The flow of remittance in Colombo Process Member States (CPMS) countries

Foreign workers make most remittances to family members in their home countries. This term derives its origins from the word remit, which means to send back. In macro-economics terms, remittances have the potential to promote the national payments infrastructure and extend financial inclusion. Remittances also contribute to entrepreneurial activities and productive investment.

This article will cover the Colombo Process Member States (CPMS), including Afghanistan, Bangladesh, Cambodia, China, India, Indonesia, Nepal, Pakistan, the Philippines, Sri Lanka, Thailand, and Vietnam. And the remittance trends of some of the major economies of this region.

Three of the top receivers of Remittances globally, namely, India, China and the Philippines, hails from this group. Hence the trends followed in these countries are a matter of keen interest for the international money transfer stakeholders.

Main corridors in CPMS

Significant overlap exists between sending countries to CPMS. The large sender countries are the United States, Saudi Arabia and the United Arab Emirates. The United States is the highest sender as it remits 21 per cent of all formal remittances to CPMS, followed by Saudi Arabia and the United Arab Emirates.

Outbound remittances from CPMS

CPMS are not only receivers; however, they contribute as global senders as well. According to a survey, India accounts for USD 5.7 billion in remittances, while Nepal and Thailand send roughly USD 3 billion each year.

The sender group in CPMS comprises mainly Parents who have their kids pursuing higher education abroad. Where-in, some people who shifted abroad to start a new business receive initial support from their relatives. Thus the support from families in monetary value is observed in remittance values.

Informal versus formal remittance flows into CPMS

Although CPMS receive some of the highest values of formal remittances globally, the prevalence of informal remittances is also notable in the region. Thailand estimates that 87% of its inbound remittances are through unregulated channels. At the same time, Bangladesh receives 70% of its remittances through informal channels. Within the CPMS region, Vietnam has the lowest estimated volume receipts of illegal remittances, standing at 25 per cent. It is significantly lesser when compared to other CPMS. Few economists stated that total remittances into CPMS could be worth over USD350 billion per annum based on these assessments.

Hence informal remittance includes

• Family or friends physically carry cash home with them. Whilst the benefits to this course eliminates transfer fees however contains high risks. Further, the distance covered by family or friends to transfer funds to the recipient destination takes time compared to sending money through a formal channel.

• Remittances paid in kind are physical goods, such as whiteware sent to the home country. These items are cheaper in the host country, leading to effectively moving value in some markets. However, it is not a flexible and non-long- term solution for sending money.

• Likewise, in the family and friends method, mules physically carry cash across the border with them. The difference is that a mule is not related to the sender or receiver and will transport the money for a fee. Therefore heightens the risk of theft.

• Within many of the CPMS, there is a long-standing culture for using informal remittance service providers. Such service providers are not in the ambit of the regulators and present a credible threat to Anti-Money-Laundering efforts.

India and China take first and second position in the inbound remittance receivers list. Expats residing in host countries have adapted and learned the benefits of remittances through the regulated channels.

However, currently, digitalisation is the new trend that is improving the business model of money transfer operators. This development is encouraging more inclusion of senders to regulated remittance platforms.

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Reading time 3:00 Minutes

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