PBA refutes misleading claims on remittance subsidies

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The Pakistan Banks Association (PBA) rejected on Monday misleading assertions in recent press coverage suggesting that government subsidies to banks under remittance incentive schemes serve no economic purpose.

Last week, an independent policy institute urged the government to reconsider subsidising profitable banks and instead redirect limited fiscal resources toward growth-focused sectors. The Economic Policy and Business Development (EPBD) think tank issued the call on Friday, the same day the federal Economic Coordination Committee (ECC) was informed that banks had claimed Rs200 billion under the Pakistan Remittances Initiative (PRI) this fiscal year—exceeding the budgeted amount by Rs115 billion. The EPBD said current fiscal policy forces a trade-off between stimulating economic development and sustaining guaranteed returns to banks via government borrowing. It argued that high policy rates and large debt servicing allocations—Rs7.2 trillion domestically—undermine growth and place local businesses at a disadvantage compared to regional peers.

In a detailed statement, the PBA cautioned that such narratives risk undermining public confidence in formal remittance channels at a time when financial stability relies on documented foreign inflows.

"When the Pakistan Remittance Initiative (PRI) was conceptualised in 2008, formal remittances stood at only $6.5 billion, while an estimated $20b flowed through undocumented hawala/hundi channels, exacerbating balance of payments pressures," read the statement.

The PRI, launched in 2009, was a homegrown solution to shift flows to formal banking channels, offering an initial incentive of SAR 20 per transaction, approximately 2.25% of the average $500 transaction, which was far more viable than foreign borrowings carrying interest rates above 3.5% plus long-term repayment obligations and exchange rate risks, it added.

"In contrast, PRI incentives are one-time PKR payments with no repayment liability, making them a strategic win-win for Pakistan’s economy. Banks do not profit from these incentives."

In reality, they bear enormous costs to remain competitive, offering higher rebates and FX premiums to Money Transfer Operators (MTOs) and remitters abroad, according to the statement.

These costs are only partially offset by government incentives, with the remainder absorbed by banks to maintain essential liquidity for import payments and economic stability.

"For example, banks often pay Rs3-5 per USD premium over interbank rates to attract flows that would otherwise revert to hawala, incurring direct losses in the national interest," explained PBA.

"Contrary to claims, banks invest heavily in compliance systems, international correspondent banking relationships, technology platforms, and customer outreach to process remittances securely and efficiently," it added.

Approximately 90% of rebates before FY25 and over 100% under FY25 schemes are passed directly to international partners, leaving no direct profit for banks, according to PBA.

Furthermore, banks pay their partners upfront while government reimbursements are delayed by months, imposing significant working capital costs. Banks submit monthly data of PRI remittances to SBP, duly reviewed and certified by Internal Audits of the Banks.

SBP also conducts review of this certified data before making payment of incentive under the scheme. Allegations that banks manipulate remittance data, launder undeclared funds, or facilitate tax evasion are baseless, read the statement.

Banks operate under strict SBP regulations, AML/CFT frameworks, and independent audits. The classification of freelancer and IT exporter earnings as remittances is a policy classification issue needing regulatory clarity, not bank misconduct. It is telling that such narratives are often promoted by vested interests seeking to dismantle the formal banking remittance ecosystem to divert flows back into their networks, maintained PBA.

"These banking-led initiatives have been instrumental in ensuring Pakistan’s compliance with global AML/CFT standards, preventing potential blacklisting that would cripple the economy. Pakistan’s banks continue to offer competitive FX rates despite incurring losses, solely to preserve formal flows.

Without these incentives, remittances would revert to undocumented channels, undermining fiscal sustainability and increasing dependence on costly foreign borrowing.

The suggestion that banks are subsidised ignores the economic reality that these incentives ensure secure, documented, and traceable remittance flows critical for Pakistan’s economy."

Banks remain among the country’s largest taxpayers and employers, paying over Rs 850b in taxes annually, while financing every facet of national economic activity. Mischaracterising their role only weakens public trust at a time when economic unity and realism are paramount, according to PBA.

While modalities can be improved over time, PRI remains a strategic success story. "The PBA remains committed to working with policymakers to strengthen Pakistan’s economy, maintain global compliance, and safeguard financial stability, but rejects in the strongest terms any narrative driven by vested interests that undermines the banking sector’s contributions and national economic security," read the statement.

PRI is an essential driver striving for Pakistan's financial independence and diversion from reliance on international debt and forex assistance.