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EDITORIAL: Within eight months of its launch, the amount received by Roshan Digital Account (RDA) has crossed the one billion-dollar mark. There had been talks on launching diaspora bonds for a long time; and finally, a product is up and running. At an event recently, prime minister Imran Khan thanked the expatriate Pakistanis for trusting the product and applauded the State Bank of Pakistan (SBP) and commercial banks for their efforts towards making RDA a success. At the present pace, the amount received in RDA is likely to double during the calendar year. The star product is the Naya Pakistan Certificate (NPC), which has attracted around 70 percent of the RDA flows. The rates offered on NPC are mouthwatering, to say the least. These are a steep premium as compared to what local people get on foreign currency accounts or in government papers in PKR. The reason for higher rates was to provide a fair compensation to the investors on the opportunity cost of investing in similar risk classes. When the RDA was launched, the rate in NPC at 7 percent for 5-year paper was kept close to secondary market yields of Pakistan international sovereign bonds. The other reason for giving better rates was to offer discount to clients in a new market. Now the secondary market yields for Pakistan international bonds have fallen and the product is becoming popular. The State Bank of Pakistan (SBP) is requested to start thinking about rationalizing rates in due course. However, there are expectations of higher inflation in the US this summer as the demand is likely to pick with opening of the economy. This may put an upward pressure on the US treasury yields and this could result in higher yields in emerging markets.

The SBP should think of revising the rates in September, the month of first birth anniversary of RDA. And on the initial discount, SBP may consider building up a base before offering more competitive rates. There are 7-9 million expats residing outside Pakistan. Out of them, only 120,000 have joined this account. That is too low a number. Let's see how many accounts the SBP thinks are enough for an early bird discount.

Meanwhile, SBP and banks are working on increasing the products offering in RDA bouquet and has announced two new products for the RDA holders. One is 'Roshan Apni Car', allowing RDA holders to finance cars in Pakistan. A better rate has been negotiated for car financing and all banks have agreed to offer the product at the same rate. In car financing, the car is the collateral. Plus, banks can lien the NPCs or cash in accounts to further reduce the credit risk. Banks are offering two tiers of car financing product; and within each, the offerings are at floating and fixed rates. One is a lien product where floating rate is kept at SBP floor plus 1 percent and in case of non-lien product, the floating rate is kept at KIBOR plus 1 percent. The floor rate is one percent lower than the policy rate. Hence for lien product, today's effective lending rate is 7 percent. There are fixed rate options too. For lien product, the rate is at Cost of Deposit (CoD) plus 1 percent and at PKRV plus 1.5 percent for non-lien products. The rates are going to be fixed every month based on the prevailing CoD and PKRV for the tenure rates to be fixed. Should it get traction, the monthly payment will ensure more flows to come in as the repayment has to come from RDAs. A similar product for housing finance should be thought about too.

The second product launched is 'Roshan Samaji Khidmat'. This will make it easier for expats to do charity or carry out philanthropic activities in Pakistan. Right now, they have to send separate remittances for each charity organisation they are donating to. Using RDA, expats can send to as many registered organisations as much amount as they wish from anywhere in the world by pressing a button or touching a screen. RDA is not only giving Pakistan the much-needed foreign exchange but also giving banks a new avenue to make money. Banks and SBP are slowly adding new products to their portfolios and this is likely to become a new stream of foreign inflows with banks' earnings going forward.

Copyright Business Recorder, 2021