SAARC Trade: Streamlining Banking Framework

Majyd Aziz

Regional trading blocs have demonstrated a pragmatic solution to enhancement in trade, investment, people movement, and a decisive approach towards conflict resolution. Despite initial misgiving and fear of job losses, revenue losses, or market losses, the evolutionary progress of regional blocs has transcended these doubts to a large extent. The success of regional blocs has enabled trade and industry to create regional linkages, cumulation and focal centers. EU, MERCOSUR, ASEAN, SADC, NAFTA, etc are vivid examples. SAARC is a well-meaning and visionary initiative but its true essence has yet to be savored and it is yet to achieve its potential.

One major impediment in facilitation of trade and investment in SAARC is the lack of banking instruments that are vital for fast track operations of financial facilities. The SAARC business community has to become more pro-active in convincing regulatory authorities and governmental decision makers to remove most of the obstructions and hurdles in opening up the financial sector for business transactions. The SAARC Chamber of Commerce and Industry should become the motivating factor if there is to be a sea of change in the way Intra-SAARC trade and investment is formalized, adopted and implemented.

The present scenario is that the seven SAARC members have no bank branches in Pakistan. Afghanistan has four banks but no branches in other SAARC countries. Bangladesh customers face huge problems in remitting money. In Maldives, a foreign bank is the focal corresponding bank for businessmen. Only one Nepali bank has branches in India. Bhutan has three banks but businessmen mostly use State Bank of India or Punjab National Bank.

Pakistani businessmen doing trade with India have to rely on third country banks for financial transactions. This entails added banking costs, is time-consuming, and at times, the Letter of Credit is susceptible to external factors such as built-up of tension at the border or some extremist event. During the three-day Second India Show held in Lahore in February 2014, where over 130 stalls were set up of Indian products, the Pakistani government accorded special permission to National Bank of Pakistan and MCB Bank to assist Indian exhibitors to deposit their daily revenue for safekeeping and legally remitting to India.

There are some cogent reasons why the process of liberalization of financial facilities has not become a desirable reality. The homework has yet to be done in the regional context because the dynamics of all SAARC countries manifests distrust, discord and disharmony and where broad-based conflicts and contentious issues take precedence over trade and investment liberalization. However, the hardcore decisions will have to be taken because the other regional blocs are rapidly moving towards making financial dealings faster, reliable and more transparent.

It is emphasized that half-hearted efforts or individual banks working on their own in cross-border transactions would not be cost effective nor would they serve the real purpose. There has to be a concerted approach with a common clearinghouse fully armed with all data, regulations, and workable systems, such as easily accessible channels, consistency and flawless management of processes, and state-of-the-art information technology and communication, if SAARC is to have a successful banking model. It is imperative that there should be multi-policy coordination, including a dispute settlement mechanism, among all SAARC Central Banks. Moreover, intra-SAARC remittances must be made convenient and affordable. Unnecessary impediments are in effect Non-Tariff Trade Barriers too and therefore fast track financial facilitation process, including opening of Letters of Credit in each country’s currency, must be streamlined.

The answer also lies in promotion of seamless banking or branchless banking that can be achieved by getting all Central Bank Governors as well as leading bankers, information technology technicians, telecom operators, representatives of trade and industry, and banking management experts to finalize, decide and implement a SAARC-wise seamless banking framework. This would enhance trade, remove many obstacles, introduce regulatory compliance, and bring about customer accessibility, trust and satisfaction. Seamless banking is rapidly becoming the source of financial empowerment. The game changer has been the combination of advanced technology and consumer behavior that has enabled swift transactions at lesser cost with easy access. According to a McKinsey Report, the usage of internet banking has risen over 30% while mobile banking has shot up by 85% across the Asia Pacific region.  

Seamless banking is ideal for SAARC businessmen and more so for citizens in many respects. Many Indians and Pakistanis have kinfolk across the border and fund transfers are a norm. Bangladeshis working in Karachi routinely send part of their salaries through unofficial channels. SME importers and exporters face innumerable problems in sending payments for smaller orders. Pakistani participants at Indian exhibitions take back cash or find non-banking channels to remit their sales revenue. Pakistani artistes also have to circumvent the regulations to transfer earnings. Tourists, or devotees on visits to religious events or shrines, families to weddings or other family events, and of course businesspersons can make their trips comfortable and secured through seamless banking facilities.

As a well known poet versed: Ben-ul-Najoom ke faaslay kum ho chukay hain bahut  / Ben-ul-Qaloob ke liya idraak chahiye (The interstellar distances have decreased a lot over the years/ Lessening the universal remoteness between hearts needs understanding)