KARACHI, Oct 11: The question is this. Will 368 money changers operating from Karachi to Peshawar disappear after June 30, 2004? The answer is: majority of them will go underground. That is if they are stopped from doing business legally. And stopped they will be because the deadline set for them to convert their shops into foreign exchange companies expires on June 30, 2004. The SBP does realise the gravity of this matter and its senior officials have initiated dialogues with money changers to see how smoothly they can pack up and quit.
“We will not,” says an office-bearer of Forex Association of Pakistan that informally groups all 368 licensed money changers but is not a registered body. “We will not pack up and quit,” he said decidedly. “Money changers co-exist with exchange companies in several parts of the world. So why not here,” he insisted. He said FAP would soon convene a general body meeting to discuss this issue threadbare and afterwards make presentations to top policy makers asking them to allow money changers to co-exist with the exchange companies.
Two years ago the State Bank had asked licensed money changers —479 in number—to convert their business into foreign exchange companies or be ready to quit after June 30, 2004. The State Bank had introduced the concept of exchange companies on the demand of the IMF.
Initially the money changers put up some resistance primarily because the minimum paidup capital of an exchange company was required to be Rs100 million—twenty times more than the paidup capital of money changers. But finally they gave in as top money changers having funds were eagerly waiting for launching exchange companies.
H&H Exchange Company was the first to be launched by one of those top money changers who had sold dollars to SBP in times of need. Then followed NBP Exchange Company—a subsidiary of state -run National Bank. The two companies did start their operations in February this year. Since then some others have joined in.
“But so far none of them has branched out extensively across the country,” argues an office-bearer of FAP adding that a dozen other applicants that have got initial permission to set up such companies would also not be able to establish a big network of branches. “That is where the money changers are needed,” he said adding “we may continue to serve as cash feeders whereas these companies should focus on currency export and electronic transfer of money.”
President of FAP Malik Bostan also told Dawn that majority of money changers believe they can work side by side with exchange companies. He said that at a meeting held at the State Bank here on Friday he suggested that the exchange companies be bifurcated into A and B category. “Whereas the present exchange companies can be treated as A type, the money changers should be allowed to operate as B type companies,” he said. “That is how the money changers can co-exist (with exchange companies). Otherwise they will go underground if they are stopped from doing business,” he insisted.
Malik Bostan says and executives of exchange companies also admit that once the majority of the existing money changers go underground hundi/hawala business would thrive again and it would be difficult for the exchange companies to compete with them.
Home remittances or the foreign exchange sent back home by overseas Pakistanis is the second largest source of foreign exchange earning after exports. Last year home remittances at $4.2 billion was equal to 37.5 percent of $11.2 billion exports. But in first two months of this fiscal year i.e. in July-August 2003 remittances from the US and the UAE have fallen 34 percent to $257 million though overall fall in remittances from across the globe has been very nominal.
This has perturbed top policy makers who are now making some serious efforts to ensure that remittances pick up pace in coming months. Malik Bostan says if the money changers are forced to go underground—hundiwalas would again eat up a big chunk of home remittances leaving very little to be attracted by the banking system.
Meanwhile a press release issued by FAP said that the State Bank Executive Director Farhat Saeed asked money changers on on Friday franchise from foreign exchange companies or set up their own companies before June 30, 2004. After this date no money changer would be allowed to continue foreign exchange business.
He issued this warning at a meeting held at SBP head offices. The meeting was attended by Managing Director of SBP Banking Services Corporation Liaquat Durrani and Director SBP Exchange Policy Department M. R. Mehkari. FAP was represented by its president Malik Bostan and two other executive members Haji Abdul Rauf and Iqbal Dulara. The release quoted Malik Bostan as saying that foreign exchange companies were not willing to franchise their business to money changers.