Expatriate Finance Program to Boost Retail Banking Sector in Pakistan | Salaam Footbridge
Islamabad is tapping into the country’s 8.6 million expatriates to fund home and car loans and to bolster savings accounts.
Karachi: The Pakistani retail banking sector is tapping the demand for Islamic consumer credit from religiously-minded Pakistani expatriates through a government-backed digital account facility.
The initiative also allows expatriates to acquire property and motor vehicles in their home country while being based outside its borders.
In September 2020, the State Bank of Pakistan (SBP) allowed the 8.6 million Non-Resident Pakistanis (NRP) to open bank accounts in Pakistan exclusively through a digital and online process. Known as the Roshan Digital Account (RDA), these accounts fully integrate the Pakistani diaspora into their home country’s banking and payment system by providing access to remittances, payments from bills and fees and to e-commerce, the central said the bank.
Currently, 13 Pakistani banks provide digital account services to NRPs, including fully-fledged Islamic banks such as Meezan Bank and Dubai Islamic Bank Pakistan and Islamic banking divisions of conventional banks. The system can accommodate both conventional and Sharia-compliant accounts.
Since the initiative was launched, 345,570 digital accounts have been opened by Pakistani expats depositing $3.44 billion in banks in their home countries, according to the SBP. The data is not divided into Islamic and conventional accounts.
Azhar Aslam, head of Islamic banking at Standard Chartered Bank Pakistan Ltd, the country’s oldest and largest foreign bank (its parent company is based in the UK), said Pakistanis abroad can open these accounts in Pakistani rupees (PKR) or foreign currencies. . Another service allows expatriates to invest, via government-issued Naya Pakistan Certificates (New Pakistan Certificates or NPCs), in US Dollars, Pounds, Euros and Rupees at attractive rates and in conventional and compliant modes. sharia.
Pakistani expats use this vehicle to invest in real estate, the stock market, and savings and term deposit accounts. Additionally, funds in these accounts are fully repatriable to PNRs’ countries of residence, Aslam said.
In August 2021, the expanded SBP facility enabled NRPs to use digital systems to buy property or build or renovate a house in Pakistan through their investment or bank financing by accessing Islamic and conventional borrowing systems. This financing is also available under the Government’s Enhanced Grant Scheme originally reserved for Pakistan-based borrowers to access low-interest financing.
The central bank has allowed family members based in Pakistan to use the expatriate’s account for car financing if they are eligible. This will also be done through Islamic and conventional borrowings.
Aslam predicts that these expatriate facilities will grow Islamic banking, saying it “is only expected to grow as confidence in the sector grows and consumers continue to seek, including overseas Pakistanis, Sharia-compliant products and services”.
The SBP has yet to release statistics on the amount of money borrowed for housing and auto financing through these facilities.
“With strong government support, sustained consumer demand and a thriving banking system, Islamic finance is uniquely positioned to spearhead the growth of retail banking in Pakistan and reap the economic and social,” he said.
Islamic banks currently offer lien and non-lien financing to RDA holders. In the first case, the bank can exercise a lien on the RDA or NPC investment funds, in the event of payment problems. Under lien-based financing terms, lower fees and interest rates (in conventional systems) apply and Aslam has confirmed that fixed rate and floating rate financing facilities are offered.
Lien-based financing requires that a minimum of PKR 500,000 ($2,830) be authorized for the purchase, construction or renovation of a home with no maximum limit. The same goes for buying and building a house via non-lien financing, but non-lien renovations are capped at PKR 10 million ($56,700).
Expatriates can buy up to three cars with subsidy rates increased by 7%.
Examples of Islamic financing facilitated by these expatriate systems include how Standard Chartered Bank Pakistan now only offers real estate and car financing under Islamic systems. Naveed Malik, head of consumer banking at Dubai Islamic Bank Pakistan Ltd (DIBPL), said Islamic banks offer finance to expatriates through the Ijara cum Musharika Islamic base where customers provide equity alongside home financing. Bank.
“As the customer uses the asset, they provide rent to use it, which is initially high…as the share of the asset is transferred to the customer, the rent decreases. Our bank targets the entire PNR [expat] diaspora with a focus on salaried people as income verification is easier,” Malik said.
DIBPL offers Islamic financing for expatriates with RDAs buying houses, land and construction and renovation services. Auto financing is provided for new or imported cars, while the bank has developed digital signature to facilitate such borrowing.
The Pakistan Banking Association (PBA) welcomes these developments, saying they have enabled expats to safely access investment opportunities using formal channels. They acknowledged the importance of expatriate remittances to the Pakistani economy, which reached a record high of $29.4 billion in the fiscal year ended June 30, 2021. These inflows amounted to 23 $.1 billion a year earlier, the SBP said.
In a statement, the PBA said the initiatives allow expatriates to take advantage of the ongoing property boom and predicts that the central bank will launch more facilities for expatriates in the coming years to further boost Islamic banking.
“So far, we have (had) a good response from Pakistani expats for getting car finance…The process from getting a loan to buying a car car is fast and smooth,” said an official with the Ministry of Pakistanis Abroad and Human Resource Development.
However, he said the response to the housing program has been slower. A note from Pakistan-based leading property sales portal Zameen.com says it hinges on lingering doubts about the validity and reliability of property finance.
Historically, the Pakistani real estate sector has had a bad reputation because developers have failed to deliver large-scale projects. Zameen.com believes these concerns can be allayed if, supported by new expatriate finance schemes, SBP and commercial banking partners undertake due diligence on property projects.
Mujtaba Qamar, a senior Islamic retail banker in the United Arab Emirates, said more marketing to Pakistani expats is needed to persuade them that these systems offer more services than facilitating remittance payments.
He recommended holding webinars to raise awareness of home and auto financing, allowing developers and car dealerships to present loan opportunities. End-to-end financing guarantees should be offered to expatriates “to support investments and a wide range of products” and it is suggested that RDAs – both Islamic and conventional – be extended to commercial investments.
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