KARACHI: The Pakistan Banks Association (PBA) has firmly rejected claims that government subsidies offered to banks under the Pakistan Remittance Initiative (PRI) serve no economic purpose. The association issued a detailed statement on Monday to counter recent media reports and policy recommendations questioning the value of the subsidies.
The controversy arose after the Economic Policy and Business Development (EPBD) think tank advised the government to reduce bank subsidies and redirect funds toward development initiatives. EPBD’s criticism came after it was revealed that banks had claimed Rs200 billion in incentives under the PRI this fiscal year—overshooting the budgeted Rs85 billion.
In response, the PBA warned that such criticism could damage public trust in formal banking channels, especially when the economy depends heavily on documented remittances. It highlighted that before the PRI’s launch in 2009, just $6.5 billion flowed through formal channels, while around $20 billion was routed via informal means such as hawala and hundi, which worsened the country’s balance of payments.
The PBA argued that PRI incentives—small, one-time rupee payments—are far more cost-effective than borrowing in foreign markets, which involves long-term liabilities and higher interest rates. Contrary to claims that banks profit from the scheme, the PBA said banks actually absorb significant costs to ensure remittance inflows through formal means.
“Banks pay up to Rs5 per dollar as premium over the interbank rate to attract remittances that would otherwise move to hawala networks,” the PBA said. It added that these losses are endured in the national interest to maintain foreign exchange liquidity.
Furthermore, banks invest heavily in security, compliance systems, and outreach efforts to facilitate secure and efficient remittance transactions. The PBA concluded that the incentive system under PRI is not a handout but a strategic tool that enhances economic stability and discourages illicit financial channels.
