RDA gets going

The Roshan Digital Account (RDA) is gaining pace. The scheme was launched on 10th Sep 2020, and the amount received was $250 million in the first 14 weeks. The inflows doubled in the next six weeks to cross $500 million. The SBP is eying $1.5 billion by the end of one year; and $2 billion by Dec 2021 is not out of reach.

There have been concentrated efforts to attract diaspora savings into the country. Historically, the incentives and support for expats were mainly confined towards home remittances - current spending, of expats. With higher number of workers going abroad and incentives to send through formal channels have increased the remittances yearly flow from $8 billion in FY09 to $23 billion in FY20 after the introduction of PRI (Pakistan remittances initiative) in 2009.

In 2020, for the first time, savings of expats are being tapped through RDA. The initiative is basically a life-style banking for expats along with better returns in government papers. The flagship product is Naya Pakistan Certificate where the return in USD is at 5.5-7 percent depending upon maturity and the returns in PKR is at a premium to the prevailing market rates.

Some say that local investors are at a disadvantage. It is not true as local investors never had these kind of return options. Locals are getting what they used to get prior to RDA. Hence, their treatment is same. For expats, the returns are based on the options of risk and return they have globally; and is in-line with Pakistan’s issuance of international bonds.

The success of RDA is not merely based on giving higher returns to expats on Naya Pakistan. In 2019, Pakistan Banao Certificate was launched. It was a half-hearted attempt with no marketing or thought process. It was a failure.

Now after the launch of RDA, SBP and banks kept on engaging with expats to understand their issues. The two-way communication continued. There were teething problems in the beginning, and the regulator kept on working to address those.

In early days, there were issues about account opening from banks’ side. The SBP kept on pushing the banks. Then the expats were not happy with tax treatment. Now the 10 percent tax rate (WHT) is full and final with no requirement for expats to file returns. In the start, there was no option of NPC in Islamic mood. There is now.

With the resolution of these issues and aggressive marketing by banks and continuous engagement of SBP with the expats, the inflows have sped up. The SBP is doing more. Currently, the NPC is available in British Pound and Euro to attract investors from these regions. The banks charges of overseas banks were as high as $70, that was hindering frequent transactions. Now that has reduced to $5-9. This reduction will provide lifestyle banking to expats.

For banks in Pakistan, sky is the limit. There are around 9 million expats around the globe that are in reach of local banks. That is why a few banks are keen at marketing. At the start of the scheme, there were eight banks doing this. Today, the number is nine; and tomorrow (24th Feb), 10th bank will join. A few more will join soon. Banks are realizing that it is an opportunity loss for them to not join.

To-date, around 88,000 accounts have been opened from 97 countries. The $500 plus inflows, the highest number ($325-330 mn) is in NPC – around 50 percent of it is in Islamic. Highest number of accounts are opened with UBL. Highest inflows are from Meezan and the bank is leading in NPC Islamic instruments. In conventional NPC, HBL is on the top.

Apart from NPC, the expats are investing in stock market – Rs600-700 million are in it. Banks are looking for leveraging the inflows by providing lending options. Car financing could be a start product for expats in days to come – the families can use the cars in Pakistan being financed by the expats.

A few in Pakistan are apprehensive of potential arbitrage option for residents (or expat having FE 25 accounts in Pakistan). Potentially, these can remit local funds outside and invest in NPC through RDA. Well for resident Pakistani, this option is up to the amount that they have already declared in tax returns in Pakistan.

The FE25 accounts details show that the deposits numbers have not changed after the launch of this scheme. Hence, no arbitrage availed as such. Some fear that people will send money abroad and will declare in tax returns next year; and this arbitrage may start happening by next fiscal. If that happens, FE25 numbers will reflect it.

Having said that, the higher returns offered to expats in NPC was for two reasons. One was to give competitive returns to what they get for similar risks. The other is to attract them in the new scheme - discount offer in early days. Now the scheme has started rolling, and the teething issues are being solved, it is high time to start rationalizing the returns on NPC.