalent in other currencies," it said. The SBP said the government has enhanced the existing incentive schemes for marketing of remittances.

"In order to encourage domestic financial institutions (FIs) [banks, microfinance banks and exchange companies] to enhance their marketing efforts for mobilizing home remittances though formal channels, the Government of Pakistan has approved following revisions in the scheme," said the SBP in another circular.

"A performance based incentive will be granted, by the end of this financial year (FY2023-24), to those financial institutions whose home remittance mobilization efforts result in growth in their home remittances from the previous year (FY2022-23)," it said.

"For any incremental home remittance of the FI up to five percent, between five and ten percent, and over ten percent, the cash incentive would be Rs1, Rs2 and Rs3 per USD, respectively, for each slab."

Earlier, the cash incentive on five percent and 10 percent growth was Rs0.50 and Rs0.75, respectively. The scheme will be effective from FY2023-24 onwards on perpetual basis, according to the SBP.

The amount of money sent home by Pakistani citizens working abroad fell by 22 percent to $4.12 billion in the first two months of the current fiscal year.

Remittances to Pakistan totaled $2.09 billion in August, down 24 percent from the same month in 2022. However, these inflows slightly increased by 3.1 percent month-on-month in August.

The huge gap between the interbank and grey market exchange rates drove the majority of Pakistani expats to send money home using illegal channels like hawala/hundi.

The crackdown on individuals involved in hawala/hundi activities and exchange companies engaged in illegal activity is expected to enhance remittances in the months to come, according to analysts.