The government has announced much-awaited incentives for exchange companies to provide them incentives on a performance basis mainly to attract remittances from unbanked channels.
The government has decided that the Exchange Companies will be provided with an incentive of Rs. 1 (PKR) for each United States Dollar (USD) of home remittances surrendered in the interbank market to further encourage the Exchange Companies to mobilize home remittances, the circular issued by State Bank of Pakistan (SBP) stated.
The incentives are given on the condition that Exchange Companies surrender 100 percent of the foreign exchange received as inward home remittances.
The scheme would be effective from 4 February 2022. According to the central bank, the decrease in the reserve position is due to external debt and various payments. It is noteworthy that the central bank has lost $4.346 billion since August 2021. In August of last year, SBP reserves were at a record high of $20.073 billion.
The incentive of Rs. 1 for each USD surrendered in the interbank market will be fixed irrespective of the exchange rate. However, it is clarified that the incentive will not be allowed to exceed 1 percent of the exchange rate in the case of PKR appreciation.
Home remittances are a major source of income for families of expatriate Pakistanis and contribute significantly to the country’s economic activities.
In the first half of the financial year 2021-22, remittance inflows surged to $15.8 billion, which is expected to be doubled in the remaining half.
Requirement for Exchange Companies
The requirement for surrendering foreign exchange for qualifying for incentive schemes are:
To become eligible for the incentive, the Exchange Companies shall open and maintain a separate foreign currency account for receiving inward home remittances through Money Transfer Operators (MTOs) and surrendering the foreign exchange in the interbank market. The said foreign currency account will be used for transactions related to inward home remittances only, and any amount received as commission or exchange gain, etc., from MTOs shall not be credited to this account.
Exchange Companies shall surrender 100 percent of foreign currencies received on account of inward home remittances, in equivalent US Dollars, in the interbank market on the same day.
Exchange Companies shall maintain a complete record of transactions related to inward home remittances, amount surrendered in the interbank market, and claims submitted to the State Bank of Pakistan under this scheme. The Standard Operating Procedures regarding submission of claims by the Exchange Companies will be issued separately.
Exchange Companies will ensure the availability of all relevant records for examination by State Bank’s inspection teams. The violation of any instruction on the part of Exchange Companies would attract enforcement action under the relevant provisions of the Foreign Exchange Regulation Act, 1947.
The SBP, together with the Government of Pakistan, has introduced various policy initiatives, from time to time, to increase the flow of home remittances through formal channels.
It is expected that incentivized exchange companies will enhance the inflows of remittances into the formal channel, which will contribute positively to the economy, ultimately.
