It is difficult to believe that a scheme as simple as Pakistan Remittance Initiative (PRI) initiated jointly by the State Bank, Ministry of Finance and Ministry of Overseas Pakistanis in August, 2009 to enhance the level of home remittances could be abused by banks to increase their own incomes. But that is exactly what seems to have been happening, prompting the SBP to take some countervailing measures to check this unhealthy practice. A circular issued by the State Bank on 24th May, 2016 said that from now onwards banks will only be paid a processing fee if the amount remitted is above dollar 200, which is double the previous limit of dollar 100. Besides, it was also decided to reduce the per-transaction fee from Saudi riyals of 25 to 20. According to the notification, "only one transaction shall be eligible for the reimbursement of TT charges irrespective of the number of transactions sent from the same remitter to the same beneficiary on the same day." It should be ensured that no transaction was split to avail undue benefit under the scheme. The SBP also made it clear to the banks that "in case a claim is found to contain transactions below dollar 200 or equivalent in other currencies or split transactions detected at any stage, the SBP shall have the right to recover such amount from our current account maintained with them." However, as before, banks and the correspondent entities will not charge their customers any fee or other charges at any stage for sending or receiving the home remittances.
It may be mentioned that maximisation of the inflow of home remittances has always been a policy priority for economic planners of the country due to a substantial deficit in the external sector accounts of the country which was sought to be plugged through this source. Although main factors determining the flow of remittances have usually been the number of expatriates, their level of incomes in various countries and the difference in exchange rate between the official and the hawala markets, State Bank has always been endeavouring to channelize more and more remittances through the formal banking channels in order to increase their utility for the country. However, such an effort by the State Bank, although commendable, was reported to have been misused by some of the banks who took undue advantage of the PRI initiative. Under the existing rules, banks are paid fee by the SBP on each transaction as it was supposed to help boost remittances coming into the country from overseas Pakistanis. However, a number of banks abused the scheme by splitting the transactions into dollar 100 of the same individual on the same date to avail undue income. The amount so wrongly claimed was reported to be in billions of rupees. Obviously, after the new circular by the State Bank, banks would find it much harder to continue the old practice. However, the deterring value of such a measure is difficult to quantify as the State Bank has only gained the authority to recover the amount of split transactions detected at any stage and refrained from punishing the errant banks. As such, though the new rules may prove to be deterrent, it may be difficult to totally eliminate the old practice and the State Bank may have to come up with certain other measures in future to stop the banks from this trickery. Also, it needs to be ensured that raising the limit from dollar 100 to dollar 200 for fee eligibility may not discourage the banks to entertain small remitters at their branches who may then be tempted to send their remittances through unofficial channels. The continued inflow of home remittances at the present or increased level is so important that a slight slip in policy could cost the country dearly. While on the subject, complaints of the banks for the delay in the reimbursement of fees due on home remittances should not be ignored. Promises of the SBP and the government should be fulfilled at all costs and without delay.