Launch of 'Asaan Remittance Account'

The government and the State Bank of Pakistan have been thinking about the ways to increase the flow of home remittances into the country. The urge to do so has become more intense since the woeful widening of current account deficit over the past one year and a half. With a view to promoting home remittances through legal channels and enhance the outreach of basic financial services to the unbanked or underserved segments of population, the State Bank has now launched 'Asaan Remittance Account' scheme for prospective beneficiaries of home remittances. It is believed that this move will facilitate opening of bank accounts by low-risk customers to receive home remittances through proper accounts instead of resorting to traditional cash over the counter transactions. This initiative has been launched in collaboration with Pakistan Remittance Initiative (PRI) to promote the use of bank accounts by home remittance recipients (beneficiaries). Individuals can open these accounts with a simple, one-page account opening form, which is both paper-based and electronic, requiring only basic customer information. The account is designed only for beneficiaries of home remittances and will be fed with the proceeds of home remittances only. A maximum credit balance limit of Rs 2 million, cash withdrawal limit of Rs 50,000 per day and fund transfer limit of Rs 50,000 per day has been set for these accounts. The prospective recipients and their family members can open bank accounts at banks' branches or through banks' permanent staff visiting customers' places. International Bank Account Number (IBAN) and names of prospective remitter stating relationship with the account holder is a mandatory requirement for the 'Asaan Remittance Account'.
It may be mentioned that home remittances are considered as one of the main factors in the stability of country's external account balance. In fact, the inflows of remittances are now almost equal to the level of value of exports. While the government is trying to increase its labour force participation in infrastructure activities in the rest of the world to raise remittances, particularly in the Gulf region, the SBP is making efforts to promote the use of formal channels for the transfer of remittances by encouraging banks to expand their networks with leading money transfer operators. Particular mention in this respect may be made of the launching of PRI which has greatly helped to increase the flow of remittances to Pakistan. Of late, however, the PRI has lost its steam and this scheme needed a substantial improvement to achieve the intended objective. The latest initiative of 'Asaan Remittance Account' is to encourage opening of special accounts for receiving home remittances through proper accounts instead of traditional cash over the counter transactions. Obviously, if the beneficiaries are convinced about the convenience of such an account, more transactions would be channelized through the banking system and the amount of home remittances would increase to support the external sector position of the country. It is also easy to see that this new facility may help achieve the financial inclusion targets set out under National Financial Inclusion Strategy (NFIS) by the SBP and provide a standard framework governing the limited mandate accounts and products currently being offered by commercial banks. Indirectly, the new strategy would also help increase documentation of the economy, promote saving habits among the masses and generate opportunities to access credit facilities through the formal financial sector. However, we believe that the new scheme of 'Asaan Remittance Account' would not be very productive as it does not offer any major incentive for either the remitter or the beneficiary. As such, it would hardly make any difference on the level of home remittances. For instance, the SBP has tried to make the opening account easier under the scheme without taking into account that even prior to this scheme, anybody could walk into a bank with his CNIC and ask the bank staff to open his account. All the required formalities are fulfilled by the banker himself and the customer has just to sign the form. All of this is done within a few minutes. Secondly, the rate of return offered on 'Asaan Remittance Account' is likely to be the same as on other accounts, providing no incentive to the beneficiary to open this account. And thirdly, limits have been unjustifiably prescribed on the maximum credit limit, cash withdrawal limit and fund transfer limit on this particular account. Obviously, clients would like to keep their funds in accounts where no such limits are prescribed. State Bank, in our view, should have thought about these limitations before finalising the scheme.