Hawala networks are reappearing.
Remittance service providers accuse currency rate discrepancies in the open market and across banks.
The exchange rate swings that have exacerbated the difference between interbank and open market rates are blamed by foreign remittance service providers for the resurgence of grey channels. These inconsistencies encouraged the resurgence of “Hundi or Hawala” networks, where Pakistanis living abroad can send money at favorable exchange rates.
“A significant difference in rates between the interbank and open market has adversely affected the flow from the official channel,” claimed Naqqash Hafiz, Executive Head of Finance at ACE Money Transfer, a renowned worldwide money transfer company with its headquarters in the UK.
Hafiz stated to the Express Tribune that the disparity is enticing some Pakistanis living abroad to use grey channels to transmit their remittances. He said, “This behavior is strengthening some local currency merchants and is creating a monopoly for them. Dealing with two exchange rates is not healthy for the health of legitimate remittance service providers. The State Bank of Pakistan (SBP) ought to guarantee fair play.
The World Bank estimates that 8.69% of Pakistan’s GDP is made up of remittances from workers, which is a vital source of income for the nation. Remittance inflows to Pakistan increased following COVID-19 and have maintained a positive trend over the past 28 months, staying above $2 billion.
From July to September 2022, remittances to the nation decreased by 6%. Hafiz added that the World Bank estimated that $624 billion in remittances were made last year globally. “In addition to the $624 billion, 80% of remittances sent internationally have gone through illegal methods, presenting a significant opportunity for legitimate businesses.
” The “Roshan Digital Account” project of the SBP has been successful in directing a portion of the remittance inflow to Pakistan. Under the Pakistan Remittance Initiative, other private businesses are also working with regional banks to gain a piece of this market.
In particular, in this digital and competitive era, Hafiz argued, “SBP is offering incentives for businesses like ours, and in exchange, we too have to offer various incentives to abroad Pakistanis.” The business offers money transfers into Pakistani bank accounts in seven seconds thanks to a partnership with Bank-Al-Habib.
The cost of the transfer, exchange rates, speed, and security are just a few of the top considerations for ex-pats sending remittances that we must address for better clientele, he continued. Hafiz used the example of how the SBP rewards such businesses by giving them 20 Saudi Rials for transfers over $100 to make his argument. He went on to say that, according to figures from their company, an abroad Pakistani sends $450 to Pakistan on average.
“The proportion of Pakistanis sending less than $100 is between 16% and 18% from Europe and England, but it ranges between 25% and 30% from the Middle East and North African countries.” The company, which was founded by a Pakistani national with a base in the UK, operates in 106 nations. In 2010, we began providing services to Pakistan. Since then, remittances to Pakistan are no longer the norm.
Nine years ago, individuals from Europe and the UK used to transfer 5%–8% of their earnings to Pakistani bank accounts; as of now, this percentage has increased to 65%, or 7%–8% annually, according to Hafiz. “Remittances are a significant economic component for nations like Pakistan. Since the globe is growing more and more digital every day, the influx will likely increase in the upcoming years through legal routes, predicted the ACE finance chief.
