Monday, January 9, 2012

The remittance market in India:opportunities,challenges,and policy options

Millions of migrants worldwide send billions of dollars in remittances each year to their families or communities of origin. In many developing countries, remittances are an important source of family and national income and also are the largest source of external financing. Remittances are better targeted at the needs of the poor than foreign aid or foreign direct investment (FDI), as recipients often depend on remittances to cover daily living expenses, to provide a cushion against emergencies, or to make small investments in business or education. Therefore, remittance services should be safe, efficient, and reliable. This can be achieved by increasing competition, enhancing access to payment system infrastructure, improving transparency, and ensuring a sound and predictable legal and regulatory framework.

With an estimated US$49 billion in remittance inflows in 2009, India is the world’s foremost remittance destination. The size and potential impact of these inflows is large. Despite substantial progress over the past 15 years, the provision of accessible, efficient, safe, and cost-effective remittance services in India could be improved. This report undertakes a broad, detailed diagnostic of the Indian remittance market and analyze its characteristics based on the General Principles for International Remittance Services (GPs). It identifies some of the key actions and public policy

measures (especially in the areas of consumer protection, transparency, retail payments, competition, and risk management) for the improvement and future development of this market that would make it more contestable, transparent, accessible, and sound. Migration from India Understanding migration patterns and characteristics of migrants is crucial for identifying important remittance channels and designing policy interventions to enhance the remittance market. According to the Ministry of Overseas Indian Affairs (MOIA), India has the second largest Diaspora in the world, with around 25 million people living in
some 110 countries. Overseas Indians are divided into Nonresident Indians (NRIs) and People of Indian Origin (PIOs). Migration from India has had three distinct phases: (a) early migration of unskilled labor to work on mines and plantations in British colonies, (b) the late- 20th-century migration of unskilled and semiskilled workers to Gulf countries, and (c) the recent migration of high-skilled professional workers to industrial countries.

In chapter one, this report maps the patterns and characteristics of migration flows from India; in chapter two, it provides a detailed discussion of remittance flows to India in terms of their importance, sources, uses, trends, costs, and links to financial access.

In chapter three, the report describes the remittance market (the players, the regulatory framework, as well as the existing operational schemes), setting the stage for chapter four, which presents a diagnostic of the remittance market based on the General Principles for International Remittance Services (GPs). The diagnostic covers the legal and regulatory framework, payment system infrastructure, market transparency and level of consumer protection, market structure, level of competition among remittance service providers, as well as market governance.

It analyzes the existing situation in India and provides detailed recommendations (including lessons learned from international best practices) that are aimed at increasing competition in the remittance industry, providing broader access to payment system infrastructure, enhancing transparency, and ensuring a sound and predictable legal and regulatory framework. Several of the actions could set a basis for leveraging remittances to achieve other important public policy goals such as broadening financial access, expanding financial inclusion, and both strengthening and deepening the financial sector.

The report was prepared through (a) background research (data research and mining, literature review, collection of relevant material and information, and background research), (b) a field visit in 2009 (a team of experts visited India and conducted interviews and focus groups with all relevant stakeholders and major institutions active in the remittance market), and (c) surveys of both the authorities and the market players.

World Bank .Author: Afram, Gabi G.Document Date: 2012/01/01.Document Type: Publication. Report Number: 66235

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