Domestic Remittance Market
The domestic remittance market is growing at a faster pace with the help of organised money transfer channels, mobile money transfer and business correspondents (BCs) of banks.
Nearly 100 million migrants have travelled to Tier-I cities in search of jobs. This results in the overall domestic remittance market growing at an average rate of 10.3 per cent during 2007-13.
Remittances from migrant workers contribute more than 50 per cent to the overall domestic remittances market.
Traditionally, a migrant worker can transfer money by visiting a post office, or depositing the money in bank branches, or handing over the money to friends/families who are travelling back home.
At present, migrant labours prefer to send money through instant money transfer products compared to the bank route, NEFT (National Electronic Funds Transfer), because of the efficiency and convenience the products offer. Through these channels, a migrant labour can make transactions at his convenience at an agent located near his home.
The Domestic Money Transfer is a service launched by the Reserve Bank of India. The RBI allows banks to create their own merchant outlets or enable their partner company’s merchants to facilitate general public with money transfer service.
The service offers to transfer or deposit money in bank accounts by simply visiting the local mobile shop, kirana stores, and chemist outlets etc. These merchants are registered either with a master bank correspondent or prepaid instrument issuer company.
Customers can deposit or transfer Rs. 25000 in a month to their own or others accounts. This service is widely used by the migrants working in the metro cities and those who send money to their families and businesses on regular basis.
The service felicitates the customers and eases the banks in terms of managing their customers in the decentralized way and giving the liberty to perform transactions even after “bank timings”.
Benefits of Domestic Remittances
• Increased domestic remittances have a positive impact on the nation’s economic growth.
• Domestic remittances also eliminate difficulties associated with credit rationing.
• These remittances finance needs for consumption or capital expenditures.
• On a macroeconomic level, raising the total capacity of financing of investments through domestic remittances will improve the local economic situation.
• Domestic remittances can also provide support in counter-cyclic conditions when when local market situations are not favourable.
Demonetisation and Domestic Remittance Market
On 8 November 2016, the Government of India announced the demonetisation of all Rs.500 and Rs.1,000 banknotes of the Mahatma Gandhi Series. The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism. The sudden nature of the announcement and the prolonged cash shortages in the weeks that followed created significant disruption throughout the economy, threatening economic output.
The Specified Bank Notes (Cessation of Liabilities) Ordinance, 2016 was issued by the Government of India on 28 December 2016, ceasing the liability of the government for the banned bank notes.
This has impacted the firms associated with movement of domestic remittances.
Effects of demonetization on remittance business:
• Firms related to remittance movement have a Prepaid Payments Instruments (PPI) licence from the Reserve Bank of India (RBI) and act as business correspondents (BCs) for banks.
• They set up their “money transfer counters” in kirana stores, medical shops, and mobile recharge outlets.
• Their software platforms and logistics systems for cash collection facilitate domestic remittances that are paid in the form of cash by the remitter and deposited in the bank account of the beneficiary.
• Operating with relaxed KYC (know your customer) norms, they channelize small-value remittances with a limit of Rs.5,000 per transaction and a monthly cap of Rs.25,000 per remitter.
• Thus, these firms belong to an intermediate zone between the fully cash-based courier system and the entirely digital systems of a bank-to-bank transfer or a mobile-wallet transaction.
• Before demonetisation, Rs.4,000 crore per month was remitted through this channel.
After demonetization, a big drop in the business numbers has been recognized across the country. The current trend shows a downfall of 60% of total business.
• Shortfall of valid currency notes in the market has stopped remittance transactions.
• RBIs instructions to the industry of not accepting the Old Currency Notes.
• There could be some regular people enjoying the service to convert their illegal money into white. After demonetization, it has been stopped.
• Businesses with cash transactions are almost stopped; people are not paying each others, not accepting payments.
• The number of “Wallet to bank transfer” transactions using multiple mobile apps has increased.
• Banks have started promoting UPI and other modes and mobilizing public to do fund transfer using their mobiles.
• To enjoy the high session, some wallet companies have waived off the transaction changes on money transfer.
• “Switching” charges are officially waived off.
The failure of incomes in the informal sector to recover to the levels they would have reached without demonetisation appears to be an important factor for the weakness in the business correspondents (BC) remittances market. Steps need to be taken to reduce the impact of demonetization on remittance sector.