MONEY EXCHANGE & TRANSFERS
uted to reducing remittance costs,” says Manghat. “There are almost 125 money transfer operators (MTOs) in the UAE, whose branch networks make up about 1,000 outlets. With the regulators opening up the market to several players, competition is high, [thus] driving prices down.” Technology helps
Extensive adoption of technology among UAE banks has also enabled RSPs to transfer money instantly to bank accounts. This is in sharp contrast to markets such as South Africa and Europe where monopolistic policies, lack of competition and exclusive arrangements have kept costs relatively high. Expenses are also higher in other parts of Africa and the Philippines, because money is often disbursed in cash.
“The cost of doing business varies as different countries have different levels of business infrastructure availability,” says Sleiman. “Investments may be needed to get infrastructure readiness, essential to build an extensive network that allows consumers to meet their needs for convenience, speed and reliability in transferring money to cities, towns and villages across Africa.”
India, which received about $70 billion in remittances last year, has an established financial infrastructure, enabling a significant move from cash disbursement to bank accounts and resulting in reduction in remittance costs. “At UAE Exchange, remittances to bank accounts in India comprise 80 per cent of total remittances, as opposed to a few years ago when more than 60 per cent were cash disbursements,” says Manghat.
Cash disbursement is generally more expensive due to the added cost of maintaining liquid assets at the receiving end, in addition to the cost of insurance and security while handling cash.
Additionally, there is potential to drive down remittance costs further by ensuring that funds are transferred electronically to national ID instruments. Although not mandatory, India’s Aadhaar is a unique identification number that will serve as proof of identity and address, similar to the Emirates ID in the UAE. The government is working to enable financial transactions via the card to further financial inclusion. In time, it could be possible to remit money to the Aadhaar card.
Then there’s RuPay, a new card payment scheme launched by the National Payments Corporation of India. Once fully developed, it would work like any credit and debit card on the network and include the remittance options available for such products.
In Pakistan, the government is backing the Pakistan Remittance Initiative, a scheme whereby remittance to a bank account in Pakistan is free of charge, with the cost being borne by the country’s Central Bank. This move changed the entire dynamics of the industry, legalising funds that used to be transferred through the hawala system. It has enabled healthy growth in foreign exchange reserves, and Pakistan now receives around $17 billion in remittances, compared to $1.5 billion earlier.
India also recently announced plans to levy a service tax on the fee receiving banks charge overseas exchange houses, with the objective of reducing remittance costs. But there are concerns that this proposal could rebound, as banks will transfer the tax to MTOs, who may pass the customer.
“If governments want the cost of remittances to go down, they need to push banks to support the legitimate industry, while ensuring that all MTOs have adequate compliance structures and [are] committed to regulation,” says Trivedi.
His remarks also resonate in the context of the recent policy of de-risking being adopted by banks that are increasingly refusing to work with MTOs, and the possible adverse impact on the remittance industry.
Eventually, it all seems to come down to financial inclusion, and across developing countries, there is an increased focus on integrating the unbanked into the banking system, which, in turn, will drive down costs. Perhaps then, families of people like Rahman will receive the full value of remittances sent home.
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