(Franchise) FairDeal Exchange Co. (PVT) LTD.
An outstanding initiative launched in August 2009, jointly by the State Bank of Pakistan, ministry of finance and ministry of overseas Pakistanis aimed at converting workers' remittances from informal (hawala) system to banking channels. The Pakistan remittance initiative (PRI) is based on the proposals published in my article dated December 8, 2008. The article highlighted that the major chunk of home remittances from overseas workers is channeled through hawala system and proposed certain incentives to be paid by the government to remitters and banks to encourage the conversion of this precious source of foreign exchange into the banking system.
Pakistan has shown highest growth in remittances despite recent global financial crisis. With the PRI, the country has a much higher potential to show phenomenally better results. In order to achieve the desired results on a fast trade basis, the following bottlenecks need to be rectified at the earliest:
1. Incentives to local banks and foreign entities:
A1 per cent commission should be offered to all banks for routing workers' remittances. Instead under PEI, a slab-wise commission [structure has been offered to foreign banks and exchange companies initiating the transactions at the sender's end. Qualifying criteria for such foreign entities that are: Foreign based banks and companies already sending remittances I through banking channels to qualify for incentives under PRI must show 1 a minimum of 25 per cent growth over the amount of remittances routed 1 during 12 month period ending September 30,2009.
Banks and exchange companies which are new entrants into the home remittances business, minimum of US $100 million should be routed from one particular source jurisdiction. It is recommended that both these qualifying criteria should be relaxed to encourage foreign entities to benefit from the scheme and start facilitating the home remittances through banking channels. Under the 11 current worldwide recession, the 25 per cent growth requirement should 11 be removed and a qualifying benchmark should be based on any incremental amount of remittances over and above the September 30th, 112009. Similarly, incentives should be paid to all new entities "irrespective of any amount of remittances channeled into Pakistani banking system. An outstanding initiative launched in August 2009, jointly by the State Bank of Pakistan, ministry of finance and ministry of overseas Pakistanis aimed at converting workers' remittances from informal (hawala) system to banking channels
Furthermore, some countries host smaller number of non-resident I (Pakistanis and for any one foreign entity to mobilize US $100 million from a angle such country is nearly impossible. Hence, several such countries that have the potential to contribute in generating remittances are being left out under the present PRI structure.
2. Incentives to remitters:
Remitters need to be given direct incentives substantial enough to redirect the remittance flow from the old hawala channels Hence, a 1.25 I per cent over and above the interbank exchange rate should be offered to nonresident workers which nearly equals Rs l per USD
This amount shall compensate the premium being offered by the informal channels on exchange rate. Most of remittances are bound to be utilized in consumer spending, so banks should develop products and services to offer savings schemes, life insurance, education plans etc to maximize the long term benefits.
3. Reward point based Incentives:
Respective banks call maintain independent record of the remittances by each remitter and may offer gifts and prizes in line with the reward point system of credit cards, which will also serve as an effective tool for banks to compete with each other and lure maximum PRI related remittance business, The incentives being offered under PRI in collaboration with PIA will also fall under such reward point systems to be managed by the banks rather than PRI itself.
Through the reward system domestic products will gain an effective export outreach to lucrative expatriate markets. This can play an instrumental role in developing e- commerce business in the country Cash value of the reward points may also include an option for donations to reputable social welfare organization like Edhi trust, etc. The PRI is truly the country's own initiative and an excellent case of a nation's resolve to find a home-grown solution to its financial problems.
It is the most suitable tool to achieve financial stability and economic independence, a real breakthrough in international monetary practices. Banks, money transfer operators and all-other stakeholders will be big gainers in this new incentive based remittance regime sponsored by the government.
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