Formal channels of money transfer play a key role in supporting migration of people around the world. Along with the tremendous growth in migration in recent times, there has been a corresponding boom in remittance services provided by both government banks and non-banking financial institutions.
Today, expats have various options to send money to their friends and families back home. From cash transfers to mobile wallets, the remittance industry – like any other industry – relies on innovation to provide maximum value to its customers.
What is a remittance?
When those working abroad send money back home to their families or friends, it is referred to as a ‘remittance’. This can be of two types:
1. Foreign outward remittance: The transfer of money by a resident from the domestic country to a beneficiary staying in a foreign country.
2. Foreign inward remittance: The transfer of money by a resident working in a foreign country, back to their home country.
The year 2018 saw global remittance at an all-time high of USD 689 billion. In fact, India topped the list of global remittance recipients with transfers amounting to USD 79 billion, followed by China at USD 67 billion.
What are remittance regulations?
Just as in any other industry, the international transfer of money also functions under specific rules. Remittance regulations play a very significant part when it comes to operations and innovation in the global remittance industry. In more ways than one, remittance regulations are the backbone of international money transfers.
Money transfer operators need to align their business to local laws of the regions they operate in. Expanding or setting up shop in a new country is often considered a challenging task, as every country may have its unique set of international money transfer regulations.
Let’s look at the remittance regulations of some Asian countries to understand how different countries can be in terms of local laws and rules for setting up and running remittance and e-money operations.
The Philippines
The Philippines has a reasonably open regulatory environment when it comes to remittances. Non-banks can get a wallet license easily; all they need to do is register themselves as a company in the business of e-money. Non-banks are also allowed to conduct international remittances through mobile wallets.
Malaysia
Non-banks can offer remittances as well as mobile money services in the country. The minimum paid-up capital for remittance licensing is MYR 2,000,000 (approximately USD 500,000).
Indonesia
The country’s international money transfer regulations are quite comprehensive and open. Non-banks can easily venture into remittance by registering as a local company. Remittance through mobile wallets is also allowed.
Bangladesh
Only banks can carry out international remittances and mobile money operations. Non-banks can only partner with banks for disbursement of remittances. However, banks can select network agents, and no specific licence is required for being an agent for a bank.
The United Arab Emirates (UAE)
Non-banks with a paid-up capital of over AED 50 million (Approximately USD 13.6 million) can apply for a remittance licence in the UAE. The UAE’s Central Bank also allowed a non-bank (UAE Exchange) to provide online money transfer services to its customers.
Kingdom of Saudi Arabia (KSA)
Non-banks can apply for a remittance license in Saudi Arabia with a minimum paid-up capital of SAR 500,000 (Approximately USD 134,000). The country’s international money transfer regulations mandate only banks to carry out e-money services in the country.
China
In China, remittance is a bank-driven industry. Non-banks can only act as overseas principals; they need to partner with a bank for remittance disbursements. However, non-banks can get a licence for e-money for person-to-person payments (P2P transfers) via mobile phones.
India
As per India’s Money Transfer Service Scheme (MTSS), non-banks in the country can offer remittance services. They can also launch mobile wallets, but are not allowed to perform international remittances through mobile without a banking partner. Additionally, the Reserve Bank of India (RBI) introduced a remittance scheme in 2004 to monitor the flow of money into the country. Let’s take a look at the specifics in the Indian context:
What is remittance under the Liberalised Remittance Scheme?
The Liberalised Remittance Scheme (LRS) functions under the RBI, where Indian residents can transfer up to a certain amount of money to their friends or families living abroad, in a given financial year. The following transactions are allowed under the scheme:
- Remitters can open an account in a foreign country.
- They can purchase properties and make investments in another country.
- They can establish wholly owned subsidiaries or joint ventures abroad.
- Loans in Indian currency (INR) can be extended to Non-Resident Indians (NRIs) who are the remitter’s relatives as per the Companies Act of 2013 subject to specific conditions.
What is the limit under the Liberalised Remittance Scheme?
As per the RBI guidelines, an Indian resident can transfer up to USD 250,000 in a financial year via authorised dealers. The remittance amount can be used for education, healthcare, travel, donations, or invested in shares and properties.
However, it cannot be traded in foreign exchange markets or be used to purchase foreign currency convertible bonds issued by Indian companies working outside the country.
Who is eligible for the Liberalised Remittance Scheme?
All Indian residents are eligible for the Liberalised Remittance Scheme. To avail of the scheme, remitters are required to submit the following documents:
- Copy of PAN card
- Duly filled form A2 (this can be found on the RBI website)
In the case of minors, form A2 has to be filled in by a parent or guardian. The scheme is only open to individuals and does not include corporate companies, partnership firms, trusts, Hindu Undivided Family (HUF) enterprises, etc.
Conclusion
Regulations play a very important role in safeguarding the interest of expats who send money back home and the recipients of these funds. But it is important for governments to be proactive, especially in the wake of recent technological trends that are reshaping the remittance landscape.
Remitters, on the other hand, must educate themselves on international money transfer regulations and not think of them as a challenge or roadblock. They must be well aware of the benefits and limits offered by their domestic country and always follow legal and authorised channels while transferring money.
Also Read: Importance of Compliance in the Remittance Industry
