It is largely not known that Indian expats pay a whopping $68.97 billion as remittances to transfer their own hard money home. KARAN BENIWAL looks at the issue in detail

You stand at the departure gate of the IGI Airport, bidding farewell to your parents. Though they call the US the land of opportunities, one can’t help but prevent the sea of emotions that come to mind — the promises you’ve made to the family back home; the fear of starting a job in a new country. With a steady hand, you make it through the first six months. You couldn’t be happier. To share this joy, you decide to surprise your parents with a section of your pay. Let’s say a $1,000. You get online to TransferWire, a money transfer agent and hurriedly type the details of your new company credit card. But as you swipe your cursor across the screen to click on the final ‘send’, you get flummoxed at the sight of an unfamiliar note — a whopping $38.90 fee for your transfer.  

The amount of money being moved across international borders has risen hugely over recent years. While this is a direct consequence of globalisation; of businesses working increasingly with customers and clients overseas, a huge factor to this is economic migration.  According to a 2018 report by the World Bank, globally, an astonishing $689 billion were sent by expat workers to their home countries. 

Among these, India leads the chart with the highest number of remittance inflow, topping at $68.97 billion, a major 11.8 per cent of the world. “As more and more Indians have decided to relocate and work abroad, the amount of money sent back home has risen significantly,” says Sunil Kumar, an investment banker and a financial analyst. 

Kumar says this inflow has been extremely beneficial to India and our GDP. “These remittance inflows constitute about 2.8 per cent of our national GDP. This number is the highest in the world,” he tells you.

This high rate helped India post the 2009-10 financial crisis, where the inflow helped cover up the nearly 45 per cent merchandise trade deficit of our country. “During that fiscal year, India received $69.6 billion worth of remittances, while it received only $21.5 billion as its Foreign  Direct Investment (FDI). If it were not for the remittances, India’s current account deficit would have swelled to 5.1 per cent of GDP,” Kumar explains.  

However, while these remittances have helped the nation, individually, the immigrants have suffered. Out of the total $68.97 billion remittance inflow, Indians lost a total of $2.35 billion in just remittance fees — the commission money transfer agents and banks charge as service fees, along with the stipulated cost decided by governments for cross-border transfers.  

Nitin Verma, an NRI residing in Canada, regularly sends money to his mother. “We had moved to Canada with my family about three years back. Since then, sending money every month home is the usual thing.” In the initial years, Verma had mobilised the funds through money transfer agents, but with the growing age of his mother, reluctantly shifted to the online transfers directly between bank accounts. He said: “We were finding the cheapest ways to send the money home. For the first two years, money agents worked out the best for us as they were the cheapest option. My mother could walk up to any nearby Western Union store and collect the money. They usually charged about CAD$7. But, this year, we had to resort to the much costlier way of sending money directly to her bank account. This method, while costing us a lot, is the most convenient for her at this stage.”

While there are some who can take a hit on their banks with this process fees, Rohit Saran, executive editor of the Times of India, reminds us that “not all immigrants are rich.” He added that a majority of these expat workers don’t have the hefty bank accounts that provide them benefits against high remittance costs. 

Adesh Singh, for example, is currently in New Zealand, completing his studies to become a doctor. “While I’m pursuing my degree, I’ve been doing odd jobs to make a living. Even with a small budget, I make sure some of the money goes back to my family in Kerala. But, I am always caught on the high fees. Even for small amounts, as little as $150, I am stuck paying around $12 just as transfer fees. This begins to pile up as the money goes out every week,” Singh says. 

As Editor of Khaleej Times in Dubai, Saran sent money back home to India. This money transfer, due to his privilege account with ICICI Bank, cost him a fraction of the usual transaction fees. “But these benefits are only for the credit card holders that can maintain a big balance. Banking, in every sense, is the same as any other market; they are out to make profits. And these banks and money agents look to make a lot of profits off these transfers,” he tells you.

This is true. Remittances are a very profitable business for large operators. According to their yearly financial data published online, Western Union completed 268 million customer-to-customer transfers in 2016, with a value of $80 billion. With total revenue for the year exceeded $5 billion, the net profits of the company surpassed $250 million. While money agents put the blame of high remittance fees on the high service tax charged by Governments, for banks, these high prices are a direct result of the additional cost incurred on them to meet the Know Your Customer (KYC) standards the Government expects banks to maintain.

Saran says that the route of the future is constructing a mass-based crypto-currency model that is more affordable. He feels that Bitcoins are too expensive for the masses in India and pointed towards more efforts by the global communities in launching new options.

“In January this year, American universities MIT, Stanford and UC Berkley came together to develop a mass crypto-currency. Even the International Monetary Fund is looking to back new crypto-currencies,” he says.

All in all, whether you need to pay a one-off remittance, or you're an overseas worker regularly sending cash home to your loved ones, it’s worth understanding how remittances work, and what the world is doing to change that. In the near future, you might find that there’s a way to move your money safely and quickly, and with almost no fees. That way, more of your hard-earned cash gets to where you want it — and less is eaten up by bank or transfer service fees.  

Figuratively speaking

• Indian residents of the UAE accounted for 34.2 per cent of total remittances in the fourth quarter of  2018, which amounts for Dh39.9 billion, according to the Central Bank of the UAE. Money sent back home in the last quarter of 2018 was 7.7 per cent down against the same period in 2017, according to Central Bank data published on the state-run news agency Wam.
• Indian residents of the UAE accounted for 34.2 per cent of total remittances in the fourth quarter of  2018, which amounts for Dh39.9 billion, according to the Central Bank of the UAE. Money sent back home in the last quarter of 2018 was 7.7 per cent down against the same period in 2017, according to Central Bank data published on the state-run news agency Wam.
• Trailing India was Pakistan, where beneficiaries received 9.4 per cent of total remittances from the UAE. The Philippines was the third country with 7.2 per cent.
• The US was the fourth recipient with 5.9 per cent of total remittances, followed by Egyptians with 5.5 per cent.
• Globally, sending remittances costs an average of 7.01 per cent of the amount sent, according to the World Bank.
• According to the organisation, the cheapest way to fund a remittance transaction globally in the fourth quarter of last year was Mobile Money at 4.9 per cent. The average cost when using a debit or credit card was 6.13 per cent. Sending money using cash cost 7.012 per cent, while funding the transaction using a bank account incurred an average cost of 7.11 per cent.
• Worldwide, an estimated $625 billion was sent by migrants to individuals in their home countries in 2017, a 7% increase from 2016, when the amount was $586 billion, according to economists at the World Bank. This increase follows two consecutive years of decline.
• Tracking remittance payments worldwide is difficult because many countries do not track funds that are sent or received. Based on data the World Bank is able to collect, a statistical model is used to estimate the amount of money coming from each sending country to each receiving country.
• Inward remittances edged up 10.28 per cent year-on-year to $11.87 billion in nine months to March this year thanks to the steady depreciation of taka against dollar.
• Majority of the banks have taken steps to boost foreign exchanges because of their higher import payments than export earnings, bankers said.
• In recent months, many banks offered between Tk 86 and Tk 87 per dollar to encourage remitters to send money through foreign exchange houses, an official of a commercial bank said.
• The BC selling rate, which is used for import payments and has put a positive impact on the inflow, hovered between Tk 84.20 and Tk 84.30 per dollar last month. A year ago, it was between Tk 82.95 and Tk 83. The inter-bank exchange rate stood at Tk 84.25 on March 30, up from Tk 82.96 a year earlier.Trailing India was Pakistan, where beneficiaries received 9.4 per cent of total remittances from the UAE. The Philippines was the third country with 7.2 per cent.
• The US was the fourth recipient with 5.9 per cent of total remittances, followed by Egyptians with 5.5 per cent.
• Globally, sending remittances costs an average of 7.01 per cent of the amount sent, according to the World Bank.
• According to the organisation, the cheapest way to fund a remittance transaction globally in the fourth quarter of last year was Mobile Money at 4.9 per cent. The average cost when using a debit or credit card was 6.13 per cent. Sending money using cash cost 7.012 per cent, while funding the transaction using a bank account incurred an average cost of 7.11 per cent.
• Worldwide, an estimated $625 billion was sent by migrants to individuals in their home countries in 2017, a 7% increase from 2016, when the amount was $586 billion, according to economists at the World Bank. This increase follows two consecutive years of decline.
• Tracking remittance payments worldwide is difficult because many countries do not track funds that are sent or received. Based on data the World Bank is able to collect, a statistical model is used to estimate the amount of money coming from each sending country to each receiving country.
• Inward remittances edged up 10.28 per cent year-on-year to $11.87 billion in nine months to March this year thanks to the steady depreciation of taka against dollar.
• Majority of the banks have taken steps to boost foreign exchanges because of their higher import payments than export earnings, bankers said.
• In recent months, many banks offered between Tk 86 and Tk 87 per dollar to encourage remitters to send money through foreign exchange houses, an official of a commercial bank said.
• The BC selling rate, which is used for import payments and has put a positive impact on the inflow, hovered between Tk 84.20 and Tk 84.30 per dollar last month. A year ago, it was between Tk 82.95 and Tk 83. The inter-bank exchange rate stood at Tk 84.25 on March 30, up from Tk 82.96 a year earlier.