The Hawala challenge

There is a lot of talk and concern about Hawala business. The surge is not new; the gap widened soon after the Afghanistan crisis. I don’t think that this will bring misery and affect remittance flows when currency in circulation is Rs 7.13 trillion versus bank deposits of Rs 19.34 trillion. Given the fact that out of USD 2 trillion, nearly half of the value of US dollars is circulating outside the US; it is, therefore, very difficult to manage/monitor and keep track of payments/flows of US dollar or other currencies.

Hawala is an ancient money transfer system invented in the 8th century. Basically, it’s a system of undocumented non-banking transactions between two parties. It facilitates cross-border transfer activity that can be used for wrong/illegal purposes as well. However, State Bank of Pakistan (SBP) has made very good progress in this area after providing AML/CFT guidelines on risk-based approach to banks.

It regularly penalizes banks with hefty amounts for non-compliance and violation of AML/CFT regulatory instructions. The SBP approach to these challenges is certainly producing the desired results. Improved measures that the banks have taken to speed up the process and open up new branches are also positive developments. To attract customers, some banks offer new products to the non-resident Pakistanis. Banks too are given incentives to attract new customers.

The ultimate result of its measure is that overseas Pakistanis have more confidence in Pakistan’s banking system, which is why inflows of remittances are on the rise. What needs to be checked is the money that is generated through corruption, which is why currency in circulation has reached nearly 37 percent of bank deposits.

The principal reason behind widening gap between official and unofficial rates is the Afghanistan crisis. Unconfirmed news that the government has agreed to the IMF demand with regards to public disclosure of asset declarations of the politicians, civil servants and possibly their family members is another major reason. Reports of tighter monetary conditions and imposition of tax on real estate (where a large part of corrupt money is parked) transactions can be some other reasons in this regard. Moreover, crypto currencies transactions are also not documented. However, with better checks and control, the incidence of risk has considerably minimized. FATF should act only on facts.

(The writer is a former Country Treasurer of Chase Manhattan Bank. The views expressed in this article are not necessarily those of the newspaper)

He tweets @asadcmka

Copyright Business Recorder, 2021