SBP revises incentives for banks and exchange firms to boost remittances

KARACHI: The State Bank of Pakistan (SBP) on Tuesday revised the incentive structure for banks and the exchange companies, in an effort to boost remittance inflows through formal channels.

The SBP said the revisions will take effect from October 1, 2024.In a circular, the SBP stated that to further incentivize banks, including microfinance banks, to maximize their efforts in increasing remittance inflows, certain revisions have been made to the reimbursement of telegraphic transfer (TT) charges scheme against home remittances. Specifically, the SBP has decided to divide the SAR reimbursements into fixed and variable components.

The new policy includes a fixed reimbursement of SAR 20 for all eligible home remittance transactions of $100 and above.In addition, there will be a variable reimbursement of SAR 8 per incremental eligible transaction, up to 10 per cent or $100 million growth in home remittances compared to the previous year (whichever is lower).

“Further, an additional reimbursement of SAR 07, per incremental eligible transaction, will be made for growth exceeding 10 per cent or $100 million in home remittances over the previous year,” it said.

Analysts said these revisions will encourage banks to increase remittances while potentially reducing the government’s overall TT charge expenses.The SBP announced the changes to the incentive structure for exchange companies (ECs) in order to further encourage them to increase their efforts in mobilizing home remittances. Under the new structure, exchange firms will receive a fixed base rate of Rs2 for each USD of home remittances surrendered to SBP-designated banks.

In addition, they will be paid Rs3 for each incremental USD surrendered to SBP-designated banks for growth in home remittances up to 5.0 per cent or $25 million (whichever is lower) compared to the previous year.

“Further, Rs4 per USD will be paid against incremental remittances above 5.0 per cent or over $25 million, in comparison to previous year,”the SBP said. These changes are intended to incentivize exchanges to process more remittances and to help mitigate their rising operational expenses.

The government, through the SBP, has put in place a number of schemes to promote remittances through official channels, including the Pakistan Remittance Initiative (PRI).After these initiatives were revised in 2023, remittance inflows continued to rise. Remittances increased to $30.3 billion in FY24 from $27.3 billion in the previous year.