KARACHI, Aug 13: The State Bank has issued show-cause notices to nine exchange companies in B category. The exchange companies that have received show-cause notices include (i) International Exchange Company, Karachi (ii) Karwan Exchange Company, Quetta (iii) Islamabad Exchange Company, Islamabad (iv) Aftab Exchange Company, Kharian (Gujrat) (v) Usman International Exchange Company, Gujranwala (vi) East West Exchange Company, Gujranwala (vii) Orient Exchange Company, Kharian (viii) Great Union Exchange Company, Rawalpindi; and (ix) Rajgan Exchange Company, Rawalpindi.

The SBP said in a press release issued on Saturday that it has asked the chief executives of the exchange companies to explain within seven days why they violated certain rules. The rules the companies have been charged to have violated are as under:

1. The exchange companies (B category) will ensure that all requisite support facilities are available which are necessary to carry out their business.

2. The companies shall also equip themselves with necessary qualified staff to properly manage computerized reporting to the SBP.

3. The companies shall fully abide by all the regulations, instructions, directives, circulars and other communications issued by the SBP. They will also subject their records and documents to the examination, inspection and supervision of the SBP. They will also ensure compliance with all other laws of the land, in particular the provisions relating to counterfeit coins and bank notes.

The SBP move is part of its ongoing efforts to discipline exchange companies of both A and B category. There are 35 mini exchange companies or the exchange companies in B category. These companies that operate with a minimum paid-up capital of Rs2.5 million can only buy and sell foreign currencies and cannot make electronic transfer of funds to and from Pakistan. On the other hand, mainstream forex companies, 25 in number, and operating with a paid-up capital of at least Rs100 million can make electronic transfers also.

Central bankers say since many of the mini exchange companies are not fulfilling the criteria laid down for their operations, the SBP now has come hard on them adding that some of them will have to pack up and quit. They say that supervising a smaller number of such companies would be easier for the central bank. But officials of these companies say the SBP has not taken enough action against the mainstream exchange companies that have been involved in such serious crimes as currency smuggling, promoting hundi/havala business and mis-declaring the amount of foreign exchange being exported to Dubai.

Central bankers deny this charge and cite a few cases where they did take action against leading foreign exchange companies.

Forex companies have come under sharp criticism because of their inability to attract enough official remittances from overseas Pakistanis — and their alleged involvement in informal transfer of the overseas Pakistani’s earnings back home.

According to a SBP report, all mainstream foreign exchange companies combined handled only $235 million worth of remittances by expatriate Pakistanis. The amount was only six per cent of the total remittances of $3.944 billion — the rest was handled by banks.