Executive Summary
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The money sent by immigrant workers to their families living
in their native countries is termed as a remittance. Remittances are important
and stable sources of funds that help developing countries maintain a favorable
balance of payments position. India, China, Mexico, and Philippines are among
the top receivers of remittance flows in the world. The United States of
America, Saudi Arabia, Germany, and Switzerland are the major sources of
remittances.
Remittances are carried out through both formal channels and informal money
transfer systems. This report discusses the various channels of cross-border
money transfer and gives brief profiles of the major institutions that provide
money transfer services to India. It also outlines the issues related to
informal money transfer systems. |
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Formal channels include banks and money transfer
companies like Western Union (a subsidiary of First Data Corp.) and
MoneyGram. The advent of the Internet and vast advances in
communications technology has spawned the growth of ‘new age
remittance services’ like money transfer websites and use of
remittance cards. Even banks have embraced technology to set up
online money transfer services. These transfers are fast, easy, and
economical.
Convenience and online tracking status are other major benefits.
However, these systems have a higher cost attached to them. This may
put these services out of the reach of low income groups who form a
major portion of the immigrant population. E-mail frauds and fake
websites are also a cause for concern.
Informal money transfer systems have been popular among emigrants
and expatriates as they cost less and are perceived to be efficient
and reliable. Due to the absence of proper records, informal
channels have become the preferred route for money laundering and
funding of terrorist activities. It would be desirable for
regulatory authorities to encourage remittance flows through formal
systems by reducing transfer/transaction costs and facilitating
better accessibility. Given the rapid rise in remittance flows,
regulatory authorities need to ensure a balance between facilitation
and regulation of remittance flows.
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