Naqqash Hafiz is a skilled Finance and Management Professional with background in chartered Accountancy. In May 2014, he embarked on journey at ACE Money Transfer, initially joining the Internal Audit department as Manager Internal Audit. Over the years, he diligently worked his way up, successfully managing various functions within ACE, with a primary focus on Finance and Treasury.

Currently, Naqqash Hafizholds the position of Executive Head at ACE Money Transfer, where he oversees critical areas including Finance, Treasury, HR, Marketing, and Sales. His expertise lies in financial management, as well as a deep understanding of cross-border payments and international money transfers.

Following are the edited excerpts of a recent conversation BR Research had with Naqqash Hafiz:

BR Research: Remittances have been a lifeline for Pakistan. Could you explain key factors affecting remittance growth in the country?

Naqqash Hafiz: Remittances, the money sent back home by immigrants, play a significant role in the economy of developing countries, including Pakistan. They often serve as a stable source of foreign currency inflows that support the country's balance of payments, mitigate poverty, and finance consumption and investment.

Continuous currency rate fluctuations in the open market and using unregulated channels like Hawala/Hundi are the primary factors that affect remittance growth in Pakistan. Despite the availability of advanced technological channels, which are secure, faster, and economical, most overseas Pakistanis still use unregulated means to transfer funds back home, considering that they would get high exchange rates. Consequently, a large proportion of foreign remittances received in Pakistan through such unlawful channels don’t benefit the country’s economic growth.

BRR: Approximately, what is the share of remittances through formal/legal channels versus informal channels?

NH: Since calculating the amount of remittance received through informal channels remains a challenge due to no monitoring of money flowing through such methods, the fintech and finance experts estimate a proportion of 55 percent - 45 percent in remittances received through both channels.

BRR: What are the risks of rise in remittances through black market?

NH: In the case of a complete black market where remittances are being sent through informal or illegal channels, there are several implications to consider. First, the there is a potential risk to expats’ hard-earned money: Informal channels do not provide the same security and guarantees as formal methods of remittance transfer. Money sent through these methods can be at higher risk of theft or fraud.

Then there is the risk of loss of foreign exchange: When remittances are sent through formal channels, they contribute to the country's foreign exchange reserves and help balance the country's external accounts. If remittances are sent through the black market, these benefits would be lost.

Also, there is an impact on economic indicators: Official remittances are recorded and contribute to the country's GDP. If remittances are sent through the black market, it will result in inaccurate economic data, making economic planning and policy formulation more challenging.

This also leads to decreased financial inclusion: Remittances through formal channels often encourage financial inclusion as recipients may open bank accounts to receive the funds. The black market could undermine these efforts.

There is a potential for money laundering and financing terrorism: Unregulated money transfers can be used for illegal activities such as money laundering or financing of terrorism, posing risks to national security.

While it might be possible that more funds could potentially be remitted in a completely deregulated black market due to reduced costs or evasion of controls, the risks and downsides make this an undesirable scenario. Pakistan needs to aim to reduce the size of the black market by improving financial inclusion, offering incentives for formal remittances, and cracking down on illegal activities.

BRR: In theory, how should exchange rates affect remittance flows? What is the trend like right now? How did the recent dollar shortage impact legal and illegal remittance inflows?

NH: In theory, exchange rates can significantly impact remittance flows. Here's a simple way to understand this:

When the currency in the sender's country (for example, the US dollar) appreciates against the currency of the recipient's country (for example, the Pakistani Rupee), more of the recipient's currency can be obtained for the same amount of the sender's currency. This might incentivize migrants to send more money home because they can send more "value" while the exchange rate is in their favor.

On the other hand, if the sender's currency depreciates against the recipient's currency, the sender will get less value for their money, which might dis-incentivize them from sending remittances.

Typically, when there is a shortage of dollars (or any sender's currency) in the recipient's country, it could increase the exchange rate (as dollars become more "valuable" or scarce), potentially encouraging more remittances through formal channels.

However, it's important to note that a dollar shortage can also lead to more informal or illegal remittances. This happens because, with fewer dollars available through formal channels, people might resort to informal channels to obtain them. This activity can be harmful to the economy, as it doesn't contribute to foreign exchange reserves, is not regulated, and can be used for illicit activities.

Remember, while exchange rates do play a significant role, remittance flows are also affected by a multitude of other factors, such as economic conditions in the sender and recipient countries, migration levels, and government policies, among others.

BRR: How did you deal with the dollar shortage at your end? Many exchange companies have been criticized for hoarding.

NH: ACE Money Transfer provides completely digitized remittance solutions, which are entirely secure and regulated. The collaboration between ACE Money Transfer and Bank Al Habib enables overseas Pakistanis to send money digitally from abroad in several currencies at competitive rates and the lowest transfer costs with an exceptional speed of merely 7 seconds. Providing digital solutions with favorable exchange rates, low transfer costs, speed, security, convenience, and incentives is the best possible way of dealing with the problem of dollar shortage in the country.

BRR: Regarding money transfers, can you tell us the regular ticket size and how the ban on dollar export affected exchange companies?

NH: The 'ticket size' in money transfers refers to the average amount of money sent per transaction. The exact ticket size can vary greatly depending on a range of factors, such as the relationship between the sender and receiver, the countries involved, and the specific purpose of the transfer. So it fluctuates between USD 150 to 800.

Regarding the effect of a ban on dollar export on exchange companies, such a policy has had significant implications, including but not limited to the loss of business, increased black market activity, risk of closure or downsizing, reduced remittance inflows, potential for legal issues, etc.

BRR: Coming to the business of money transfer, how do you remain competitive?

NH: ACE Money Transfer and Bank Al Habib remain competitive by offering commendable and trusted remittance solutions that ensure exceptional transfer speed as fast as 7 seconds, competitive exchange rates no matter what the circumstances, the lowest transfer costs, reliable security of transactions, extremely convenient process through user-friendly mobile app and website, and impressive incentives in terms of enticing cash rewards. All of these features combine to make the two partnering institutions competitive.

BRR: Is there a need to simplify the money transfer for freelancers?

NH: Pakistan has a booming freelance market, particularly in fields such as software development, graphic design, content writing, and digital marketing. In 2020, it was ranked among the top 5 countries for freelancers. Freelancers in Pakistan have been facing challenges in receiving payments from international clients. The primary services used include PayPal (which isn't officially available in Pakistan), Payoneer, bank wire transfers, Western Union, and cryptocurrencies. Each has its own set of limitations and costs, such as fees, conversion rates, and availability. Simplifying the money transfer process for freelancers could potentially add significant value to overall remittance inflows to Pakistan, helping to stimulate the country’s GDP growth.

BRR: What is your outlook on the exchange rate over the next year?

NH: Exchange rate fluctuations always impact the financial institutions and the end-users (remittance senders, and recipients) simultaneously. Regardless of the market trends, the two renowned institutions, ACE Money Transfer and Bank Al Habib, look forward to providing customers with competitive exchange rates and trusted service features to encourage them to use regulated channels of remittances and play their part in strengthening the country’s economic growth.