2- BUDGET 2004-05






June 28 - July 04, 2004





The licenses of over 356 moneychangers for operating money exchange business will be expired on June 30, 2004 and there would be no further renewal of these licenses by the State Bank of Pakistan.

Under the policy these moneychangers would now be working under the title of a foreign exchange company for which the State Bank has so far issued 16 licenses for major moneychangers and NOCs issues to another 9 mini exchange companies in 'B' category of the foreign exchange companies.

According to SBP, after incorporation of these companies with the Securities and Exchange Commission of Pakistan (SECP) it would issue licenses to these companies to start their business operations.

So far 80 money changers applied for getting licenses of mini exchange companies out of which NOC were issued for 9 mini exchange companies which were collectively sponsored by 56 money changers.

The State Bank has sounded a note of warning that all moneychangers who are currently authorized to deal in exchange business would cease to function beyond June 30, 2004 on expiry of their licenses.

The money changing business would be operated through exchange companies (both mainstream exchange companies and mini exchange companies or exchange companies in 'B' category, in addition to the banks.

Out of the total licenses issued to 16 foreign exchange companies in category 'A', 12 have already gone into business and the remaining 4 are about to go into operations.

Those who have started business as foreign exchange companies are including H & H Exchange Company, Khanani & Kalia Inernational (KKI), NBP Exchange Company, al-Sahara Exchange Company, Data Exchange Company, Glaxy Exchange Company, Dollar East Exchange Company, Zarco Exchange Company, Wall Street Exchange Company, PICIC Exchange Company and Pakistan Currency Exchange Company.

As earlier stated over 356 moneychangers were engaged with the exchange business throughout the country so far. Since the minimum paid up capital requirement for setting up an exchange company in category 'A' was set at Rs100 million, obviously a large number of moneychangers may not have financial strength of that level. Consequently, only 16 major exchange dealers registered themselves in category 'A' while 80 after pooling their financial resources have applied for mini exchange companies. The minimum paid up capital requirement for setting up mini exchange company was Rs20 million.



The NOCs issued for applying licenses for mini exchange companies in category B are including Money Masters Currency Exchange Company, Sky Exchange Company, World Wide Exchange Company, Overseas Exchange Company, Rajgan Exchange Company, Great Union Exchange Company, United Exchange Company, and Union Exchange Company.

Besides the provision of mini exchange companies, the exchange companies in category A have also been allowed to extend franchise to smaller dealers to carry on exchange business on behalf of companies in category A. This would facilitate to accommodate smaller business into the exchange business besides brining them into a national network of exchange business in Pakistan. These 'A' category companies would also be allowed to install their both at strategic points such as five start hotels, airports and ports to cater to the exchange requirements.

However, with the introduction of the new rules aimed at restructuring of the exchange business to have an effective check over gray areas like laundering of the ill gotten money from different sources. The step of streamlining the exchange business would certainly help bring clarity and transparency into this sensitive business to a great extent, yet there are apprehensions of developing under ground exchange market to deal with illegal transactions.

The exchange business in Pakistan has taken a quantum jump due to various reasons including a sense of insecurity prevailed after the events of 9/11 and the non-resident Pakistanis instead of keeping their money abroad preferred to send it back to their homes. The exceptionally well-managed exchange rates, which brought unprecedented stability between, open and bank rates also encouraged the workers abroad to use official or banking channels for their home remittances. Another important reason for growing size of the home remittances was the campaign of the government to bring a culture of documentation in every steps of the economy. All these efforts produced positive results in giving a healthy look not only to the average home remittances which created a history in the financial year 2002-03 by growing to the level of $4.2 billion and against crossed the target set at $3.4 billion for the year 2003-04, but helped the reserves managers to reach a new height of foreign exchange reserves which have also set a landmark in the foreign exchange reserve history of this country. According to financial analysts, if the trend continues our reserves may soon hit the mark of $20 billion and the target seems to be not too far to achieve.

The cash flow from external resources seems to have assumed a sustainable direction and hopefully the trend would further improve with the streamlining of the exchange business in Pakistan, the financial analysts observed.