KARACHI, May 27: The State Bank has warned the money changers that if less than 80 per cent of them do not opt for establishing B category exchange it would cancel the very scheme that gives them this option.

The warning has come through a letter issued by the State Bank to all licensed money changers. Says the letter: "The State Bank reserves the right to cancel the scheme of exchange companies of B category in case less than 80 per cent of the authorized money changers do not opt (for forming such companies.)"

SBP issued a public statement on Monday announcing that it had decided to allow money changers to set up exchange companies in B category. But the announcement did not say that the central bank would cancel the scheme if 80 per cent of them do not opt for it.

There are 378 licensed money changers across Pakistan 109 of them operating in Karachi. The SBP had set June 30, 2004 deadline for them to stop operating as money changers: they were given the option to transform their business into new exchange companies or get franchise from the existing ones. But money changers were a bit averse to this idea and wanted to keep their own identity.

So the central bank finally allowed them to form mini exchange companies instead of becoming a part of the existing exchange companies or establishing new ones.

On Tuesday the SBP told money changers that unlike the exchange companies that need a minimum paid-up capital of Rs100 million they can start operating as mini exchange companies with a minimum capital of Rs25 million only.

But it also told them that at least five money changers should join hands to form one mini exchange company. Central bankers say the purpose of this requirement is to ensure that the majority of licensed money changers transform their businesses into exchange companies.

The whole idea about transforming money changers outlets into exchange companies is to contain money laundering through more effective checks on their activities.

Money Changers Action Committee that represents all licensed money changers have examined the latest SBP offer and responded to it in writing. The committee has made a representation to the director of Exchange Policy Department of the SBP demanding easing of the conditions that money changers are supposed to observe to set up mini exchange companies.

A copy of this representation obtained by Dawn shows that the committee wants withdrawal of the condition that 80pc of money changers should opt for forming mini exchange companies.

"We hope that the maximum number of money changers shall opt for forming" mini exchange companies but it is difficult to guarantee that 80 per cent of them shall form these companies. The committee has further demanded that the required minimum paid-up capital of proposed mini exchange companies be reduced from Rs25m to Rs12.5 million.

The committee has also asked the SBP official to reduce the required statutory liquid reserve of such companies from 15 per cent to 7.5 per cent of their paid-up capital. A senior central banker told Dawn that the central bank would decide within a week or two whether or not to accept these demands.