Islamabad December 22, 2021: The Securities and Exchange Commission of Pakistan (SECP) has abolished the requirement for banks to obtain separate license for distributing mutual funds and private pension funds to Roshan Digital Accounts (RDAs).
This relaxation has been granted to facilitate overseas Pakistanis to invest in mutual funds and private pension funds managed by Asset Management Companies (AMCs), and comes as part of SECP's efforts to increase investor-base in Pakistan's capital markets by enabling investments through RDAs.
However, the permission is only applicable to banks that are eligible to open RDAs. For transfers to accounts other than RDAs, the license requirement is still applicable under Securities & Future Advisor Regulations, 2017.
It is expected that this initiative will broaden the range of available investment avenues for Overseas Pakistanis and increase flow of foreign remittances to the country.
Foreign exchange inflows through Roshan Digital Account (RDA) reached $2.92 billion by November 2021, as an increased number of overseas Pakistanis remitted their funds using incentive-laden scheme, the central bank data showed on Thursday.
The expatriates opened 299,676 accounts from 175 countries. RDA inflows fell to $239 million in November from $266 million a month ago.
Since the introduction of RDA by the State Bank of Pakistan (SBP) and the commercial banks in September last year, the scope of the transactions and investment through the incentive-laden scheme has expanded. These inflows also helped build up the country’s foreign exchange reserves at a time when the government is struggling with high current account deficit amid hefty imports, and falling rupee. The current account deficit widened to $1.66 billion in October from $1.13 billion in October. The local currency has weakened 11 percent since July this year. The SBP’s data also showed that a significant amount of these funds was used to invest into Naya Pakistan Certificates (NPCs) and capital market.
Total investments made in NPCs stood at $2.0 billion as of November 30, 2021, with $1.1 billion invested in the conventional NPCs and $868 million in Islamic certificates of this instrument. The non-resident Pakistanis invested $29 million in the equity market. Analysts said increase in NPCs and equities investments is driven by higher yields.
An increased return on the NPCs is the biggest attraction for the overseas Pakistanis as the interest rates in the United States and Europe are at zero percent. The investors get a profit rate of 5.5 percent on three-month, 6 percent on six-month and 6.5 percent on 12-month dollar-denominated NPCs. For three- and five-year certificates the return is 6.75 percent and 7 percent.
The profit rates being offered on the local currency denominated certificates are 9.5 percent to 11 percent on different tenors.
Pakistan has one of the largest diasporas in the world, with anywhere from 6.3 million (UN, 2020) to 8.8 million (Pakistan’s government, 2018) Pakistanis living abroad, said the SBP in its annual report on the State of Pakistan’s Economy for the fiscal year 2020/21 published last month. The foreign exchange sent by these migrants to support their families and for investment purposes, has led to the country being consistently ranked among the top 10 remittance-recipient economies.
More recently, there was a realisation about the operational impediments in migrants investing in the stock market, mutual funds and real estate in Pakistan, via direct banking channels.
The existing bank accounts for non-residents, the Special Rupee Convertibility Accounts, were not ideally suited for individual emigrants and were geared more towards institutional investors and entities.
“The policy solution comprised a series of changes to the foreign exchange regulations in FY2021, which allowed migrants (non-residents) and eligible residents, to digitally open bank accounts in six currencies – the US Dollar, Pounds Sterling, Euros, UAE Dirhams, Saudi Riyals and the PKR – with several commercial banks in Pakistan,” the SBP’s report said.
Around the end April 2021, the SBP allowed overseas Pakistanis to purchase cars via their RDAs, under the Roshan Apni Car scheme. Under this scheme, banks offer both lien- and non-lien-based loans to RDA-holders, and the car assemblers claim to deliver the cars on priority basis to RDA-holders. Under lien-based financing, the bank has a lien on the funds in the RDA or the depositor’s holdings of NPCs; as such, these loans are available at relatively lower rates.
Furthermore, both fixed- and variable-rate loans are offered to facilitate customers of varying risk appetites. Moreover, nonresidents can now apply for housing finance (under Roshan Apna Ghar), and deposit funds into the RDAs via money transfer operators such as Western Union and MoneyGram.