Mr Moinuddin is the head of Pakistan Remittance Initiative (PRI), which is a remittance-enhancing joint initiative of SBP, Ministry of Finance and Ministry of Overseas Pakistanis. He is also serving as divisional head in Exchange Policy Department at SBP. He graduated in 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 talks about PRI's plans to tap the $24 billion potential of remittance inflows, and the legal loopholes that need to be rectified to tap that potential.
BR Research: It's been a while since the PRI has spoken to the public. What has the entity been doing since its inception?
Moinuddin: In the early years we had been consolidating different segments and features of banking sector that had previously not been put to use for remittance business. The plan was to beat the competition coming from 'hawala' that was offering free-of-charge and efficient services.
So, for example, bank branches had existed, but they were not in home remittance business. Similarly, the Real Time Gross Settlement (RTGS) system had been introduced by the central bank but it was not being used for remittance. Banks were issuing demand draft to beneficiaries and it took 10 to 15 days to receive remittances. The TT charges scheme by the government of Pakistan was in vogue since 1985, but that was just for Saudi Arabia.
So what did PRI do? First, it convinced banks that remittance is a viable business. Today we have 24 banks participating in this business, as against only five banks at the time when PRI was launched in 2009. Similarly, the TT charges scheme, which was restricted to Saudi Arabia, was made available for global markets so that if someone wants to send remittances through formal channel then they can do it free of cost.
Then the cumbersome process of demand draft was removed. We introduced a separate highway of RTGS by issuing a separate circular to that effect, which meant that remittance could be credited in the recipients' account within 24 hours.
As a result of all this we have been able to achieve 15.7 percent compounded average growth rate in last five years, which is the fastest growth rate in the world.
BRR: How has been your interaction with the banks and how have banks been able to expand their collection footprint in remittance markets?
Moinuddin: We have been guiding the participatory banks in setting up their home remittances cells and their complaint resolution system. PRI teams have also been exploring overseas tie-ups or what may be called as arrangements with corresponding financial institutions abroad.
When the PRI was launched there were only 80 arrangements of Pakistani financial institutions abroad. But today there are more than 600 arrangements. Aside from increasing the outreach at the collection end, we also expanded the disbursement end.
We now have 12,000 different bank branches disbursing remittances; outlets of Nadra and Pakistan Post Office have also helped expand the disbursement outreach. In addition, Telenor and Ufone outlets have been disbursing remittances through banks. We have also met two other telcos and they are also coming into the remittance business by the end of this fiscal year,
In 2009 we had an outsourced call centre. But now we have an in-house call centre. The idea behind having our own call centre is mainly to receive complaints, in case there have been delays in remittances. We take delays very seriously.
BRR: What happens if remittance is not credited in the recipient's account with the 24-hour timeline?
Moinuddin: The State Bank's instruction to this effect is already very clear: in case of delay, banks have to compensate the recipients at the rate of 65 paisa per Rs 1000 per day. If any problem is not resolved within one day, then we personally look at the case and engage with the senior staff of the respective bank. Our website is also being redesigned. It will include a feature through which one can register a complaint, which will later be followed up by PRI's call centre.
In 2012, PRI also initiated the use of Interbank Fund Transfer Facility (IBFT) for the purpose of remittance. Today all participating banks are using IBFT for remittance settlement purposes, which results in instant transfer of remittance in bank accounts.
BRR: Philippine also has very high remittance inflows and one of the strategies they have adopted is to train and debrief the outgoing workers before they depart. What are your plans in that context?
Moinuddin: True. In the Philippine the training is very comprehensive and mandatory. In Pakistan, unfortunately, people do not attend the pre-departure training conducted by the Bureau of Emigration & Overseas Employment (BEOE).
We understand that 85 percent of our outgoing workers are illiterate both in terms of education and also in terms of financial literacy. This is a disadvantage relative to the Philippines but it is also an opportunity, because if we can tap them and train them properly before sending them abroad, then not only can we prevent them from using 'hawala' for their remittances but also give them basic financial literacy and can improve financial inclusion in the country.
BRR: So how exactly is PRI going about improving financial literacy among migrant workers?
Moinuddin: We plan to conduct pre-departure briefing programme. As a start, we are now holding awareness programmes in the BEOE's seven protectorate offices across the country. We have already conducted workshops in three of those offices and plan to do the rest next month. These workshops are held for banks, the BEOE staff and also overseas employment promoters. These programmes tell them how important it is to open the bank account and sending remittances through formal channels.
The reason why we are taking banks along in these awareness programmes is because we have asked the banks to make a simple bank account opening-form without compromising on the KYC, so that the outgoing workers and the recipient of their remittances can open their bank accounts without any minimum balance requirements. The outgoing workers are also to be told that they should send their remittance via their international banking numbers (IBAN).
The plan is to give formal briefings to outgoing workers at multiple stages. First the employment-promoter will give the workers the awareness of opening up a bank account. He will attach the bank accounts with the worker's documents that are submitted to the BEOE.
The second step is that an exclusive briefing on remittance will be provided to outgoing workers at the BEOE's protectorate office. These briefings will be held in very simple terms and in the local languages. The purpose of that briefing would be to inform the outgoing workers about the disadvantages of remitting monies via unofficial channels versus the benefits of remitting via official channels. They will also be told about the tie-up arrangements in the countries they are going to, so they can send monies easily.
We are also working on short movies to be played in airlines and at airport lounges, particularly for flights bound for the Middle East. The idea is to reinforce official channels to send remittance at every touch point.
Likewise simple brochures are to be made that will contain information about how to remit monies from that respective country. The brochures will contain easy-to-comprehend information and will contain monograms of the tie-ups in the respective country so that even illiterate workers can at least identify the monograms and send monies officially instead of giving it to any 'hawala' agent.
BRR: Would it be mandatory to open a bank account? Because unless you have carrot or stick, how will you ensure that the outgoing workers actually have a bank account of their family member?
Moinuddin: Right now, domestic commercial banks will make efforts in co-ordination with BEOE and overseas employment promoters. But we have requested the Ministry of Overseas Pakistanis and the Ministry of Finance that it should be made mandatory so that no one can leave the country without having a valid bank account of his own and that of their recipient.
If the evidence of bank account is not attached with the passport then that the passport of that outgoing worker will not be stamped which is a prerequisite for leaving the country. In principle, this has been agreed upon by the ministries, and we also have the buy-in of the finance minister on this. So if the initial response is weak, then we will request the ministries to make it mandatory so that outgoing workers without bank account won't have any choice.
BRR: What do your studies say about the current potential of official remittance inflows or the level of informal remittance flows?
Moinuddin: We don't have any latest study of our own as such. But different studies by the International Organisation for Migration, the World Bank and other bodies suggest that even by conservative estimates, 50 percent of the remittance still comes from informal channels. Others say it is up to 250 percent.
Even if we take their conservative estimate of 50 percent, it means that at current level of $16 billion, at least $8 billion is being channelled through informal, and therefore we have a potential up to $24 billion.
BRR: Are there any legal loopholes that are responsible for this?
Moinuddin: Yes, one of the reasons remittance is still being channelled via informal channels is because in western countries, third-party payments are legally allowed. Third-party payment arrangements work in a way where the remitter books remittance for Pakistan with a company that doesn't have any arrangement with any Pakistani bank. But they have a contact with any informal player, who makes the payment on their behalf with the value being net-off against any other past or future payment due to the company in the remitting country.
We advocate this at every international conference that you have to change the laws pertaining to third-party transfer. The UK authorities have co-operated with us and they have issued an alert which advised that fund transfers should be made between licensed entities after which informal inflows have now been curtailed from the UK and remittances from UK rose from $458 million in FY08 to $2.1 billion by FY14.
The condition they imposed is the FATF recommendation number 14, that the funds transfer should be between registered and licensed entities, after which informal players in either of the two markets are not being able to do it.
Resultantly, if you look at our growth multiples in the last five years, Saudi Arabia and UAE grew three times, US grew two times, but remittances from the UK grew five times. This more than average growth from the UK is due to that condition imposed by the UK authorities. So you can imagine the growth in official remittances if the west completely does away with the third-party transfers.
BRR: What do you think will be the impact of oil price decline on remittances?
Moinuddin: Well, it would be too early to say anything about a possible decline in workers' remittances from Saudi Arabia due to their expenditure cuts. We need to know, at least, how big the size of the cut in expenditures would be and in which sectors before making any assessment.
BRR: What do we know about the district-wise remittance inflows in the country?
Moinuddin: PRI did a study in 2010-11 but we are in the process of setting up a technological hub through which we will know these things almost on a real-time basis. The hub is conceptualised such that all remittance transactions will go through it. That means we will have all the data of remitter, recipient, the bank or other institutions. Once we have built that hub then we will begin a point-based loyalty programme by giving direct incentive to remitters. The cost of the incentive will be borne by the government of Pakistan. This whole project is expected to be finished over the course of next 2-3 years.
BRR: Tell us more about PRI's plans to increase the number of tie-ups?
Moinuddin: Of the four major corridors, we don't have too many tie-ups in Saudi Arabia, where traditionally a few banks have been operating. But we have encouraged a few banks and they are trying to penetrate Saudi market as well.
In the UAE we have quite a many tie-ups as lately there has been a change in the immigration market. Earlier, about 80 percent of the outgoing workers were going to Saudi Arabia. In the last two years, the UAE has taken over as the major destination for new outgoing workers, according to BEOE. And therefore, the UAE remains the focus of our attention. But in 2014, we have also focussed on Oman and Qatar to increase the number of tie-up arrangements, so we should be seeing a more-than-usual increase in remittance from these two places.
Outside these traditional sources of remittances, we are also focussing on the US, after having focussed on the UK in the yesteryears. We think that there is a lot of potential in the US market and lots of efforts are required to be able to fully tap that market.
BRR: Pakistanis have mostly been working as hard labour, especially in the Middle East as against other nationalities that have been getting jobs in hospitals and hospitality businesses in the same region. What are your thoughts on the matter, and what can PRI do?
Moinuddin: The PRI does not have any mandate to set up a vocational institute or anything like it. The government can identify the needs of the global labour market and support the setting up of vocational institutes in Pakistan.
BRR: What are your plans about introducing investment products?
Moinuddin: Development of investment products for non-resident Pakistanis (NRPs) is also a key objective of PRI. This will be a part of PRI Plus, as was envisaged at the time of the establishment of PRI. Although, we could not focus on this important objective yet, we have initiated the work to develop some attractive investment opportunities for NRPs. The idea is to attract the savings of overseas Pakistanis under arrangements that are either not able to be repatriated or partly able to be repatriated in rupee and partly in dollar. We should be able to get good response given that interest rates elsewhere in the world are very low.
It is, however, encouraging to note that with the guidance of PRI, many banks are offering NRP accounts, which can be opened without visiting Pakistan and can be operated as normal bank account in Pakistan. NRPs even can invest in T-bills or other government papers through these accounts.