ISLAMABAD: Pakistan Economy Watch (PEW) Thursday said the overwhelming majority of Pakistani expatriates were still using hundi to transfer funds home bypassing the legal banking systems.
The trend is depriving the country of legitimate taxes as well as foreign exchange and the government should try to tap potential of three million overseas Pakistanis by introducing sweeping reforms in the existing banking system.
So far various legal steps and administrative actions have not stopped or significantly dented the parallel remittance system.
“Flow rate through illegal money transfers is in billions of dollars while a small part comes through lawful means,” said Dr Murtaza Mughal, President of Pakistan Economy Watch, in an exclusive talk with APP, while releasing the PEW report titled, “Centuries old hundi system versus modern banking.”
He said the reason behind thriving hundi or hawala business is inefficiency, exorbitant charges and delayed deliveries by banking services.
“The system of hawaladars is faster then any bank; it guarantees anonymity and would never involve paper work like identification and account opening,” he said.
The unproblematic structure of this business suits best for a country where undocumented economy is believed to be almost equal to the documented one, he added.
“Apart from reliability, speed and cost effectiveness, it dodges the exchange and tax regulations which is very attractive for people,” he said and added that the hundi system is unaffected by international and regional scrutiny, political, economic or any other factor including global resolve to curb it at any cost.
Foreign Terrorist Asset Tracking Centre of the USA, Organization for Economic Cooperation and Development having 30 countries as members and other international institutions have yet to prove their effectiveness. Many countries including Pakistan have frozen many accounts but experts believe that it was only a fraction of the whole system. “It has a very negligible impact,” he said.
They hundi people are now armed with latest technology, would conveniently transfer funds anywhere; even between two enemy states, he added.
Worldwide anti-money laundering steps backed by US have injected new blood into this business in which some five thousand people are believed to be involved in Pakistan only. Involvement of some bankers and influentials has also boosted the hundi business, the report said.
A person who uses hundi pays nominal commission while the one who opts for the legal channel gets the currency converted at government exchange rates, which are always lower than market rates. One may loose Rs 4 to Rs 6 on every dollar sent through banking channel. This issue must be addressed on priority, the report suggested.
“This network is hard to crack and it will flourish until government take steps to make legal transfer of funds efficient by reducing red tapes, making it competitive, cost effective and accessible,” the report added. app