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KARACHI: The State Bank of Pakistan (SBP) has introduced new incentive scheme for the Exchange Companies, under which they will get PKR 1 against each USD on surrender of 100 percent of foreign exchange, received as inward home remittances, in the interbank market.

In order to enhance the flow of home remittances through formal channels and improve foreign exchange liquidity in the interbank market, State Bank of Pakistan together with the government of Pakistan has introduced various policy measures, from time to time.

The country currently needs healthy foreign exchange reserves to finance the rising current account deficit and ensure the timely external debt servicing. During January 2022, the SBP’s foreign exchange reserves declined drastically some $1.9 billion mainly due to external debt payments.

Now, aimed at further encouraging the Exchange Companies to mobilize home remittances, the SBP has introduced a new incentive scheme for Exchange Companies (ECs) with the approval of the federal government.

SBP-held foreign exchange reserves fall $463mn, stand at $15.73bn

Under the scheme, Exchange Companies would be required to surrender 100 percent of the home remittances mobilized in the interbank market and in return, they will receive PKR 1 against each USD surrendered.

The scheme would be effective from February 4, 2022. The incentive of PKR 1 for each USD surrendered in the interbank market will be fixed irrespective of exchange rate, however, it is clarified that the incentive will not be allowed to exceed 1 percent of exchange rate in case of PKR appreciation.

Exchange companies bring home remittances with the help of Money Transfer Operators, in their accounts maintained with banks in the country.

Earlier, ECs were required to surrender a minimum 15 percent of the home remittances in the interbank market. To implement the scheme, State Bank of Pakistan has now amended its regulation governing disbursement of inward remittances by Exchange Companies.

Now the exchange companies will surrender 100 percent of foreign currency received by them on account of inward home remittances, in equivalent US Dollars, in the interbank market on the same day.

In order to become eligible for the incentive, the Exchange Companies will open and maintain a separate foreign currency account for receiving inward home remittances through Money Transfer Operators (MTOs) and surrendering the foreign exchange in the interbank market. The said foreign currency account will be used for transactions related to inward home remittances only and any amount received as commission or exchange gain etc. from MTOs shall not be credited in this account.

According to SBP, the requirement for surrendering foreign exchange vide Para 9 (ii) (d), Chapter 3 of Exchange Companies Manual, has been amended accordingly. As per amendment Exchange Companies will surrender 100 percent of foreign currencies received on account of inward home remittances, in equivalent US dollars, in the interbank market on the same day.

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Exchange Companies will be required to maintain a complete record of transactions related to inward home remittances, amount surrendered in the interbank market and claims submitted to the State Bank of Pakistan under this scheme.

The Standard Operating Procedures regarding submission of claims by the Exchange Companies will be issued by the SBP separately.

Exchange Companies will also ensure availability of all relevant records for examination by State Bank’s inspection teams. The violation of any instruction on the part of Exchange Companies would attract enforcement action under the relevant provisions of the Foreign Exchange Regulation Act, 1947.

Home remittances are a major source of income for families of expatriate Pakistanis and contribute significantly in the country’s economic activities. The State Bank together with the Government of Pakistan has introduced various policy initiatives, from time to time, to increase the flow of home remittances through formal channels.

Since ECs mobilize a significant amount of home remittances, SBP believed that this scheme will help to improve the foreign exchange liquidity in the interbank market and the incentive provided is expected to encourage all exchange companies to bring more and more home remittances by reaching out to a wider set of remitters and their beneficiaries in Pakistan.

Copyright Business Recorder, 2022

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