Digital accounts for Pakistani diaspora

PAKISTAN'S central bank, the State Bank of Pakistan (SBP), has introduced a highly innovative digital account scheme that will benefit millions of citizens of the country living and working abroad.

Called the Roshan Digital Account (RDA) scheme, it is a boon for the estimated 7 million to 9 million Pakistanis overseas, says SBP Governor, Dr Reza Baqir, in an exclusive interview with The Business Times on the occasion of Pakistan's National Day today.

Non-resident Pakistanis (NRPs) are seen as one of Pakistan's greatest assets. The thinking behind the RDA scheme is to provide a simple and attractive way for NRPs to open a bank account from the comfort of their homes abroad without the need to go to a bank branch, embassy or a consulate, operate it completely digitally, and to have full control over their funds.

"This digital on-boarding of our diaspora into Pakistan's banking system is also an important part of the SBP's broader financial inclusion and digitalisation objectives," says Dr Baqir, who returned to Pakistan to take over as central bank chief in May 2019 after 20 years at the International Monetary Fund (IMF) and the World Bank.

Dr Baqir suggests that all non-resident Pakistanis visit the central bank's website

https://www.sbp.org.pk/RDA/index.html to learn about the RDA, including the host of lifestyle banking services available through these accounts, and to find the links to portals of the participating commercial banks to open a Roshan account in 48 hours after they have completed filling up the online form and uploaded the necessary documents.

There are three features of the Roshan accounts that are noteworthy. First, these digital accounts offer attractive investment opportunities to NRPs, including saving certificates issued by the Government of Pakistan (GOP) denominated in foreign currencies and Pakistan rupees at attractive rates. Additional investment opportunities available through RDAs are digital access to Pakistan's stock market as well as the ability to make investment transactions in real estate.

Importantly, the taxation on investments in GOP securities, stock market, mutual funds and real estate through RDAs has been made simple through a tax regime whereby the tax deducted at source is full and final, Dr Baqir highlights.

"In other words, the deduction at source discharges the tax liability of the account holder and they don't have to file a separate tax return unless the NRP has other Pakistan sourced income for which they are required to file a tax return in any event."

The central bank chief says that RDAs have the status of being repatriable accounts. This means that account holders can take their funds back to the countries where they live without requiring the State Bank's permission. "The key thinking behind this step was to recognise that unless we make it easy for our diaspora to take funds out, they would be hesitant to bring funds into the country," he adds.

"We are hopeful that the above package of features, as well as others described on our website, provides for a safe, secure, simple, and cost-effective way for our diaspora to bank in Pakistan."

The RDA scheme was launched in September 2020 with the ambition that a large majority of Pakistanis living abroad will open an account over time. It has already met with good response with more than 102,000 accounts opened in the first six months.

"In order to enrich the product suite and provide a full lifestyle banking experience, we have also provided different investment opportunities through the RDA. So far, as of March 16, 2021, we have received an amount of around US$700 million through these accounts. We expect this momentum of account opening and funds flow to continue and it is our hope that RDA will become a permanent financial channel for connecting our diaspora to the domestic banking and payments system," says the central bank chief.

Pakistan itself stands to benefit from this scheme tremendously as it helps to promote investment by overseas Pakistanis into the country.

Says Dr Baqir: "In many other countries, the diaspora has played a crucial role in economic development. The funds they send creates a win-win situation for them and their homeland. Overseas Pakistanis can deploy their hard-earned savings by investing in Pakistan's lucrative stock market and property market, as well as the Naya Pakistan Certificate, which is a government-guaranteed sovereign bond available in both conventional and Shariah compliant forms, which offers very attractive rates of return in both Pakistani rupees and foreign currency at a time when interest rates are very low globally.

"The funds can also be used to set up companies in Pakistan and invest in the country's future. In turn, these funds help generate economic activity in Pakistan, supporting growth and employment. They also help provide funds for the government to use in economic development and further buttress our foreign currency reserves, helping to further strengthen the country's sovereign balance sheet and current account."

Significantly, during the last fiscal year, which runs from July to June in Pakistan, remittances rose to over US$23 billion, up from US$21.7 billion in FY2019, US$19.9 billion in FY2018 and US$19.4 billion in FY2017. So far this year, despite the Corona pandemic and fears of a sharp decline, remittances have surpassed US$2 billion every month to reach an unprecedented US$16.5 billion in the seven months to January.

"Once again, our hardworking overseas Pakistanis are helping the country during a very difficult phase. This recent increase in remittances also reflects the growing use of formal means of transmission that is attributed to continuous efforts by the government and the State Bank to attract inflows through official channels, limited cross border travel amid orderly foreign exchange market conditions," says Dr Baqir.

While the RDA scheme was intended to serve the lifestyle and investment needs of NRPs, it has opened up a new market for Pakistan's banks, giving them a chance to offer specially tailored products such as automobile and mortgage products. The banks view it as a commercially viable project with a clear business case that is here to stay.

"Let me share with you that we initiated RDA with eight banks and after that we are receiving applications from many other banks to participate in this initiative, which itself confirms the commercial viability of the project for the banks. Three more banks have already been added to the project and we expect the total number to rise to 15 by the summer," says the central bank chief.

Overall, the response from NRPs has been overwhelming. Every day, 600 to 700 new accounts are being opened. And every day, US$7 million to US$8 million is being sent into Pakistan through these accounts. NRPs have opened accounts from more than 100 countries around the globe. As for the locations from where most accounts have been opened, the top locations include Saudi Arabia, the UAE, UK and the US, in line with the main places in which overseas Pakistanis live.