The UAE’s largely expatriate employees remitted 11 per cent more dirhams in 2010 that they did in 2009, official data shows. According to the Central Bank of UAE’s annual report, employees’ transfers abroad (remittances) increased from Dh35b in 2009 to Dh38.8b in 2010, an increase of 10.8 per cent.
One reason for the growth in outward remittances during a year that saw continued uncertainty amid job losses and no noteworthy salary-hikes for employees in the country could be the slide of the US dollar (to which the dirham is pegged) against some of the other major currencies, including those that are major receivers of remittances.
A decline in the dollar against one’s target currency means that one would have to send more dollars (read: dirhams) to remit the same amount of home currency.
While the US dollar fell 7.2 per cent against the New Zealand dollar, a massive 14.7 per cent against the Japanese yen and 14.1 per cent against the Aussie dollar during 2010, it also fell a more modest 4.3 per cent against the Indian rupee and 6 per cent against the Philippines peso, arguably the two biggest receivers of UAE remittances.
India is the largest recipient of remittances in the world, receiving $49b annually and $6.2b, or 12 per cent of that amount, comes from the UAE, a Standard Chartered Bank report said last month. The flow of funds from the UAE to India is one of the most important corridors flowing to India.
According to a MasterCard report, the booming global remittances market provides banks with an opportunity to capitalise on their strengths in global payments and harness new banking products and technology.
“This is true whether they decide to compete against money transfer organisations (MTOs) and exchange houses in banked-to-banked transactions or partner with them on the sending side,” the MasterCard report said.
“By leveraging Internet service and distribution capabilities, the low-cost infrastructure afforded by reloadable prepaid cards and mobile technologies, as well as their access to superior foreign exchange rates, banks can gain share,” it added.
According to it, “in the UAE-India corridor, two major types of remittance providers compete with banks for consumers’ business: MTOs or exchange houses (which partner with a variety of MTOs) and hawala.”
The report highlights that there are over 100 MTOs operating in the UAE, with vast differences in size, service, and pricing. “The largest players, such as Western Union, tend to be the most reliable but also the most costly. Other providers compete on price, but with lower reliability and more limited options,” it says.
“While banks in India receive fully 75 per cent of remittances, on the UAE sender side, MTOs are the dominant provider. Blue-collar workers, who make up between 65 and 70 per cent of Indians in the UAE, mainly remit from MTOs to bank accounts in India,” the report said. According to MasterCard estimates, hawala makes up 20 to 25 per cent of the market.
While hawala boasts a superior delivery network and no taxes, they are also illegal and do not comply with foreign exchange requirements, the MasterCard report warns.
The report further shows that blue-collared Indian workers send an average of Dh2,000 per remittance, suggesting that they tend to accumulate their monthly requirements and send it in bulk. Some of the small remittances could attract as much as 12 per cent of the remitted amount in fees and foreign exchange charges, the study shows.
White-collared Indians, on the other hand, send Dh4,000 per remittance, the MasterCard report said, and the highest fees that such an amount is charged is 3.37 per cent of the remitted money. “An analysis of various pricing schemes shows that current bank pricing clearly favors white-collar workers with high-value remittance needs,” the credit cards issuer said in its report.
“By moving consumers who do not require high-value services to online channels or alternative products, banks can reduce these pricing discrepancies while maintaining the exclusivity of the branch,” it added.
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