Introduction: The Global
Remittance Market has been valued to be at approximately USD 600
Billion based on Market Research Reports
for Remittance. The market has had a growth rate of about 4.5% between 2012
and 2017 due to increasing reliance on remittance amounts in low and middle
income countries. Close to 70% of the remittance amount transferred is used for
the basic expenses of the recipient families in developing economies. The
increasing reliance of remittance has caused a growth in the contribution of
remittance to the GDP of emerging economies with countries like the
Philippines, Senegal and Guatemala having remittance amounts which exceed 10%
of the GDP. The issue is that in developing economies there is high importance
that the cost of remittance be as low as possible
Global
Scenario: While the global cost of remittance has gone
down from roughly 9.8% in 2000 to about 7.3% in 2017, the cost of transferring
money to developing nations has tripled since 2000 and has become 5 times what
it was in 1990. This increase in cost cannot be sustained by developing
countries. The basic cost of transferring USD 100 ranges from anywhere between
USD 1.2 to USD 34. In the case of developing markets where every cent counts,
this causes major financial distress. The cost of sending money in 2017 has
been calculated at USD 30 Billion for global money transfers. This amount is
the entirety of non military foreign aid provided by the US for the year 2017.
There have been repeated meetings describing initiatives from the G8 countries
to bring the cost of remittance to below 5% of the total cost but they’re not
even halfway there. The costs play such an exponential role in the loss of
finance that a reduction of 5 % points could lead to savings of about USD 16
Billion.
Market
Scenario:
On the whole, the cost of remittances has remained stable in most regions. At
an average of 5.31%, Southeast Asia was the cheapest region to send money to,
whereas Sub-Saharan Africa was quite a bit more expensive at 9.48%. Eastern
Europe and Central Asia has also stayed fairly constant at 6.3%. The one region
which recorded an increase is the Middle East and North Africa, jumping to
7.63% in the fourth quarter of 2016 from just over 7% in the previous quarter.
The Global Average remained stable at 7.45 percent in 2017, compared to the
7.40 percent recorded in 2016. This is the same figure recorded for this Index
in 2016. Banks still remain the most
expensive Remittance Service Provider. Although there is not much of an issue
for outbound remittance in the G20 countries, with the majority of the
countries having a rate of less than 10%, excluding China, inbound remittance
charges are significantly high and are the highest in the African regions. The
average cost of outbound remittance as a % of the amount transferred for the
major G20 countries is given below:
Brazil -6.98%,India-6.14%China
-10.26%,Indonesia -7.84%,Mexico-4.85%,Turkey -7.62%,South Africa – 7.56%.
While the cost for outbound remittance is not
high in any of the above countries, the cost of sending to developing countries
in Africa is extremely high with highest inbound remittance rates: South
Africa-17.70%, Ghana -16.65%, Tanzania-18.41%, Nigeria -21.39%, Angola -23.02%
with key players in the remittance market being PayPal Holdings Inc., Western
Union, MoneyGram International and Euronet.
Conclusion: remittance based money transfer works
for the developing nations as there is a steady source of foreign income. The
increased strength of the foreign currency usually allows for an adequate
amount of local currency to be withdrawn but the global foreign exchange
volatility combined with the number of intermediaries have led to costs for
money transfer staying consistently high. There is an emerging need for low
cost money transfer services which minimize the cut taken away by
intermediaries thereby lowering the cost of remittance to developing economies
as much as possible. The high rates of inbound remittance in African and the
few vulnerable Asian nations is skewing the global average and is the major
cause for the lack of reduction of remittance rates globally. Understanding how
to address this issue could help in increasing the value of the remittance
market, saving money and boost the economy for low income nations
For more information, click on the
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Contact Us:
Ken
Research
Ankur
Gupta, Head Marketing & Communications
0124-4230204
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