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The Success of Roshan Digital Account
Every Pakistani living abroad has some link to their homeland. Whether it is their parents they have left behind or just the plain thought of going back home and spending a comfortable retired life amongst members of their family, the homeland remains in focus due to one reason or the other. The State Bank of Pakistan has provided Pakistanis with a channel to stay connected with the country’s growth potential in the form of Roshan Digital Account (RDA). The thought behind the initiative is that the foreign investors have long been investing in Pakistan and achieving good yields on their investments, but Pakistani living abroad did not have such facility. However, with the RDA, now overseas Pakistanis can also make gains over time and build on their wealth. Whether it is to diversify their investments or achieve improved returns, Pakistan is the place to focus on.
The RDAs have recently crossed the billion-dollar mark in less than eight months since its launch. The number is growing at an increasing rate. It took around eighteen weeks to get to the first $500 million, and nine for the next $500 million. It may not be too optimistic to assume that the figure may cross $2 billion within this calendar year.
With the immense ease built into the RDA process and the access to various investment vehicles provided to overseas Pakistanis, most of the inflows were into the Naya Pakistan Certificates (NPCs) only – around two-thirds of the flows. These are reported in the financial account (not current account) within balance of payment as government’s debt; and within foreign reserves, these are recorded under SBP reserves. A handful of people have ventured into the capital market of the country, but the main lot has remained restricted to the banks’ products only.
Remaining one-third is mainly used for local consumption or parked in RDAs as foreign currency – these are recorded in the current account. The amount being used locally is marked in remittances and is not repatriable, while the amount parked in RDAs is recorded as other current transfers in secondary income account. These flows are part of banks’ foreign reserves. A small portion of Rs1.5 billion ($10 mn) is deployed in the stock market.
The RDA flows are coming from 100+ countries and over 120,000 accounts have been opened – giving an average account inflow of $8,000-9,000. That is healthy – smaller the ticker size, stickier the flows. Some of the amounts in RDA are from resident Pakistanis’ declared wealth outside Pakistan. It is hard to tell how much of flows within RDAs are from resident Pakistanis.
The product was started with eight domestic banks and by now eleven have been on-boarded. Some banks are performing better than others in terms of account opening, amounts received and product offerings. The top performing banks are HBL, Meezan, Bank Alfalah and UBL.
The central bank is working with banks to come up with new products for RDA-holders. Right now, the leveraging products available against NPCs are offered by foreign banks operating outside the jurisdiction of Pakistan. SBP has announced new products in an event with PM in attendance to offer gratitude to expats for reposing their trust in RDA.
SBP offered a discount (better rate on NPCs) to RDAs as a marketing tool to attract new market, and to compensate expats on their opportunity cost of investing in their resident country. The question is how long will this discount continue. There are around 7-9 million expats residing outside Pakistan – conservative estimate is 2-3 million households – right now less than 5 percent is being tapped. The SBP’s view is to strengthen this base to 10-15 percent of households and by this count $2-3 billion should be in RDA assuming current average inflow per person, before the Bank can start thinking of tapering off the discount.
Two New Schemes
On April 29, PM Khan announced two new schemes – Roshan Apni Car and Roshan Samaaji Khidmat – especially created for RDA account-holders. While addressing the ceremony, he appreciated the record-breaking rise in remittances from overseas Pakistanis over the years, adding that this was just the “tip of the iceberg”. He praised the Pakistani diaspora for playing their part in supporting Pakistan’s economy over the years.
1. Roshan Apni Car
Apart from amnesty schemes in past, this is the first time in the country’s history that any government is willing to extend expatriates a gesture of acknowledgment for their precious support towards increasing dollar reserves of the SBP via remittances. For this, the government, in collaboration with the SBP, has launched ‘Roshan Apni Car’ scheme which will facilitate non-resident Pakistanis (NRPs) to purchase cars on lower price.
Overseas Pakistani may find this scheme attractive as currently banks are charging 12-13pc on car financing. This will reduce cost by 20pc on car financing. The Pakistani car market may attract $200-300 million over the next two years. This is based on an analysis that 10pc of funds which are being parked in deposit accounts in RDAs will be utilised for purchase of local cars.
According to a press release of State Bank of Pakistan Roshan Apni Car has been specially designed for overseas Pakistanis and has many distinguishing features. For the first time in the history of the banking industry, an RDA-holders will be able to apply for car financing for their loved ones in Pakistan completely digitally. The SBP said processing time will be fast. Financing and insurance will be available at very attractive rates, and in both conventional and Shariah-compliant forms. Moreover, car manufacturers have committed to significantly slashing the car delivery time for RDA-holders.
It needs to be remembered here that Pakistan’s annual car sales are estimated to be over 180,000 units with market size of Rs550bn ($3.5bn) while average per car value (including taxes and FED) is around Rs3m (Rs5.3m including car financing on five-year terms). Overseas Pakistanis have potential to buy 10,000-13,000 cars per annum during next two years. Annual car demand may increase by 5-7pc which is positive for local car assemblers.
2. Roshan Samaaji Khidmat
Charity is an act of kindness that helps bring light to the lives of others without expecting anything in return. To promote this noble cause, the government has launched “Roshan Samaaji Khidmat” for RDA-holders so they can give charity or zakat digitally. It is a one-stop payment platform to enable overseas Pakistanis to make donations to leading charities, hospitals and educational institutes in Pakistan, as well as to meet their Zakat obligations.
This will make it easier for expats to do charity or carry out philanthropic activities in Pakistan. Right now, they have to send separate remittances for each charity organisation they are donating to. Using RDA, expats can send to as many registered organisations as much amount as they wish from anywhere in the world by pressing a button or touching a screen. They can also contribute to “Ehsaas”, the government’s internationally-acclaimed poverty-alleviation program.
Conclusion
The incumbent government has taken several initiatives to successfully encourage overseas Pakistanis to send more dollars back home than before for investment in the stock market, government debt and the realty sector through RDA. This initiative is not only giving Pakistan the much-needed foreign exchange but is also giving banks a new avenue to make money. Banks and SBP are slowly adding new products to their portfolios and this is likely to become a new stream of foreign inflows with banks’ earnings going forward.
However, the government needs to do more to persuade non-resident Pakistanis to bring back their savings to invest in the manufacturing industry to enhance growth, create jobs and make up for the shrinking foreign investment. The country needs such initiatives more than ever before.
