Summary: This article describes the remittance phenomenon, taking the reader through various aspects associated with it.
Remittance refers to the money sent by an individual residing in a foreign location to his or her native land or other regions, to fulfil a personal or professional obligation. Inflow of remittances to a region is fuelled by individuals migrating to locations, outside or within their native country.
Significance of Remittance
Remittances have a positive impact on migrants’ economic status and indirectly help boost a nation’s economy. Remittances, in essence help reduce poverty, by raising income levels and standards of living. Increased income levels enable access to better health, education, and other facilities essential to improve quality of life.
In this context, the following statistics assume great importance in terms of growth and development: Over 215 million people reside in foreign countries and more than 700 million people move to other places within their native country, according to estimates by United Nations (UN), a global organisation working for international progress. The UN estimates that migrations are more likely to increase in the near future following reasons of growing population, globalisation, and changes in climatic conditions.
Types of Remittances
Remittances can be intra-regional, where money is sent to countries within a defined region (e.g. Asia Pacific, coastal countries, etc.); domestic, which involves money transfer within a country; and international where money is moved across different countries in the world.
Channels of Remittance
There are both legal and illegal channels available for senders to get their money reach desired destinations. Individuals sending money may decide on a remittance channel based on several factors, including:
- Availability of legal remittance channels
- Financial infrastructure landscape in the residing country
- Speed of money transfer through a remittance channel
- Costs involved in sending money to the destination
- Regulations surrounding the remittance process
Different Available Channels of Remittance
Some of the most common legal channels used by remitters to send money to a desired destination include:
Banks
Remitters can send money as an account transfer – crediting money to recipient’s bank account. Banks make use of their own global network, or establish partnerships with agents or other banks worldwide, to be able to facilitate international money transfers.
Money Transfer Companies
Remitters sending money, most often from foreign countries, use the services of a money transfer company. Money transfer companies use their global agent and bank network to transfer money to the destination. Agents can include post offices, and retail outlets (e.g. foreign money exchange centres, medical shops, grocery stores, etc.) whose customer segments are the same as that of the money transfer company.
Post Offices
Post offices, once predominantly used for domestic money transfers, have become an increasingly preferred channel for international remittances too. The ability of this channel to reach highly remote areas, such as rural localities in developing countries where technological access is difficult, raises convenience levels.
Telecommunication Companies -Mobile phone network companies offer remittance service in the form of airtime (airtime is the amount of talk-time spent by a mobile phone user) transfer to recipients. By sending airtime, the remitter is recharging the recipient’s mobile account.
Some mobile phone operators may offer remittance services only to devices operating under their network, while some operators offer delivery to any operator-based device.
Mobile transfers can also be money transfers, offered through SIM and mobile money scratch cards. In this type of remittance service, senders need to buy a customised SIM and scratch card to load funds into their mobile phones. They can then transfer money from this account by using their PIN numbers to authorise the transaction.
Other Remittance Channels
Many banks and money transfer companies also offer card transfer and online money transfer. In card transfers, remitters can send money to recipient’s debit or credit card directly. In online money transfer, senders can transfer money through a virtual account, to recipient’s bank account or to an authorised agent for subsequent collection by the recipient. While banks and many money transfer companies offer online remittance as one of their products, there are also specialist service providers such as Xoom and Money2anywhere.com.
Courier and transport companies too, offer remittance services, getting the money to the recipient through their branch or agent network. Senders typically visit the courier or transport company to make a payment. Recipients get to claim the money by visiting an authorised location, or as a home delivery (in the case of courier transfers), after identification validation.
There are also illegal money transfer channels used by remitters for several reasons including attractive exchange rates, speed and convenience, and lack of regulations. Absence of identification procedures makes this channel convenient for illegal migrants.
Hawala and Hundi are the most prevalent of illegal money transfer systems where money moves between brokers. Senders using any of these systems typically need to visit a Hawala or Hundi operator in their area and pay money.
Hundi system differs from Hawala in that there is a written agreement between the sender, Hundi operator, and the operator’s agent in the receiving country, to pay money to the recipient. Recipients under Hundi system get to receive money delivered to their door on the very day of remittance, which makes this system more appealing.
Available Remittance Reception Options
Advancement in technology has made remittance reception more convenient for receivers. The reception modes available vary from one remittance service provider to another. Recipients can claim money as:
- Bank account credit
- Cash payout from authorised agent locations
- Home delivery
- Direct transfers to debit or credit cards
With the UN predicting a possible increase in remittances in the future, one is more than likely to witness greater economic growth and more technological advancements in remittance transfer and delivery channels.
