Karachi, October 8, 2024 – In a strategic move aimed at fortifying Pakistan’s foreign exchange reserves and stimulating the inflow of remittances, the State Bank of Pakistan (SBP) announced a series of robust incentives on Tuesday. These initiatives are specifically designed to encourage exchange companies (ECs), authorized dealers (ADs), and microfinance banks (MFBs) to amplify their efforts in mobilizing home remittances.
The SBP, in an official circular, outlined revisions to the incentive structure for exchange companies, aimed at significantly boosting the flow of home remittances. The scheme is poised to enhance the engagement of ECs by offering both fixed and variable components as part of the incentive package.
Revised Incentive Structure for Exchange Companies
Under the revised framework, the SBP will provide a fixed component where ECs will receive PKR 2 for every US dollar in home remittances surrendered to designated SBP banks. This initiative serves as a baseline incentive to ensure that exchange companies remain committed to expanding their remittance services.
In addition, a variable component has been introduced to reward growth in remittances. Exchange companies will be paid PKR 3 per incremental US dollar for any increase in remittances up to 5% or USD 25 million, whichever is lower, compared to the previous year. For remittances that exceed the 5% threshold or surpass USD 25 million, the SBP will offer an even higher incentive of PKR 4 per incremental US dollar. This multi-tiered incentive system is designed to stimulate competition among exchange companies and drive exponential growth in remittance inflows.
The SBP also announced that the performance of exchange companies would be assessed on a monthly basis, with incentive payments adjusted accordingly. Any discrepancies or adjustments in the incentive amounts will be consolidated and addressed during the final quarter of the fiscal year. This ensures transparency and provides exchange companies with a clear roadmap for achieving their performance targets.
The revised incentive structure is set to take effect on October 1, 2024, with detailed operational instructions for implementation expected to follow shortly. This structured approach is expected to streamline remittance mobilization efforts and optimize the performance of exchange companies in the long run.
Incentives for Authorized Dealers and Microfinance Banks
In tandem with the incentives for exchange companies, the SBP also announced revisions to its Telegraphic Transfer (T.T.) Charges Scheme for authorized dealers and microfinance banks. This scheme aims to encourage these institutions to maximize their efforts in boosting remittance inflows by providing targeted financial rewards.
The SBP’s scheme includes a fixed component where SAR 20 will be reimbursed for each eligible home remittance transaction of USD 100 or more. To further stimulate growth, the SBP has introduced a variable component, offering SAR 8 per incremental eligible transaction for up to 10% growth or USD 100 million in remittances, whichever is lower, compared to the previous year.
For institutions that achieve growth exceeding 10% or USD 100 million, the SBP will provide an additional reimbursement of SAR 7 per incremental transaction. Similar to the exchange companies’ incentive scheme, performance will be evaluated monthly, with adjustments made during the final quarter of the fiscal year to ensure alignment with overall remittance growth targets.
Strategic Implications
These newly announced incentives reflect the SBP’s commitment to bolstering Pakistan’s remittance inflows, which are a critical source of foreign exchange for the nation. By empowering exchange companies, authorized dealers, and microfinance banks, the central bank aims to foster a more competitive environment that encourages these entities to actively pursue remittance growth, particularly from the Pakistani diaspora.
With the global remittance market becoming increasingly competitive, these incentives could prove crucial in positioning Pakistan as an attractive remittance destination, thus stabilizing the country’s foreign reserves and contributing to broader economic growth.