Sending remittances to Pakistan from the UAE could become expensive as foreign exchange houses have warned of levy additional fees.

The Foreign Exchange & Remittance Group (FERG) announced on Sunday that exchange companies in the UAE may have to charge service fees on all remittances to Pakistan if the Government of Pakistan fails to settle rebate amounts exceeding millions of dirhams that have remained unpaid since August 2011.

The Government of Pakistan originally introduced the Remittance Rebate System in the mid-1980s to encourage remittances through official banking channels and curb the practice prevalent then of remitting money through unofficial channels like Hundi/Hawala, etc. Under the rebate system, remitting banks and exchange companies do not charge any service fees for amounts above $100 remitted to Pakistan, but instead receive a rebate amount from the Government of Pakistan. Following the introduction of the rebate system, remittances from UAE through official banking channels surged and were estimated to be around USD 3 billion in 2011.

After a favourable start, 2011 and 2012 have seen considerable delays in receiving the rebate from the Government of Pakistan. On behalf of the exchange companies in UAE, the FERG took up this matter directly with the State Bank of Pakistan, and also through the Embassy of Pakistan in UAE. Consequently, some rebate amounts were received in small batches, but there still is a large backlog since August 2011, exceeding millions of dirhams.

Exchange companies in UAE have now made it clear that if outstanding rebates are not received immediately, they would be constrained to charge service fees on all remittances to Pakistan. They have further clarified that this would grossly affect the remittances routed through official banking channels as it could push customers back to unofficial channels. Moreover, if exchange companies in UAE take this step, other GCC countries could follow suit.