A plaque outside the building of State Bank of Pakistan
A plaque outside the building of State Bank of Pakistan

Saira Jamal wanted to send 5,000 Euros to Germany in September 2018 to her sister, a student at Berlin University. No bank in Karachi, she says, was ready to send the money that her sister needed to pay her university tuition fee and cover her living expenses.

This was rather strange. Only in 2017, Saira had sent 4,000 pounds sterling to the United Kingdom to her brother studying there and had faced no problem at all. When she asked officials at various banks, including those owned by the government, as to why they were refusing to send the money abroad, she got no clear answer.

They just said they could not..! despite the fact that all commercial banks are authorized by the State Bank of Pakistan to transfer money out of the country for lawful purposes.

After the banks refused, Saira decided to check with some foreign exchange companies. Those, too, refused to send the money to her sister.

Someone then advised Saira to contact the National Bank of Pakistan’s foreign exchange company. She only got a cold response there. “A woman officer started questioning me as if I was a criminal,” says Saira.

The first question the officer asked her was about the source of the money she wanted to send to Germany.

Saira presented her own salary slips as a proof and also showed the officer a receipt from a goldsmith whom she had sold some gold ornaments belonging to her late mother.

The officer did not accept the receipt as valid proof and, instead, told her to show a document that reflected the true value of the gold she had sold.

Saira met her demand. The officer was still not satisfied and asked her to bring a certificate from her employers, verifying her salary.

When she presented that certificate too, she was told to procure a document from the Higher Education Commission (HEC) to prove that her sister was eligible for admission in Berlin University.

A long argument followed. In the end, the officer conceded that the HEC document was not needed but then she raised another objection: why was Saira sending less money than the university had mentioned in its documents as tuition fee?

Saira tried to point out that the difference was not big — just a couple of hundred Euros. Still, the officer refused to send the money. “The attitude of the people at the company was frustrating,” says Saira.

She finally tapped a personal contact in a private foreign exchange company. That proved helpful. After some necessary verification, the company sent the money to Germany.

Prior to 2002, receiving and sending of foreign currency remittances was the sole mandate of commercial banks. That year, Pervez Musharraf’s regime promulgated Foreign Exchange Regulation (Amendment) Ordinance that provided for the formation of foreign exchange companies that could exchange currencies at market rates, receive and send foreign currency remittances and also export and import permissible foreign currencies.

The new regulatory framework required a foreign exchange company to have a minimum capital of 200 million rupees and deposit 25 per cent of it with the State Bank of Pakistan as statutory liquidity. This requirement left out many money changers who were earlier authorized to sell and buy foreign currencies.

In 2004, the government changed the law again. Authorized money changers were allowed to operate as foreign exchange companies but with a reduced capital requirement of only 25 million rupees.

The main difference between the companies with higher capital requirement – put in A-category – and those with lower capital requirement – put in B-category – is that the latter can only work as money changers. They cannot send or receive foreign currency remittances and are not allowed to export or import currencies.

Muhammad Zafar Paracha, executive director of Paracha International Exchange Private Limited and the general secretary of the Exchange Companies Association of Pakistan, alleges B-category companies often indulge in illegal foreign currency transactions. This, according to him, sometimes leads to the impression that all foreign exchange trade is bad.

The recent “unannounced” restrictions on sending money abroad should be seen in this context, he says. These have been imposed since the government believes that the earlier rules and regulations are being violated by currency traders.

The restrictions, however, are also being applied to transactions declared lawful in the State Bank of Pakistan’s own foreign exchange manual, last updated in March 2019, he adds.

Otherwise, he says, Saira should have been able to send money to Germany through any commercial bank or any A-category exchange company. A parent, or a legal guardian, can remit up to 70,000 US dollars – or equivalent – every year to a child studying abroad in an accredited and recognized institution, he says. “All they need to remit this amount of money is to fill in an application form and attach valid identity documents as well as a letter of admission and fee details issued by the foreign college or university,” Paracha says.

This can change only if the government outlaws studying abroad, he argues. Seeking medical treatment in a foreign country and even travelling abroad fall in the same category: money required for them can be remitted abroad unless a ban is imposed on them.

The government, on its part, says it has not imposed any new restrictions on foreign currency transactions recently.

The only restriction that already exists is that these transfers must comply with the requirements put in place for preventing money laundering and for combating the financing of terrorism, says Abid Qamar, chief spokesman of the State Bank of Pakistan.

These requirements, he says, are meant “to ensure the bona fides of the remitter and the genuineness of the underlying transaction”.

This helps explain why, of late, banks and foreign exchange companies have become overcautious in dealing with foreign currency.

Pakistan, after all, is under intense pressure and monitoring from the international community to curb terrorism financing and put an end to other illegal forms of money transfers.

If Paracha is to be believed, however, the heightened caution is proving only counterproductive. It is increasing illegal transfers of money abroad rather than decreasing them, he says.

“When people cannot transfer money out of Pakistan through legal means for their legitimate needs, they resort to illegal means such as hundi and hawala.”

Published On Public Hours February 14th, 2020

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