Mr. Moinuddin is the head of Pakistan Remittance Initiative (PRI), a remittance-enhancing joint initiative of the State Bank of Pakistan (SBP), Ministry of Finance and Ministry of Overseas Pakistanis. He is also serving as divisional head in Exchange Policy Department at the SBP. He graduated in the discipline of economics from University of Karachi in 1987 and from Williams College, USA in 2002. Previously, he served in various departments of the central bank including research, training, economic policy review and monetary policy.

In this interview with BR Research, Mr. Moinuddin shares his insight on the remittance slowdown, PRI’s plans to tap the potential of remittance inflows, and whether or not remittance is a channel for turning black money into white.

BR Research: Let’s start with your thoughts on the first year-on-year fall in workers’ remittances since the fiscal year 2004.   

Moinuddin: Remittances fell to $19.3 billion in FY17, which is a 3.1 percent decline over the year before. Throughout these last 13 years we have seen sustained growth, even more so after the launch of Pakistan Remittance Initiative. However, once we see this decline in the global context, things will not appear so bad. In particular, as per World Bank’s statistics, Pakistan’s compound annual average growth rate of 16 percent during 2009 – 2016 is the highest amongst top 20 remittance recipient countries.

However, recently the cost of compliance to anti-money laundering (AML) policies and regulations has increased in the US and Middle East. For instance, AML compliance now also requires additional set of information about the beneficiaries of remittance. As a result of additional transaction costs, many banking windows for remittances were shut down in US.

In the global perspective, remittance flows in 2016 to India were down 9 percent from a high base of $68.9 billion, according to World Bank data. Bangladesh has slipped to its 2013 level with a decline of 11 percent in 2016; China too saw remittances fall 4.6 percent last year.

All these labour exporting countries saw a decline in remittances due to same exogenous factors: first, lower trajectory of oil prices since 2014 has adversely affected oil exporting economies; second, the rising AML related compliance costs in the US; third, remittance from the UK faced a setback due to Brexit; and fourth the de-risking, particularly in UK and Australia, also put downward pressures on remittances.

In fact, despite these challenges, we have managed to increase remittance from the UK because if you look at pound sterling, it has depreciated about 12.3 percent against the US dollar after the Brexit, whereas our decline in remittance from the UK was 9.4 percent. This means that in British pound terms, our remittances have increased by around 3 percent.

So while Pakistan has not been able to sustain the increasing trend, as a result of our efforts, we have mitigated the decline seen elsewhere in the region.

BRR: To test the theory of rising AML costs and oil price decline, one will have to see the trends in country-wise remittance flows to India, China, Bangladesh, etc, and compare them to country-wise remittance flows to Pakistan. Do you have data to make such comparisons?

Moinuddin: Country-wise data is generally not available for all corridors, so we cannot compare. Pakistan’s reporting on remittance is very good. If you look at the Indian central bank website, you may find flows from North America but after quite a lag, whereas in Pakistan remittance data is released on the tenth of every month. Other countries don’t report data at such granular level.

BRR: Don’t central banks in the US or the Middle East release country-wise monthly remittance outflow data? And don’t the central banks talk to each other to share such non-sensitive datasets?

Moinuddin: Most central banks release total remittance outflow numbers but they don’t release country-wise data. Policy makers across many countries discuss issues related to remittances, for instance, Bank Negara Malaysia organised an annual conference with the coordination of some international association of money transfer firms. Similarly, eleven major labour exporting countries are engaged on emigration and remittance related issues under Colombo Process.

BRR: Can you give us a broad overview of PRI’s efforts?

Moinuddin: Aside from increasing the tie-up arrangements, we have been taking a host of measures. For instance, as a result of PRI’s guidance, nearly all the financial institutions undertook aggressive marketing campaigns, particularly before Eid. We also made interbank transfers more efficient by introducing MT102 systems, which replaced RTGS.

Previously, remittance sent via non-PRI participating banks used to be paid through the traditional method of demand draft or pay order, which took 7 to 10 days in total. But with the launch of MT-102, those transfers are made within 24 hours directly into the beneficiary account. If that transfer hasn’t been made, banks will be penalised 65 paisa per day per thousand rupees, which the bank has to pay to the beneficiary as compensation. We have also been following the use of International Bank Account Number (IBAN) closely, and it is encouraging that IBAN transactions are gradually increasing.

In case of any problem, PRI call center is helping remitters/beneficiaries to guide and resolve their issues in minimum possible time. PRI also receive complaints through web/e-mail. During FY17, PRI has resolved over ten thousand complaints related to remittances. It is important to note that formal system is secure and PRI is providing support facilities to remitters and beneficiaries. Remitters/beneficiaries can lodge their complaints through PRI Call Center during working days between 09:00 am to 09:00 pm, or through link given at website (www.pri.gov.pk) or e-mail info@pri.gov.pk.

We are competing with the informal sector at all levels: efficiency, cost and marketing. We want to make the formal sector attractive enough, so there is little incentive for remittance senders to use the informal channel.

BRR: Are you increasing the tie-ups in new corridors as well or only focusing on traditional corridors? Because there is a noticeable increase in ‘others’ category of the remittance data, and as such the stakeholders have no clue which corridors are leading in that ‘others’ category.

Moinuddin: Both. For instance, in the UK, we have approved a lot of agency arrangements. To give confidence to the existing tie ups that the Pakistani market welcomes you, we brokered their relationship with Pakistan banks, and encouraged them to have joint promotions and marketing campaigns in the UK.

In the non-traditional corridor, most of which are classified in the ‘other’ category, there has been a 17.6 percent growth in remittance flows last year. Within that, Malaysia is the most prominent. We received $1,067 million in remittance from Malaysian corridor in FY17, which is 32 percent increase over last year and constitutes 5.5 percent of the total remittance flows to Pakistan.

One of the reasons why Malaysian corridor is growing is the fact that for the last three years we have been facilitating agency arrangements for banks. Secondly, Malaysian law enforcement agencies have been working to tighten the noose around informal channels that facilitate money laundering. As a result, remittance flows have been directed toward the formal channel.

Malaysia is now our sixth largest corridor; Saudi Arabia being the biggest, followed by the UAE, USA, UK, ‘Other GCC countries’ as a club, and then Malaysia. But if you only look at specific countries, Malaysia is the fifth largest.

Lately, our focus has been on diversifying non-traditional corridors. And to that end, New Zealand is now on board for the first time. South Africa was brought on board two years ago. We are also focusing on Western Europe in terms of new corridors, and focusing on facilitating new products.

BRR: What kind of new initiatives is PRI working on?

Moinuddin: First of all, remitters need standard bank account products. Based on our recommendation, the Ministry of Overseas Pakistanis is considering that bank account should be made a mandatory requirement for workers going abroad. This will reduce the hesitation of labourers as they would have already been made a part of the banking system. But in order to make it mandatory, it has to be made into a law, which has to be moved by the ministry.

Second, while banks have offered home delivery remittance products, we are also promoting development of mobile banking products for remittance for the last two to three years; and we are thinking of solutions using branchless banking to increase the outreach. For instance, in terms of mobile banking products, we are promoting mobile app based solutions, and we are exploring how to use agent network in underserved regions.

We have also arranged disbursement through Zarai Taraqiati Bank Limited; which has about 450 branches at village level and that too will increase outreach.

Lastly, we are working on social media programme for awareness, working to incentivise the remitters and also engaging the law enforcement agencies to tackle the informal remittance market – the hawala market – which will also bring down the kerb market premium.

BRR: Why is that hawala players are not put to task in the sending countries, especially in the developed west?

Moinuddin: This is something we have been taking up with the international community.

Let me explain how this works. The remitter goes to the overseas operator in sending country. That overseas operator does its KYC as per the law – of both the remitter and the beneficiary. The sender takes the receipt and goes home. Now that overseas operator has two options: transfer the funds via bank or transfer the value via third party provider.

The difference between fund transfer and value transfer is that if the actual fund is transferred, it is legal in all countries, but if only the payment instructions have been transferred i.e. the value has been transferred then it is hawala, which is illegal in most receiving countries. In hawala, the currency does not move, in fund transfer the currency moves.

In recent meetings of the Colombo Process –the consortium of eleven labour exporting countries - we have raised this issue that receiving countries should rise up and nudge the sending countries to disallow third party transfers. Money laundering in developing countries is in fact due to third party transfers being allowed in sending countries.

BRR: Do you think the FY18 remittance target of $20.7 billion will be met? By which year do you think we can realise the $24 billion potential, you said existed in our last interview? What major signs of hope or worries exist out there?

Moinuddin: As mentioned earlier, that potential to increase remittances exists, therefore this target for FY18 and potential remittances could be achieved by diverting remittances from informal to formal channels. One key factor is the increase in domestic and overseas outreach in traditional and non-traditional corridors to provide easy access to remitters and beneficiaries. PRI/SBP are not only encouraging increase in outreach but are also encouraging use of technology such as online transfers from sending corridors and direct account credit/mobile wallets at receiving end.

As you know that the government and the SBP have already taken various policy measures to boost remittances, and a number of new policy initiatives are at final stages. For instance, to compete with informal channels, SBP is focusing on further enhancing efficiency in the existing payment processes. New incentive schemes for different stakeholders are also under consideration. A marketing plan is also part of the strategy for awareness of remitters and beneficiaries, though of course outcome will also depend on various external factors, such as overall macroeconomic stability in major sending corridors.

BRR: What new investment avenues is the PRI working on? We do know that the PRI had made a proposal several months ago.

Moinuddin: We have made two types of proposal; one was for rupee-based products and the other was dollar-based. It is expected that the government would announce issuance of investment products for overseas Pakistanis during the on-going fiscal year. These products will be offered by the CDNS, but if the remitter wants to repatriate the principal or the return in dollar, then it can be done in dollar.

Second, there is an investment bond product – the Pakistan Development Fund - which will be offered in both rupee and dollar; the concept of the PDF already been announced by the Finance Minister Ishaq Dar and we hope to make announcements about the product soon this year.

The transaction size for both these products will be convenient enough to ensure that even blue collar workers can make small investments.

BRR: How do you respond to the view that the rise in formal remittance is essentially black money being whitened back into the economy? 

Moinuddin: If you look at the data of Pakistani workers going abroad; in 2016 there was an 11 percent decrease in workers going abroad. Its impact was visible in 2017 remittance inflows, though like I said earlier, the rising AML compliance cost and oil price slide was also responsible. Similar trends have been observed in the past.

Second, the average ticket size is around $580, which from the Middle East is about $500 whereas that from advanced countries is $750-800. We also look at the distribution and we can safely say that black money is not being whitened through this channel since the number of big ticket transactions is few, whereas smaller transactions account for the bulk of as percentage of total remittance flows, which is why the average is so low.

Lastly, the full year average of kerb premium was 1.73 rupee per dollar, which is substantially higher than previous year. If black money was being whitened via the formal channel, then why did the kerb premium rise with so much magnitude?

BRR: Has PRI studied the district or province wise corridors within Pakistan? Which district or province is getting the most remittance? 

Moinuddin: The State Bank has indeed developed some datasets on this for the last two years, but the study is currently underway so it is too early to make a statement on this.

But based on our initial estimates; Karachi, Lahore, Sialkot, Rawalpindi Gujrat, Gujranwala, Peshawar, Islamabad are some of the biggest remittance receiving cities. Not only is this consistent with district wise data of workers going abroad, but this relationship between city-wise remittance and labour too suggests black money is not being whitened.

BRR: Remittance is arguably the only thing going good for Pakistan on the macro side; yet the central bank’s reports are usually awfully silent about it. Detailed analyses on remittance should feature in SBP’s quarterly reports, which should also shed light on PRI’s plans, actions and insights on the corridors. Will you make this a recurring feature in SBP’s quarterly reports? 

Moinuddin: SBP flagship publications on the economy always cover remittances in its analysis. While quarterly reports contain brief analysis, annual reports typically provide detailed analysis with different perspectives every year. Nevertheless, we would try to incorporate more issues as highlighted by you.