Connecting nationals abroad to Pakistan's financial system

IF we look back in time and review the procedure that was required for an overseas Pakistani to open an account with a bank in Pakistan, we would find that it was almost prohibitive. One would have to physically visit a bank branch in Pakistan, produce a plethora of documents, have them attested, and so on.

Even after fulfilling all the requirements of the bank, it still used to take several weeks to get the account opened. After the account was opened and you had flown back abroad, you would have very limited means of operating your account, except for sending remittances into your account with practically no option for investing them or repatriating your funds.

To overcome these operational difficulties, an overseas Pakistani often had to open a joint account with one of their family members in Pakistan to undertake transactions. Finally, due to the difficulty in operating the account, it would often become dormant and you would have no way to reactivate it except by returning to Pakistan and physically visiting your bank branch yet again.

Due to these difficulties, overseas Pakistanis were disconnected from the country's banking system. As a result, they were deprived from fulfilling their financial needs or investing in their country's "Roshan" future while living abroad.

This was highly unfortunate since overseas Pakistanis are a critical asset of the country and have always been generous in their support of their homeland during times of difficulty. Most recently, during the ongoing Covid-19 pandemic, when, according to some forecasts, home remittances were expected to fall globally, Pakistan recorded its highest ever home remittances flow during the year ending last June. That trend has continued, with remittances surpassing US$2 billion for each of the last nine months to reach unprecedented levels.

More than any other recent leader, Prime Minister Imran Khan has recognised and emphasised that one of Pakistan's strongest assets is its estimated 7 to 9 million strong diaspora. The Prime Minister approached the State Bank with a concept which was simple in its essence but unprecedented and powerful in its reach: he wanted to find a way to easily connect the diaspora to Pakistan's financial system and give them the opportunity to invest in its future.

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The emphasis was on convenience. While banks in Pakistan are in very good financial health, with capital adequacy ratios of about 19 per cent for the industry and low NPLs (net of provisions) of 1.7 per cent of loans despite Covid, two areas where Pakistanis always face challenges are ease of available banking services and moving funds in and out of Pakistan, especially when they are not residents in Pakistan. This is so not only for the non-affluent but also for the affluent when trying to send funds in or out of the country. The Prime Minister's vision was that if we make it easy for them, they will come and invest in the country.

To realise this vision of the Prime Minister, the State Bank Governor, Dr Reza Baqir, spearheaded the high-profile project of Roshan Digital Account (RDA) and formed an exclusive team that worked day and night to make it a success. Given the existing difficulties of banking for the diaspora and the Prime Minister's vision, the State Bank's role was three-fold.

First, to create a regulatory framework that would allow Pakistan's banks to offer overseas Pakistanis an easy, efficient, and attractive way of connecting with the financial system. One of the two key areas where we innovated was to allow a completely presence-less ""know your customer and customer due diligence'' process. In other words, for the first time we provided a framework under which an overseas Pakistani can open an account without the need to visit any bank branch or any embassy to get attestation of any document. With just a few clicks on the computer, you can now open a bank account in Pakistan within 48 hours from the comfort of your home or wherever you have an Internet connection.

The other key innovation was to make these accounts repatriable. Just like our existing Special Convertible Rupee Accounts (SCRA) which allow investors to repatriate funds without any permission, holders of these accounts can also take funds out without requiring any permission.

The second key role of the State Bank was to coordinate with different government agencies to offer attractive investment and lifestyle banking products through these accounts. An important investment avenue is the Naya Pakistan Certificates (NPCs) offered by the government initially in USD and Rupees, at different tenors, and in both conventional and Shariah compliant versions. In USD these Naya Pakistan Certificates offer returns of 5.5 per cent for the shortest maturity of three months and 7 per cent for the longest maturity of five years; and in Rupees, they offer up to 11 per cent. These certificates have recently been made available in Euro and the British Pound as well.

Unlike conventional savings certificates issued by the Ministry of Finance which have paper-based book entries and records, these are digitally handled with back-end services provided by the State Bank. Similarly, we worked with the tax authorities (FBR) to offer a simple taxation structure for investment in these products. On NPCs, there is a full and final taxation rate of 10 per cent on profits. Full and final means that the tax is deducted at source and that a non-resident investor does not need to file a tax return in Pakistan for the profits earned on NPCs.

Similarly, we worked with the stock exchange, central depository corporation and different housing authorities to allow access to the stock market and real estate. Now, overseas Pakistanis can invest in the stock and real estate markets through their RDAs in addition to other banking services such as bill payment, money transfers and e-commerce. The tax treatment of all profits associated with investments in government debt securities, stocks, mutual funds and real estate made through RDA is also full and final.

The third key role of the State Bank was ensuring smooth implementation and promotion of this new era of digital banking and investment in Pakistan for overseas Pakistanis, while working in partnership with the banks. On implementation, we have constantly been in touch with banks to give feedback and improve the customer journey. But perhaps the most important area is awareness and promotion, particularly given the fact that Pakistanis are working and living in over 100 countries across the globe.

When one is creating a new market and a new suite of products, awareness, promotion and marketing are key. The State Bank and partner banks developed comprehensive marketing and awareness media plans, using both conventional and digital means of communication. We have also held more than 50 webinars with the Pakistani diaspora, connecting directly or through our embassies in different cities, as well as through physical outreach where possible given Covid-related restrictions.

Thanks to your support, we are off to a very good start. In just six months, more than 102,000 RDAs have been opened by overseas Pakistanis from more than 100 countries around the world and around US$700 million have been deposited in these accounts. The momentum is also rising, with more than half of these deposits received during the last eight weeks alone.

We would like to end this piece with a request. This initiative has been created especially for you. We encourage each of you in Singapore to avail it. And if you like it, please share it with your friends and family and promote it. Our biggest goal was, as the Prime Minister asked, to make it easy for the Pakistani diaspora to remain connected with the country and invest in its future. We have created the framework and set up regulatory provisions of presence-less account opening and repatriation. This has never been done before and the Roshan Digital Account initiative is off to a promising start. With your help in spreading the word, we can together make it a big national success. We have no doubt that if we have your support, we will reach unprecedented heights in this new era of digital banking for overseas Pakistanis.

• To learn more about the Roshan Digital Account, please visit our official website: https://www.sbp.org.pk/RDA/Index.html