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The Deputy Governor of The National Bank of Pakistan, Jamil Ahmed has pleaded with banks to reduce charges related to remittance payments and overseas money transfers, to encourage more Pakistanis to use their services.
Ahmed made his comments at the launch of an awareness campaign to try to warn Pakistanis against using an illegal payment system known as Hundi, or Hawala. This involves senders being given a word of mouth password which are communicated to receivers, who can use them to claim payments from local agents working with agents used by the sender.
Hundi / Hawala remains a popular system for transmitting and receiving money in Pakistan due to its perceived convenience, and a lack of information amongst the public about how formal remittance services work.
However Pakistani officials have long been concerned that the Hundi / Hawala system is open to abuse; it is believed the system can devalue the national currency, helps to finance terrorist activity due to its lack of oversight, and it cannot be formally taxed.
Mubasher Mir, resident editor of the Daily Pakistan newspaper in Karachi, has said that “Without stern action against facilitators of hundi, it will be difficult to control the smuggling of money, human trafficking, narcotics trade and other unlawful activities”, and that
“Eliminating the hundi system will completely end foreign financial support to the militants and will bolster Pakistan’s counter-terrorism efforts”.
Speaking at the launch of a new docu-drama designed to illustrate the pitfalls of Hundi / Hawala, Ahmed explained that “the idea is whatever money is coming into the country is routed through legal channels so Pakistan as a country can fully benefit.”
“If all remittances come via banking channels, our forex reserves will increase resulting better financial stability and improved standing of Pakistan in the International market.”
The Deputy Governor also revealed that remittances through official channels increased by 16% between 2009 and 2017, noting that “focused efforts of all stakeholders resulted in an increase in home remittances by 13.2% during the first two months of FY 18 after a fall of 3.1% in FY 17.” Pakistan’s fiscal year runs from July to June.
“There is a need to maintain this momentum and positive growth trajectory in coming months”, he concluded.
The Deputy Governor also conceded that bank’s payments systems contained inefficiencies that were “difficult to handle but not impossible”, and suggested that “Inflow of remittance could be much improved if banks adopt a system of fastest payment of remittances to the recipients.”
Ahmed advised that marketing strategies such as the use of social media should be employed by the banks to help boost customer’s confidence, and that “Banks need to service the customers with an exceptional efficiency to compete, match and even surpass parallel services.”
“The Banking industry need to enhance use of digital/branchless services. People need to be made aware and educated to use legal channels to transmit and receive money through formal banking channels.”
Most of Pakistan’s inflows of remittances from abroad come from The United Arab Emirates, Saudi Arabia and other gulf states – which together make up 87% of all money transfers into the country.
The Pakistan government insist that remittances play a vital role in maintaining the external account balance and keeping the balance of payments in check. In 2013, the country’s foreign exchange reserves fell below $7 billion USD, the equivalent of 6 weeks of imports, which prompted the Pakistani government to sign a loan agreement with the International Monetary Fund and crack down on Hundi and Hawala. The country’s reserves have gradually increased and now stand at around $24 billion in October last year.
Amongst the measures being introduced to promote customer awareness are a help-desk to assist remittance customers, advertising campaigns, and the strengthening of relationships with banks and customers in gulf state remittance corridors.
As part of the awareness campaign, the national Bank of Pakistan has launched a joint initiative known as the Pakistan Remittance Initiative (PRI) which will work closely with foreign embassies and relevant ministries to educate Pakistanis to embrace legal remittance channels.
Remittances into Pakistan increased by $2 billion USD in 2015-16 to reach $20 billion, and it is believed that by eliminating Hundi and Hawala transactions, the value of legal remittances would double – reaching $40 billion per annum.
Only 15% of the population of Pakistan have a bank account.
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It’s welcome news that the Pakistani government are looking to replace Hundi / Hawala with a more formal system of international money transfers that will benefit its economy as a whole and help to counteract terrorism.
It’s a shame that, as the government has observed, the solutions currently being offered by banks are prone to high fees and delayed transaction times, not to mention uncompetitive exchange rates, but luckily there are a clutch of modern services ready and able to provide more competitive alternatives.
Perhaps the next step is for the Pakistani government to investigate how marketing the services of today’s fintech money transfer firms can help to persuade its public that there really are cheap, fast and super competitive services out there that can transfer money safely and make sending remittances easy and convenient.