KARACHI, Nov 8: They call it internal fund management and take pride in the fact that it has reduced their appetite for bank credit. But for many it is just a nice word for whitening of undisclosed income placed abroad by businessmen and investors before 9/11. Stock brokers say the continuing bull-run in the stock market is also driving energy through whitening of not-so-clean money.
Senior local and foreign bankers say business tycoons as well as big investors have been constantly receiving a huge amount of foreign exchange from their overseas “friends and relatives” in the name of home remittances.
“I know some of them personally. They are getting a big chunk of home remittances,” remarked a local banker who refused to be identified for obvious reason. “Part of the money flowing back home through so-called remittances is nothing but undisclosed income people had placed abroad when the west was a safe heaven.”
“I totally agree with this view,” was the quick response of a former chairman of Karachi Stock Exchange Arif Habib when asked if this was the case. But he insisted that only a part of home remittances represents the whitened money implying that there is also a genuine buildup in the remittances in post 9/11 scenario.
Home remittances i.e. the money sent back home by expatriate Pakistanis more than tripled to $927 million in July/September this year from $264 million in a year-ago period. In fiscal year July/June 2001/02 also the remittances had more than doubled to $2.4 billion from $1 billion in 2000/01.
Bankers say the remittances are leaping dramatically mainly because those who had placed their undisclosed income abroad are bringing it back — with the help of their overseas contacts.
This trend had started after 9/11 when anti-money laundering laws were tightened not only in the US but also in the UK and UAE from where the bulk of remittances come to Pakistan. “Now there is an added reason for the people to bring back the money they had placed abroad,” says Arif Habib. “The interest rate in the world market has been falling constantly whereas in Pakistan it is relatively high.”
Stock market analysts say high dividend yield on blue chips has also driven many of those who had kept millions abroad to bring it back through their foreign agents and invest in the stock market. “That is a sure way of whitening of undisclosed money,” remarks another former KSE chairman.
He says that those acting as the agents for whitening of tax-evaded money are currently charging half a per cent premium on the funds flowing back home for this purpose. This partly explains the continuing bull-run in the stock market. The Karachi Stock Exchange 100-share index crossed the 2,300 barrier in a recent rally and is currently hovering well over 2,200 up from 2,000 at the start of October.
LOWER CREDIT DEMAND: Bankers say the whitening of undisclosed money by many businessmen both through home remittances as well as through stock market investment has reduced their borrowing needs.
A source close to the State Bank also made the same statement. “The press keeps crying over low credit disbursement to private sector. But you hardly realize that the credit demand has fallen for many reasons.” One of them is huge inflow of whitened money that is being used by business houses to retire bank credit a bit faster.
“They call it internal fund management,” remarked the source close to the State Bank.
Credit disbursement to the private sector has been much lower than what it should be. Against the full-year target of Rs94 billion for July/June 2002/03 net credit disbursement to the private sector stood at minus Rs20 billion by October 12. SBP officials say they are sure the figures for subsequent weeks will show a major build-up as cotton financing is reaching its peak.