Cost of remittances likely to come down

With remittance to India is expected to increase by 2.5 per cent in this calendar year, the costs of sending remittances likely to come down further with many initiatives of the Government and the Reserve Bank of India (RBI), like Payment banks.

However remittances to developing countries are expected to rise by about 4 per cent in 2016 and 2017, buoyed by the continuing recovery in the United States and a modest acceleration of economic activity in Europe.

“It is hoped that India’s new payments banks will expand penetration of the banking sector in rural areas, thus increasing competition in the remittances market,” says the recent World Bank's report on Migration & Development Outlook which indicates remittances to India continue to grow steadily.

The report says that the decision by the Reserve Bank of India (RBI) to grant ‘in principle’ approval for 11 entities to set up payments banks, which would be directed at small savers in underserved (largely rural) markets, could help transform the rural remittances market.

The entry of new players is likely to increase competition, lower remittance costs, and extend the formal market for remittances.

Unlike earlier, emigration from Northern parts of the country is on the increase compared to Southern India as per the State-wise figures of workers granted Emigration Clearance / ECNR Endorsement during the last five years 2010-2014. In 2014, UP is the highest - 229,444, followed by Bihar - 98,721, Tamil Nadu - 83,202, Andhra Pradesh - 53,104, Kerala - 55,058, and West Bengal - 51,561.

Cost of remittance to India

Currently post office money orders cost about 6.4 per cent, hawala channels around 4.6 per cent and banks 3 per cent of the money transferred. “The extension of banking services and mobile money transfer to rural areas could thus significantly reduce remittance costs in rural areas,” the report adds.’

As per Remittance Prices Worldwide (a World Bank website), average remittance cost for sending money (for sending US$ 200) from UAE to India is 2.8 per cent. Similarly, from US to India average remittance cost is 3.06 per cent (for sending US$ 200). Both data are for the July - September 2015 quarter.

The global average cost of remittances remained at 7.7 per cent, targeted to be reduced to 5 per cent as set by G20 countries and World Bank.

The World Bank noted Indian government’s efforts of establishing a fund to assist the Indian diaspora in legal cases, and of a web portal to facilitate low-skilled migration. The government also raised the permissible limit on outward remittances from $125,000 to $250,000 (with further allowances for education and medical expenses), and eased limits on investment by the diaspora.

According to Remittance Prices Worldwide (RPW), the global average cost of sending remittances (including all fees and charges) was 7.68 per cent in second quarter of 2015, remaining essentially stable compared to the previous quarter when the average was 7.72 percent and below 8 percent for the fourth consecutive quarter.

Over the same period, the International Money Transfer Operators (MTO) Index, which tracks the prices of money transfer organizations that are present in at least 85 percent of corridors covered in the RPW database, experienced a decline of 2.2 percentage points, from 10.5 per cent in the first quarter of 2009 to 8.2 per cent in the second quarter of 2015.

The average cost of sending US$ 200 in the second quarter of 2015 was the lowest in South Asia (5.7 per cent), which represents a marginal decline from the previous quarter.

The three lowest-cost corridors (Saudi Arabia-Pakistan, Singapore-Bangladesh and UAE-Pakistan in South Asia all have cost below 3 per cent. However, the three highest cost corridors (Singapore-Pakistan, Switzerland-Sri Lanka, and Japan-India) have costs well above 10 percent.

This difference may be due partly to low volumes, lack of competition in the remittance markets in some sending countries, and policy rigidities that limit competition in some market segments, says the World Bank report.

In 2015, remittance to India is expected to go up by 2.5 per cent, which is above the 0.6 per cent rise in 2014. Also, internationally remittances are categorised as payments. Hence, says Promoth Manghat, CEO, UAE Exchange, “payment banks in India have an opportunity here.”

By the RBI mandate, Payment banks are to have 25 per cent of their network in un-banked areas. They can urge the beneficiaries of the migrant citizens to receive money through banks, contributing to financial inclusion and reducing remittance cost eventually.”

“India continues to be the largest remittance recipient country and over the years we have seen an increasing trend in remittances received,” says Kiran Shetty, Western Union’s Managing Director & Regional Vice President, India & South Asia.

The remittance flow into the country is three times that of the current Foreign Direct Investment (FDI) in the country. “Increase in remittances is clearly a good sign of economic activity and with a larger number of migrant workers now, we see more money coming into the country. This serves as a good support to the balance of payments too,” Mr. Shetty adds.

“We see the new payment bank licenses by the RBI will also help the cause of encouraging people to use formal channels of remittance. Additionally, new players in the market will spur competition that could lead to lower remittance costs,” says Sudhesh Giriyan, COO, Xpress Money.

“We are bullish on this space and expect a 15 percent year-on-year growth in remittance transactions on our channel,” says Mr. Giriyan.

There are about 30 million overseas Indian workers all over the world as per the recent World Bank Report. More than 90 per cent of these workers are in the Gulf countries and South East Asia.

During 2014, about 8.04 lakh workers emigrated from India after obtaining emigration clearance. Out of this, about 3.29 lakh went to Saudi Arabia, about 2.24 lakh workers to UAE, about 0.75 Lakhs to Qatar, about 0.51 lakhs to Oman, and about 0.22 lakhs to Malaysia. States of Uttar Pradesh, Andhra Pradesh, Bihar, Kerala, Tamil Nadu, Punjab, West Bengal and Rajasthan were the leading sourcing states in that order of the numbers who emigrated.

Source: The Hindu

URL: http://www.thehindu.com/business/Economy/cost-of-remittances-likely-to-come-down/article7855933.ece

Author: Oommen A. Ninan

Date : 08/11/2015

Time: 12:34