The RDA challenge

Published April 12, 2021

The Roshan Digital Account (RDA) is a new initiative by the State Bank of Pakistan (SBP) aimed at helping overseas Pakistanis build their wealth in their homeland.

Every Pakistani living abroad has some link to their homeland. Whether it is their parents they have left behind or just the plain thought of going back home and spending a comfortable retired life amongst family members, the homeland remains in focus due to one reason or the other.

With the RDA initiative, the SBP has provided Pakistanis with a channel to stay connected with the country’s growth potential. Foreign investors have long been investing in Pakistan and achieving good yields on their investments. Now Pakistanis living abroad can also make gains over time and build on their wealth. Whether it is to diversify their investments or achieve improved returns, Pakistan is the place to focus on.

With the immense ease built into the RDA process and the access to various investment vehicles provided to overseas Pakistanis, most of the inflows are into the Naya Pakistan Certificates (NPCs) only. A handful of people have ventured into the capital market of the country, but the main lot has remained restricted to the banks’ products only.

Banks and brokerage houses must join hands to help overseas Pakistanis invest in capital markets

Statistics show that over 100,000 accounts have been opened. Approximately $700 million has come in so far. Only 3,500-plus accounts have invested in the stock market. Similarly, only $7.8m was invested in the stock market. This is merely 1pc of the total inflows.

This poses a challenge for banks as well as the government. The core objective of the initiative will be lost if non-resident Pakistanis are unable to invest in the capital market through the RDAs. Non-resident Pakistanis must be informed, educated and provided with all options to grow their wealth in Pakistan. The onus of responsibility falls on the banks as they are the main drivers of the initiative.

But what’s in it for the banks? They want to keep the inflows coming over a long period of time. Investment in NPCs is a one-time activity and, on top of it, the rates offered are high at the moment. This may not be a viable option for the banks or the SBP as such because profit payments may not be sustainable in the long run. It also tends to create a negative feeling among resident Pakistanis as their overseas counterparts are offered better returns than domestic accountholders.

On the other hand, banks need to keep these accounts active with increased inflows. It will be an uphill task to achieve this through utility bills payment only. They need to have more offerings. This is where the capital market investments come in handy. People will build portfolios, repatriate profits, trade and invest in the market and transfer money. This will ensure continued banking activity. Stock trading will generate cash flows. Dividend payments will also flow into these bank accounts. In short, stock market investments will ensure sustainable inflows into RDAs.

The banks need to not only increase the overall number of accounts but also keep the opened ones active. As per data from the Bureau of Emigration and Overseas Employment, there are over 8m Pakistanis residing overseas, which means there is a huge potential for RDAs.

It is a challenge for Pakistan’s financial sector to be able to leverage this initiative and get the best results. It must continue the momentum that has been achieved. In fact, it should ensure that non-resident Pakistanis are able to achieve the maximum benefit out of this initiative. It is imperative that information is shared with the existing accountholders about the available avenues for investments.

The benefit of compounding their profits over a long period as well as achieving dividends and capital gains is something they need to be aware of. RDAs can provide them with the access they need to the country’s capital markets.

It is also the responsibility of brokerage firms to educate their accountholders about how to maximise the opportunities to grow their portfolios and smartly manage their investments. The banks and capital market fraternity must join hands and seamlessly work together to devise and develop smooth processes for account opening, increase accessibility and ensure effective risk management.

Published in Dawn, The Business and Finance Weekly, April 12th, 2021

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