remittance fees: Paying a price for sending money: The global impact of remittance fees and solutions

Barada Talukdar is a mud specialist in Kuwait Oil Company. He drives a Land Cruiser Prado to commute to his office, in the town of Al Ahmadi, five days a week. When he returns home, his cook from Bangladesh whips up Assamese dishes like masor tenga, a sour fish curry. After a decade in Kuwait, the 52-year-old drilling fluids expert from Assam enjoys a comfortable life.

Talukdar has downloaded the app of Al Mulla Exchange on his phone. He uses it to send money to his son studying in Australia, his wife living in Guwahati and, occasionally, to his relatives and acquaintances having financial hardship.

“When I send money, whether it is the Kuwaiti dinar (KWD) equivalent of Rs 3 lakh or Rs 3,000, the commission charged by the exchange remains the same—1 KWD or Rs 268- 269 per transaction. The more you remit in small tranches, the more you end up paying as fees,” he tells ET over the phone, adding that for blue-collar workers like his cook, the exchange rate fluctuations and commissions can be confusing and challenging. “My cook’s monthly income is 170 KWD. Setting aside 20-25 KWD for himself, he sends the rest to his mother, brother and other relatives. For every small transaction, he spends 1 KWD or about 356 Bangladeshi taka,” says Talukdar, requesting anonymity for the cook.

Over 1,000 km away from Kuwait, at the World Trade Organisation’s ministerial conference (MC13) in Abu Dhabi, New Delhi took up the issue of Talukdar, his cook and millions of others—exorbitant fees for crossborder remittances.

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In the run up to MC13, about 20 nations from Asia, Latin America and Africa had spoken in favour of India’s proposal to cut the cost of remittances. Among them, Nepal, Bangladesh and Sri Lanka officially endorsed it at the ministerial, according to an Indian official who negotiated in Abu Dhabi.

India’s proposal underscores the reality that 78% of global remittances ($669 billion out of $860 billion in 2023) are directed towards low- and middle-income countries. “We highlight that global average cost of sending remittances, though has declined over time, remains high at 6.18%— more than twice the SDG (Sustainable Development Goal) target, and the experience varies across countries and regions,” says a draft ministerial declaration, on facilitation of crossborder remittances, submitted by India to the 164-member world trade body. According to the UN’s SDG target, the cost of sending remittances should be brought down to 3% by 2030. New Delhi’s proposal, however, failed to make it to the final Abu Dhabi declaration.

NOT JUST FOR INDIANS

“India’s proposal to the WTO was not meant to help Indians alone. If the cost of sending remittances comes down, several countries in Latin America, Southeast Asia and our own neighbours like Nepal and Bangladesh will be major beneficiaries,” says an Indian officer who negotiated in WTO. “People from poor and middle-class families go abroad and work very hard to save some money. But when they send their earnings back home, they end up paying a lot as commission.”

Melvin Jose, a nurse in Oman, and her husband Jose Kurian, an MRI technician, send Rs 6-7 lakh every quarter to their families living in Muvattupuzha in Kerala. “We work very hard to save some money and send it home. The money is transferred through our NRE (NonResident External) accounts. Every time we send money, we end up paying 2.5 Omani riyals (about Rs 538 at current price) as transaction fee,” says Jose. The couple are trying to set aside money to send their daughter to Kerala for her higher education—and every riyal would count.

An NRE account is a bank account opened by a non-resident Indian (NRI) to transfer foreign earnings to India in rupees. All the deposits in this account are free from income tax. Indians living abroad can also open Non-Resident Ordinary (NRO) account, a savings account, to manage any income accrued in India. The interest earned in an NRO account is taxable.

Mustafa O Vazhayil, founder of Dubai-based insurance broking firm Gargash Insurance Services, landed in the Gulf city in 1972, when sending money through banking channels was both cumbersome and costly. “In the mid1970s, sending money through unofficial routes was cheaper and quicker. Remittances from Dubai to an Indian city through a bank used to take about 20 days. If it was sent through unofficial routes, it took just three days,” says Vazhayil, who is from Thalassery in Kerala.

“Today exchange companies are everywhere and are efficient. Indians mostly use their services to send money home,” he adds.

Krishnadas Menon, who is also working in Dubai, uses Abu Dhabiheadquartered Lulu Exchange to transfer money to his home in Palakkad, Kerala. “Exchange-rate fluctuations make a lot of difference,” says the 46-year-old working as a purchase officer in a local firm, adding that there are times when he receives an exchange rate of Rs 22.5 for a dirham though the conversion is generally in the range of Rs 17-20.

New Jersey-based IT engineer Samuel John, 53, sends about $1,500 (Rs 1.24 lakh) a month to Mumbai for his father’s medical expenses. Since 2015, he has been using the services of San Francisco-headquartered remittance provider Xoom Corporation, which is known for speedy bank transfers. The money would reach a bank in India within four hours. While it is efficient, there is a catch, says John. “The company advertises that it charges no transaction fee. But they will give you less money than the market rate, thereby taking their cut during currency exchange,” he says.

Many NRIs also send money to be invested in mutual funds and shares. Ajayya Kumar, who has been working in West Asia for the last three decades, regularly sends money to buy investment instruments. “I prefer transferring the money through Indian banks,” says Kumar, whose family lives in Thrissur, Kerala.

YOU, I & UPI

India has been aggressively pursuing the interoperability of Unified Payments Interface (UPI) with payments systems in foreign countries. (UPI is a real-time payment mode and interoperability would enable UPI-enabled platforms and banks to process transactions seamlessly.) Pankaj Bhuta, founder of chartered accountancy firm PR Bhuta and a specialist in the area of remittance, says if that happens, real-time crossborder payments would be easier and cheaper.

At the WTO, India said there was a need to promote “interoperability and interlinkages of digital payment infrastructure”, considering that the global average cost for digital remittances, at 4.84%, is way lower than the cost of non-digital transactions.

MIGRANT MONEY

Globally, India sends the highest number of migrants abroad—17.9 million in 2020, according to UN’s population division data—way ahead of Mexico (11.2 million), Russia (10.8 million) and China (10.5 million). India also remains the global leader in remittance inflows, according to the World Bank’s report on Migration and Development released in December. In 2023, India received $125 billion as remittances. Remittances contribute 3.4% of India’s gross domestic product (GDP), according to the World Bank.

In the country-wise share of inward remittances to India, the US (23%), UAE (18%) and the UK (6.8%) top the list, followed by Singapore, Saudi Arabia, Kuwait, Oman and Qatar, according to the RBI Remittances Survey, 2021. Maharashtra received 35.2% of total remittances, followed by Kerala (10.2%), Tamil Nadu (9.7%), Delhi (9.3%) and Karnataka (5.2%). “Notwithstanding headwinds of Covid-19, India’s inward remittances have proven to be a resilient source of current account receipts,” says the RBI survey, adding that remittances are the second major source of external financing for lowand middle-income countries. “In fact, remittances have exceeded foreign direct inflows in several countries, including India, Philippines, Pakistan and Bangladesh, accounting for about 3% of GDP in low-income and 1.6% of GDP in middle-income countries,” the report says.

Despite significant strides in the banking sector in facilitating swifter and safer transactions for NRIs, clandestine avenues like the hundi persist. UAE-based Sunil Kotian, who runs a transport company and hires drivers from India, Pakistan and Bangladesh, says many of his drivers prefer the hundi route to send money home. Hundi, a remittance-cum-credit instrument that has been prevalent for centuries, is described by the RBI as “an unconditional order in writing made by a person directing another to pay a certain sum of money to a person named in the order”. It is not a valid document. “Hundis, being a part of the informal system, have no legal status and are not covered under the Negotiable Instruments Act, 1881,” says an RBI note.

So, why do Kotian’s drivers trust this instrument to send their hard-earned money from Dubai? “It is simple. It acts as a mode of credit, too. Hundi operator will send the money, which a customer can repay with interest in three instalments,” says Kotian.