The Indian village of Madhapar in Gujarat has a population of less than 15,000, but is ranked the wealthiest village in the country, with an average GDP of Dh43,800 per person. The residents' per capita bank deposits average Dh100,000, which by all accounts also makes it the richest village in Asia.
Astounding facts apart, what makes this dusty village wealthy are the huge foreign remittances made by erstwhile residents settled in Africa, the Gulf states, the UK and the US. About 65 per cent of non-resident Indians from the village — mainly Patels — live abroad and remit money to their families via deposits in nationalised banks and post offices. More importantly, they prefer to save their money in India. The ten banks with branches in the village account for nearly Rs900 crore (about Dh209 million) in deposits while post offices are estimated to save almost the same. The villagers tend to deposit money into post office accounts for two reasons — they consider them safer, and the accounts earn them more interest than the banks.
Every day, thousands of expatriates in the UAE and elsewhere send money to their home countries. The reasons may be diverse — investing in real estate, building a dream home, planning for emigration or relocation, paying into a pension plan or mortgage account, supporting family, or building a savings nest — but the goal is the same. Everyone wants the cheapest, safest, and quickest way of transferring these funds.
With multiple options and operators providing money transfer services, what makes one stand out above the rest? Is one method more preferred over the others? Are certain services more suitable to specific circumstances?
The World Bank provides an extremely useful online service on remittances, covering 212 country corridors around the world (remittanceprices.worldbank.org). This barometer includes 31 remittance-sending countries, and 90 remittance-receiving countries. According to the bank, remittance prices remain high for many reasons — underdeveloped financial infrastructure, limited competition, regulatory obstacles, lack of access to the banking sector, and difficulties to obtain necessary identification documents.
However, the most daunting factor is a lack of transparency in the market. "It is difficult for consumers to compare prices because there are several variables that make up remittance prices. Prices are frequently made up of a fee charged for sending a certain amount, a margin taken on the exchange rate when remittances are paid and received in different currencies, and, at times, a fee charged to the recipient of the funds. These fee components may also vary according to how the receiver is paid (in cash or by crediting an account), the speed of the transfer, and the ability of the sender to provide information about the recipient (bank account number)," the Bank explains.
In the UAE, with its mature remittance market, and long history of expatriates trying and testing multiple options, the determining factors are different. It is comfort, convenience and cost-effectiveness that seem to matter, and the market seems to provide everything in equal measure.
Physical wire transfer services remain one of the most popular methods to transfer money from a bank account in the UAE to a bank account or a cash office in another country. Details of the recipient's bank or the location code for a cash office are all that is needed to complete this electronic transfer. Like with most remittance services, charge fees are based on how quickly the money needs to be transferred. For example, Western Union's Money in Minutes service is more expensive than their Next Day transfer option.
Internet money transfer services are also fast gaining popularity, with better connectivity and improved online security. Funds can be transferred through third parties or through bank accounts to anyone with an e-mail account. Both banks and exchange houses typically charge a transaction fee for every transfer. There may also be a few days' delay for processing the transaction. But this portal is high on the convenience factor, helping people move money without having to leave the comfort of their desks.
Although it sounds archaic, many people still use money orders to transfer money to their home countries, especially to remote or rural areas where there are no banks, or where recipients do not have bank accounts. Money orders are usually provided by specialised firms such as MoneyGram and Western Union. The sender has to pay the firm a transfer fee. Money orders are much cheaper than wire transfers and online remittance services.
Unlike payments sent to individuals, bank drafts are mostly used to make payments to companies in other countries. While it is more expensive than other methods, it is still the preferred corporate route for money transfers on account of its added security and audit trail features. "The demand draft is one of the most popular ways of transferring money, irrespective of where you wish to transfer money," says Lulu International Exchange, which offers the service in multiple currencies.
Exchange houses such as UAE Exchange, Al Ansari Exchange, Al Rostamani Exchange, Al Fardan Exchange etc offer a bouquet of remittance services at competitive rates by leveraging global networks and linking up with firms such as Western Union and Xpress Money. Their collective services include demand drafts, electronic transfers, telegraphic transfers, packages in association with MasterCard and Coinstar Money Transfer, and some lesser-known services.
For example, Al Rostamani Exchange offers Mail Transfer, a bank transfer where the company prints a draft on behalf of a customer and couriers it to the beneficiary bank for crediting into the customer's account. UAE Exchange's Money2anywhere is an online remittance service with competitive exchange rates and quick processing. Special features include Interac Online for Canadian customers, and POLi, a new payment mode for Australian and New Zealand customers.
A few weeks ago, Xpress Money announced a flat fee of Dh15 for remittances of any denominations to India, overruling the company's earlier slab system of differential pricing based on the amount being transferred. "India is the largest ‘receive' market in the remittance industry. Similarly, the UAE is one of the largest ‘send' markets in the world, with a sizeable Indian population and with a clear need to send money back home," says Sudhesh Giriyan of Xpress Money Business, explaining that they had combined effective management of exchange rates with an affordable transfer fee.
Banks get competitive
Although banks have hitherto charged higher transaction fees and offered less favourable exchange rates for money transfers, many have lately made various attempts to capture market share by offering competitive products.
HSBC offers free remittances to HSBC accounts in Bangladesh, with funds that can be transferred within three to five working days. Citibank's current account allows account holders to transfer money through multiple access channels — phone, ATM, internet or bank branches to Pakistan.
Banks have also begun banking on the popularity of current trends. HSBC's FastClick allows customers to send money to India for free, using their Personal Internet Banking service, and transfers are effected in three days.
Sometimes, the best bet is a partnership between a bank and an exchange house. Earlier this year, in January, the Union Bank of India became the first public sector Indian bank to introduce Flash Remit to the UAE, in partnership with UAE Exchange. Branded Union FlashRemit, beneficiaries of this scheme receive money in their bank account in a secured manner, within minutes, while senders can expect an SMS confirmation within seconds of the account being credited. "Indian expatriate customers will experience a revolutionary improvement in turnaround time for account credit," said Dr B.R. Shetty, Managing Director of UAE Exchange, when launching the service.
Sharaf Exchange offers a Speed Remittance service to India, in association with HDFC Bank. The online money transfer service is one of the fastest modes of money transfer to India. Their International Exchange bank (iREMIT) is an online money transfer service for bank-to-bank, door-to-door remittances to the Philippines.
THE FACTBOX: Who moved the money?
The World Bank's Migration and Remittances Factbook contains a slew of amazing and even astounding facts. The latest edition, issued in December 2011, provides a snapshot of migration, skilled migration and remittances, and socio-economic characteristics for involved countries, regions and income groups involved.
• More than 215 million people live outside their countries of birth. This equals approximately 3 per cent of the world's population. Remittances, the money sent home by these migrants, are three times the size of official development assistance, and provide an important lifeline for millions of poor households.
• Global remittance flows, including those to high-income countries, were an estimated $483 billion (about Dh1.7 trillion) in 2011.
• Remittances to developing countries reached an estimated $ 351 billion in 2011, an increase of 8 per cent over the previous year.
• The top recipients of officially recorded remittances in 2011 were India ($58 billion), China ($57 billion), Mexico ($24 billion), and the Philippines ($23 billion). Other large recipients included Pakistan, Bangladesh, Nigeria, Vietnam, Egypt and Lebanon.
• Although remittances accounted for less than 5 per cent of India's GDP, it touched almost 20 per cent for many smaller economies.
• Despite the current global scenario, remittance flows are expected to continue growing, with global remittances expected to exceed $593 billion by 2014. Of this, $441 billion is expected to flow to developing countries.