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Ways of increasing formal flows of remittances into Pakistan

The remittance market for sending foreign exchange into Pakistan using remittance transfers both by overseas workers and the rest of the Pakistani diaspora, as well as by other agents for both legal and illegal transfers, can be broken down into the following:

1. Remitters from overseas who demand Pakistani rupees in exchange for a foreign currency to be paid in Pakistan through official or unofficial channels.

2. The remittance market within Pakistan that transfers both officially recorded remittances through banking and other recognized channels under an overall regulatory framework supervised by the State Bank of Pakistan (SBP), as well as unofficial remittances through domestic networks linked with foreign networks abroad.

3. Receivers of remittances — mainly households and families — that are sent through official or unofficial channels, who use these remittances for their own needs or to upkeep or purchase new assets for the remitter.

Any attempt to divert the flow of remittances from unofficial to official channels requires an analysis of each of the above three segments of the remittance market to determine why remitters prefer one channel to the other.


Official remittance flows are also associated in the public perception with the transfer of illegally gotten gains, which are transferred back to Pakistan through remittances and thus legalized since the latter’s sources are not questioned. These flows include:

The so-called ‘whitening’ of ‘black’ money generated in Pakistan, which is then converted into US dollars or other foreign currency through domestic money changers, sent abroad, and then sent back as remittances through existing or fictitious Pakistanis living abroad.

The receipt of kickbacks and commissions on deals with international companies in contracts awarded to them in Pakistan, which are then transferred back in part or whole as remittances.

The under-invoicing of imports of machinery and goods and services to avoid full payment of import duties, after which the non paid amount of the cost of the import is sent back through a domestic moneychanger in foreign currency.

Illegal earnings through the drug trade (or other related activities) that are transferred back to Pakistan in the form of official remittances and thus legalized.

As far as the ‘whitening’ of ‘black’ money is concerned, such transactions would not result in a net addition to the total size of official remittance flows. This is because converting domestic currency into a foreign currency would need buyers of the local currency. These transactions, if made through remittances, would require a Pakistani working abroad or a member of the larger Pakistani diaspora to ‘demand’ these rupees and then send them back as remittances. Since he or she would only do so if already planning to transfer money to Pakistan, when such a remittance is sent it does not add to the total amount of remittances flowing into Pakistan.

On the other hand, the transfer of part of or all illegal foreign exchange earnings — from kickbacks, the drug trade, and other sources — as remittances does lead to an increase in official remittances. However, the transfer of such illegal earnings, including non taxed earnings by Pakistanis abroad, might not occur through the official remittance channel for fear of being detected; hence, those making such transfers prefer the use of the unofficial hawala route.

Some of the ways through which formal remittances could be increased in Pakistan are:

Attracting remittances to acquire assets (land, houses, bonds) or set up educational and health facilities for families of workers overseas

In most countries, governments have set up organizations and welfare institutions that offer opportunities to overseas workers to acquire land/houses through schemes that they have launched as well as to contribute to the establishment of schools, colleges, and hospitals in towns or rural areas that have a concentration of families of overseas workers. Pakistan has set up a number of such organizations, the most prominent of which is the Overseas Pakistanis Foundation (OPF).

Attracting remittances to foster higher and inclusive growth in migrants’ home countries

A major development challenge is to attract remittances for investment in setting up businesses—small, medium, and even large firms — that would enhance economic growth and create new job opportunities. Similarly, investments by overseas workers in various types of government-sponsored bonds and in the stock market can supplement domestic savings for investment, including in badly needed infrastructure projects.

Strengthening remittances-transfer infrastructure, including through the use of new technologies (especially IT and mobile phones) to channel remittances

As the pace of innovation quickens and new technologies rapidly emerge, they offer considerable opportunity for expanding access to and lowering the cost of channeling international remittances. In Pakistan, the rapid expansion of mobile phone use, with almost 60 percent of the population owning at least one, has led to mobile cash-out services or bill payment through mobile phones.

National Remittance Corridor Improvement Program (NRCIP)

NRCIP represents a medium term remittance master plan for the country and systematically covers all infrastructure and services that support remittances. The stakeholders need to adopt a holistic and integrated approach, which encompasses the public and the private sector, services and infrastructure, reforms and investments, and the various sectors which are responsible for the level of performance of the corridors. NRCIP hinges on a consensus building process with all stakeholders through informed consultation that focuses on:

1- Promoting more competition in remittance services
2- Enhancing the quality and cross-country comparability of remittance data
3- Ensuring a level playing field for a wide range of financial institutions
4- Strengthening the financial infrastructure for electronic transmission of remittances
5- Bringing more remittance flows into the formal financial sector
6- Making sure remittance channels are not abused by criminals or terrorists


Such an initiative will bring down the cost of remittances by providing a measure of the cost of international bank-to-bank money transfers from around the world. The Index may help banks, non-bank money transfer providers and customers to better understand the industry. It will make it much easier for customers to understand month-to-month pricing dynamics and make more informed decisions about receiving money from overseas. Other benefits include provision of timely data and cross-country comparisons.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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