SBP's Home Remittance Policies and its Effects in Pakistan: A Study of the Last Ten Years (2001-2010)

Abstract

Only second to exports income, home remittances are the bloodline of generating foreign reserves for any country. The remittance received from the expatriate workers community is and has always been the vital source of foreign exchange for the labor exporting countries. These remittances become more useful if they flow through the formal banking channels. In case, if the remittances flow through the informal channels, they create a parallel economy. During the last ten years (2001 - 2010), SBP has taken several valiant steps to increase home remittance volume through banking channel. This exploratory study documents the extraordinary growth in the home remittance volume with respect to the SBP's favorable policies. However, there could be some other influencing factors as well which might have boosted the volume of remittances. The phenomenon is studied to understand the effectiveness of the SBP home remittance policies and its implications to increase the volume of home remittances routed via banking channel in Pakistan for the last one decade. SBP policies are mainly focused to liberalize exchange rate differential among remittance business competitors, to attract remittances with minimum or no charges via banking system due to eligible remittance incentive scheme, to revamp existing and increasing foreign remitting arrangements (partners) with domestic banks, to improve the IT infrastructure, Payment Settlement System and Quality of Home Remittance Products/Services in the Pakistani banks to facilitate the beneficiaries in least possible turnaround time.