KARACHI, Jan 21: The first foreign exchange company will start operations from February 6 amidst growing debate on how soon the wings of the money changers be clipped to allow a free flight to exchange companies.

“We will become operational from February 6,” sponsor of H&H Exchange Company Haji Haroon told Dawn. He said his company had already informed the State Bank about the launching of business. Haroon said the company would start operations initially with one branch located in Saima Towers off I.I. Chundrigar Road, Karachi.

Two other exchange companies are also expected to start operations shortly afterwards. NBP Exchange Company which is a wholly owned subsidiary of National Bank would most likely start business “within first 10 days of February,” said its managing director Muhammad Naeemuddin. Director of KKI Exchange Company Ovais Kalia said his company would be operational by end-February or from early March.

H&H Exchange Company and NBP Exchange Company had got final approval from SBP to start operations as early as in November last followed by KKI Exchange Company but they were holding on their plans for a couple of reasons.

After getting the approval in late November 2002 H&H Exchange Company had planned to start working from January 1. But it had to delay its operations to get assurance from the central bank that the money changers should be thrown out of the business of currency export. Or at least the volume of currency export should be limited or the money changers be asked to sell the entire proceeds of currency export into the inter-bank market. This assurance was thought necessary to give more room to exchange companies to flourish.

No official of H&H Exchange company was willing to comment on the nature of the assurance they have got from SBP but sources close to SBP said that money changers might be asked to sell all currency export proceeds in the inter-bank market. Currently they are bound to sell 80 per cent in the inter-bank market and retain 20 per cent for their own use. The sources say this would be done in a gradual manner.

“But we will oppose it,” warns president of Forex Association of Pakistan Malik Muhammad Bostan. “If money changers are asked to sell 100 per cent currency export proceeds in the inter-bank market comprising banks and exchange companies it would encourage speculators.” Money changers sell all non-dollar currencies in Dubai and bring back its dollar equivalent in Pakistan. This is called currency export. Bostan says the 20 per cent of the export proceeds the money changers retain help them meet the demand for foreign currency from gold importers to multinationals to those government-run institutions that occasionally make dollar buying from the open market. He says that those travelling abroad also still buy dollars from money changers despite lifting of travel quota restrictions from the banks.

Money changers fear if they are not allowed to keep 20 per cent of currency export proceeds with them the demand arising out from this big clientele would be monopolized by big speculators. “We will not allow this,” warns Bostan.

But Bostan is not as hostile towards another critical problem the exchange companies are faced with. He says that SBP should immediately issue a circular to clarify that foreign exchange transactions to be undertaken by the exchange companies would not be subject to inquiry into the sources of inflow. All the three exchange companies (including H&H Exchange Company) that have so far got the final approval from SBP to start operations have been waiting for such a clarification.

NOCs: In the meantime the State Bank has issued four more no objection certificates to those who want to set up and operate foreign exchange companies. These are: (i) Data Exchange Company (ii) Eastern Union Exchange Company (iii) Al-Sahara Exchange Company and (iv) Access Currency Exchange. They will now go to Securities & Exchange Commission of Pakistan to seek incorporation as exchange companies and then return to SBP to get final approval to start their operations.

With the issuance of NOCs to the above-named money changers the number of the parties that have so far got the NOCs has risen to 14 including the three that have got the final SBP approval to start operations.

Exchange companies are being set up to check money laundering. These are going to phase out 400 plus money changers whose small businesses scattered across the country have become too difficult to monitor.