ISLAMABAD – In a significant policy adjustment, the federal government has reduced the reward structure for commercial banks that channel overseas remittances into Pakistan, aiming to curb fiscal expenditure under the new budgetary framework.
The decision comes amid record-high remittance inflows and growing pressure to cut back on state subsidies offered through various incentive schemes.
Changes in Rebate Structure
Previously, banks received a tiered rebate system of up to Rs 20–23 per $100 remitted through official channels. Under the revised mechanism:
- The fixed per-dollar rebate has been slashed.
- The incremental incentive component—linked to year-over-year growth—has also been scaled back.
The government believes this move will help align the incentive structure with actual policy goals and reduce the profit-driven focus of some financial institutions.
Banks Raise Concerns
The Pakistan Banks’ Association (PBA) has voiced concern, stating that the rebates were essential to offset the high operational costs involved in attracting and handling foreign remittances. In a statement, the PBA said:
“Banks incur substantial costs to maintain competitive exchange rates and facilitate remittance channels. The revised structure only partially covers those expenses.”
According to industry estimates, banks absorb a cost of Rs 3 to 5 per dollar, largely due to premiums offered to customers and marketing campaigns designed to encourage formal transfers.
Impact on Remittance Flows
Despite the cutbacks, Pakistan has witnessed record inflows in recent months:
- $3 billion received in January
- $4.1 billion in March, the highest-ever monthly inflow
Analysts believe the reduction in bank incentives is unlikely to impact remittance volumes immediately, thanks to sustained demand and growing awareness among the diaspora of the benefits of using formal channels.
However, Pakistan still lags behind countries like India and the Philippines in terms of remittances per overseas worker, suggesting room for improved efficiency and outreach.
What Lies Ahead
While the government aims to optimize public spending, financial experts caution that a careful balance must be maintained to avoid a shift back to informal remittance systems such as hawala. Ensuring competitive exchange rates and service quality remains crucial for keeping the formal system attractive.
A long-term solution, experts argue, lies in restructuring incentives to benefit both remitters and beneficiaries, rather than disproportionately rewarding intermediary banks.
This story has been reported by PakTribune. All rights reserved.
