Losing billions to Havala?

Pakistan is facing a severe crunch in its foreign exchange reserves and has to borrow from friendly countries, while our own banking system is losing between $10-20 billion yearly to the Havala system. Had the banks been more efficient in delivering home remittances to recipients, these funds could be garnered, and Pakistan would not need to borrow as much for the balance-of-payments support.

Even though home remittances have increased manifold over the years, the banks have not come up with a quick and speedy delivery procedure for the recipient. This is even though banks are the ultimate beneficiaries of increase in home remittances, as a good portion of these remain with banks in the form of deposits.

A labourer in the UAE or Saudi Arabia, who sends funds to his family in Pakistan through Havala, has these funds delivered to his loved ones the same day or the next. A remittance sent through a money changer and eventually delivered through a Pakistani banking system takes 3 to 4 days and in some cases up to a week to reach the nearest branch of the recipient and then the recipient must physically go to the branch or authorise another person to receive the funds. This delay enables banks to earn extra income from the pool of remittances in transit while it costs Pakistan $10-20 billion a year in foreign exchange to the Havala system.

No wonder the remitter leans towards the ever-ready Havala agent whose wealthy clients in Pakistan are illegally taking billions of dollars out of Pakistan each year. It begs the question, while Havala can deliver funds to the receiver the same day or next or next, why can’t the banks? The banks give many reasons, but none of those are credible. It is the incompetence of the Pakistani banks not to improve on their systems and make remittances seamless and speedy for the recipient. If telecom companies can create such efficient remittance systems such as Easy Paisa or Jazz Cash, what is stopping the banks? Funds sent through the telecom company system are instantly conveyed to the recipient and all they have to do is go to the local phone shop and collect funds.



The banks could argue that they do not own 2G, 3G or 4G telecom spectrum to build such systems. The answer is, ask the government and regulators to sell them the spectrum for the purpose of creating efficient remittance systems to save Pakistan $10-20 billion a year in foreign exchange. But if the banks are not willing to invest in expensive spectrum, what is stopping them from using existing telecom companies to deliver remittances speedily? In this day and age of modern technology, banks could easily build a system whereby an inward remittance message from an overseas branch, a corresponding bank or a money changer, is seamlessly conveyed to the telecom company remittance system for instant delivery to the recipient. Home remittances through the banking system can be increased substantially if the banks adopt speedy and easy systems for the home remitters.

The number of overseas Pakistanis can also increase if the Pakistan government works proactively in this area. The recent promise of the Qatari government to issue 100,000 work permits for Pakistani workers is a welcome step. However, one country that has steadfastly refused issue of work visas to Pakistanis is Kuwait, where no new work permits have been issued since 9/11. Pakistanis having work permits in Kuwait has been static at around 100,000 since then. During this time the number of Filipino workers has increased to 250,000 and Indian workers to nearly one million from 300,000. Successive Pakistani governments have failed to convince Kuwait to open work visas for Pakistanis. The government needs to take a firm stand with Kuwaiti authorities in this regard.

According to the World Bank, Pakistan is currently at sixth on the list of countries whose overseas workers send home remittances. India tops the list with $69 billion of remittances sent to the country annually.

Thanks to the US vigilance post-9/11 against terror financing through Havala, Pakistan’s home remittances increased from $1.5 billion in 2001 to $20 billion during 2017-2018. There are signs that home remittances to Pakistan are on the upswing in 2018 after a stagnant period in 2016 and 2017.

The remittances can go substantially upward, but for that to happen, Pakistani banks must deliver and capture at least another $10 billion a year from Havala and help Pakistan build foreign exchange reserves so that the country does not have to borrow from friendly countries from time to time. If the banking system does not deliver, then perhaps the State Bank of Pakistan should consider imposing penalties on banks that do not deliver home remittances within 48 hours of transactions.

Published in The Express Tribune, November 29^th, 2018.

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