By Staff Reporter
ISLAMABAD: Pakistan is cutting rewards for banks and exchange companies that process overseas remittances, a move that risks pushing funds back to informal channels even as official inflows hit a record $38.3 billion in fiscal year 2025, the State Bank of Pakistan (SBP) told a Senate panel on Wednesday.
The decision reflects mounting concerns over the ballooning cost of the Pakistan Remittances Initiative (PRI), a program launched in 2009-10 to encourage formal remittance channels.
Senator Saleem Mandviwalla, who chaired the meeting, noted that while remittances have doubled over the past decade, from approximately $18 billion to $19 billion to $38.3 billion, the annual payout to financial institutions has surged from Rs15 billion to Rs16 billion to Rs130 billion.
“There is a dire need to review the PRI policy as the number of payouts increased manifold compared to the increase in remittances,” Mandviwalla said, arguing that more benefits should be directed to remitters to further boost formal inflows.
Under the revised reward structure, the SBP has shifted from a tiered system, previously set at 20, 27, and 35 riyals per incremental transaction based on size, to a flat rate of 20 riyals across all transactions. The minimum eligible transaction threshold is also being raised from $100 to $200.
SBP Deputy Governor Inayat Hussain told the committee that while the changes address cost concerns, they risk driving remittances back to unofficial channels. “The scheme was crucial for bringing remittances through the formal channels,” he said.
The PRI has been instrumental in expanding formal remittance flows, which have grown nearly fourfold since 2009, rising from $7.8 billion in fiscal year 2009 to $30.3 billion in fiscal year 2024, and reaching $38.3 billion in FY25.
The number of financial institutions in the PRI network has doubled from 25 in 2009 to more than 50 in 2024, including conventional and Islamic banks, microfinance institutions, and exchange companies. International partners have also surged from 45 to around 400, with 33 new entities joining in FY24 alone. However, the cost of sustaining the program has sparked debate.
Additional Secretary Finance Amjad Mehmood briefed the committee that the Finance Ministry sought and secured approval from the Economic Coordination Committee (ECC) of the Cabinet to review the PRI scheme, a move later endorsed by the Cabinet itself.
In August 2024, the government introduced a new incentive model combining fixed and variable rewards. Banks received 20 riyals per transaction above $100, with additional payments of 8 riyals per incremental transaction for up to 10 percent or $100 million in growth, and 7 more riyals beyond that, allowing top performers to earn up to 35 riyals per transaction. The latest revision scraps this tiered approach, aiming to curb expenses.
The committee raised concerns about potential manipulation under the current system, where rewards are tied to individual transactions rather than total volume.
Hussain warned that this structure could encourage banks to artificially split large remittances into smaller ones to maximize payouts. Senators proposed linking incentives to overall transaction counts to address the issue.
The review of the PRI scheme comes as remittances remain a lifeline for Pakistan’s economy, contributing significantly to foreign exchange reserves. Hussain noted that global remittance services like MoneyGram and WallStreet initially resisted joining the PRI due to system constraints but later participated as flows shifted to formal channels.
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