Surrender 100% forex: SBP introduces Re1 incentive for Exchange Companies

In order to “improve foreign exchange liquidity in the inter-bank market”, the State Bank of Pakistan (SBP) and the government are now incentivising Exchange Companies (EC) to surrender 100% of home remittances against Re1 for each US dollar.

“Under the scheme, Exchange Companies would be required to surrender 100% of the home remittances mobilised in the interbank market and in return, they will receive PKR 1 against each USD surrendered,” said the SBP in a statement on Friday.

Business Recorder had earlier reported that a meeting of the Economic Coordination Committee (ECC) of the Cabinet has approved fiscal incentive of Re1 against each US dollar to Exchange Companies against surrender of foreign exchange in the interbank market.

On Friday, the SBP issued the circular.

“Exchange companies bring home remittances with the help of Money Transfer Operators, in their accounts maintained with banks in the country.

“Earlier, ECs were required to surrender a minimum 15% of home remittances in the inter-bank market. To implement the scheme, SBP has now amended its regulation governing disbursement of inward remittances by Exchange Companies. Now the exchange companies shall surrender 100% of foreign currency received by them on account of inward home remittances, in equivalent US Dollars, in the interbank market on same the day.

“Since ECs mobilise a significant amount of home remittances, this scheme will help to improve the foreign exchange liquidity in the inter-bank market and the incentive provided is expected to encourage all exchange companies to bring more and more home remittances by reaching out to a wider set of remitters and their beneficiaries in Pakistan.”

The central bank informed that the scheme would be effective from February 4, 2022 (today).

“The incentive of Re1 for each US Dollar surrendered in the interbank market will be fixed irrespective of exchange rate, however, it is clarified that the incentive will not be allowed to exceed 1% of the exchange rate in case of Pak Rupee appreciation,” the SBP added in the circular.

The development come days after the Economic Coordination Committee (ECC) of the Cabinet approved the fiscal incentive.

Home remittances play a vital role in Pakistan’s economy, which faces a widening current account deficit on account of a high import bill, and are a major source of income for families of expatriate Pakistanis.

Remittances from Pakistani workers surged to $15.8 billion in the first six months of this fiscal year, 11.3% higher than a year earlier, revealed central bank data.

Meanwhile, SBP in its circular stated that “in order to become eligible for the incentive, the ECs 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 in this account.

“Meanwhile, ECs shall surrender 100% of foreign currencies received on account of inward home remittances, in equivalent US Dollars, in the inter-bank market on the same day.

“Furthermore, ECs shall maintain complete record of transactions related to inward home remittances, amount surrendered in the inter-bank market and claims submitted to the SBP under this scheme. The Standard Operating Procedures regarding submission of claims by the Exchange Companies will be issued separately.”

The SBP stated that ECs will ensure availability of all relevant record for examination by State Bank’s inspection teams.

It also warned that 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.

Also read: Exchange companies, dealers must integrate with online system: FBR