SOURCE OF GENERATING

REVENUE THROUGH
FOREIGN REMITTANCE IN
BANKING INDUSTRY

Syed Asif Moiz

Background 
 The share of remittances is about 90% of foreign direct
investment (FDI).

 Remittances is one of the highest foreign exchange earner

for Pakistan.

 Pakistani expatriates Remit between $3-5 billion annually

to Pakistan.

 Pakistan’s foreign reserves increased substantially from

US$ 12.4 billion in end June 2009 to US$15.0 billion in end
April 2010.

 Revenue generated by banks is $60 million annually from

remittance service alone.
Background 

 Total potential revenue base of market size is US$ 60 million/annum

(includes Hundi).

 Share of remittances in the net current transfers to around 70%,

compared to the previous 5-year average of 52%.
52%

 Growth started from around $1 billion in 2000 and had reached more than
$8 billion by 2009.

 The introduction of (PRISM) based on the concept of (RTGS) has increased

volume of foreign remittance in Pakistan to around $8 billion.
Distribution of Market Size 

Sector Official Un-Official Total %

(figures are in millions per annum)
USA $1,152 $720 $1,872 36%

UK $324 $200 $524 10%

Europe/Aus $336 $220 $556 11%

UAE $576 $360 $936 18%

ME $768 $500 $1,268 25%

Objective 

To study the opportunities and challenges of

PRISM in UBL Home Remittance and how
PRISM system may facilitate UBL in growing
its Home Remittance Business.
Banking System: Cross-Border Fund Transfer 
 Banking system has played a vital role in facilitating the expatriates
to transfer the money to their families and homes.

 To ensure the transparent, effective and secure money

transfer system to avoid money laundering and macro-
economic loss.

 People uses other informal channels of transferring money like

‘Hundi’ & ‘Hawala’ systems which had adversely affected the
economy of the country.

 The floating exchange rate policy adopted to reduced the gap

between official and market exchange rates.

 Provides exemptions to migrant workers on custom duties for sending

remittances through formal channels.
Research Variables 

 The study was based on the following variables

 RTGS (PRISM).
 PRI

 Hundi (Hawala System).

*Real Time Gross Settlement System.

*Pakistan Remittance Initiative.
*Pakistan Real-time Interbank Settlement Mechanism
 Real Time Gross Settlement System 
 The concept of Real Time Gross Settlement Systems (RTGS) started in late
1990s all over the world.

 RTGS system has been introduced for financial institutions for fund
transfer mechanism.

Payments are settled on gross basis in real time.

 Minimizing the systemic risks that are inherent in large-value net settlement
system.

 Fastest possible money transfer system through the banking channel.

RTGS In Pakistan 

 SBP implement the RTGS primarily with assistance from the Word Bank in
2005 and it was finalized in 2008.

 RTGS in Pakistan has been named as Pakistan Real-time interbank

Settlement Mechanism (PRISM).

 Banks holding accounts at SBP are able to operate their accounts in real
time from their own premises via computerized network.

 Inter-bank lending/borrowing between banks done through their account

maintain at SBP.
PRI (Pakistan Remittance Initiative) 
 SBP, Ministry of Finance and Ministry of Overseas had undertaken a joint
initiative called (PRI) with a view to facilitating the flow of remittance
through formal channels.

 The initiative was initially joined by big five banks (ABL, HBL, MCB Bank,
NBP, UBL) and later four other banks (KASB Bank, JS Bank, Bank Alfalah
and Dubai Islamic Bank) also became part of it.

 Total of 259,611 transactions amounting to Rs 16.27 billion were

settled during (November 2009 to March 2010) under the (PRI).

Remittances exceeded the mark of $8 billion in any fiscal year.
Hundi (Hawal System) 

 Alternative or parallel remittance system.

system

 Based on trust.

 Unsecured.

 Illegal.

 Open to Money laundering.

 All governments strongly discouraging this means.

 Transfers of money take place based on communications.

 Risky.

 Cost effectiveness.
 PRISM is Effective Fund Transfer System 

 Payment Processing.
Processing

 Ability to limit payment system risks.

 Accurate and reliable transmission of information

in PRISM payment message.
PRISM Increasing Business of UBL 


Cost Savings.
 Incoming funds will be available for immediate re-use;
 It will be possible to reconcile accounts on an intraday basis;
 Immediate reaction will be possible should any problem arise with regard to the transfer of
a payment.


Real-time Operation .
 Improves its cash management.
 Enables participants to increase their turnover of funds.
 Lag time of crediting and debiting fund becomes nil.
 In FY 09, in-flow of remittance was PKR 49,424,354,169.94 respectively as compared to PKR
41,599,452,365.38 in the FY 08.
 Suggestions 
 Service should be delivered thru the internet – accessible from anywhere/anytime
24/7 to remitters.

 New customers/remitters register (email verification/activation process); existing

customers simply log-on.

 Economical Rates.

 Credit, debit cards and e-Cheques should be accepted.

 Payment processing procedures check card validity and enters into authorization
process. It immediately informs on website of acceptance/decline of transaction to
customer.

 Auto email sent to customer of transaction confirmation with TR# and Payment
receipt.

 Online tracking of status by customer available thru its life cycle.

 Summary of remittances available to sender.

Conclusion 
 PRISM System minimizes risk and provides secure
transfer of fund within the bank and then into
customer account in real time without any fraudulent
and with reliability. Through its implementation its
increases foreign exchange reserves of the country and
provides good increase in revenue of the banks.

 The concept of PRISM is straightforward but the

systems themselves can take many different forms.
These differences partly reflect the fact that
circumstances vary from country to country, so that
arrangements that are appropriate for one country may
not be relevant for another.