Migrant Remittances: Size and Channels of Money Transfer among Oriya Workers in Surat City

1
Migrant Remittances Size and Channels of Money
Transfer among Oriya Workers in Surat City

• By
• Gagan Bihari Sahu
• Biswaroop Das
• Centre for Social Studies, Surat 395 007

2
What is remittance?

• Funds sent back home to families by migrants.
• Livelihood systems in parts of the countryside
  indeed depend frequently on such remittances.

3
What does the literature say?

• A large volume of literature exists on issues
  pertaining to amount of remittances through
  cross-border migration, money transfer systems
  and impact of such remittances at the native end.
• Most of these remittances are realized through
  informal channels without involvement of formal
  agencies like banks, credit unions and thrift
  institutions.
• Micro-level studies in developing countries like
  Pakistan, Philippines etc., have shown only
  around half of the remittances are transferred
  through formal channels.

4

• Some remitters avoid formal channels simply
  because they are unbanked or lack of access to
  transaction accounts in mainstream financial
  institutions.
• Elsewhere, it is argued that as formal channels
  remain inaccessible for a variety of economic,
  institutional and social reasons, most of them
  depend and relay on the informal money transfer
  systems.
• Most current research focuses on transfers
  through cross-border migration or from developed
  to developing countries. There is however, a
  dearth empirical studies dealing with domestic
  money remittance.

5
Issues

• Since a large number of rural poor tend to
  migrate to destinations closer to home or urban
  centers within the same country, even if the
  amounts of domestic transfers is smaller than
  international transfers, domestic remittances are
  more numerous and flow to many more households.
• The money transfer networks within the developing
  countries are often more limited than
  international networks due to an underdeveloped
  payments infrastructure and/or lack of transfer
  providers.
• These point to an important question as to how
  does the remittance market function?
• In case of India, the debate over the channels of
  money transfer and the impact thereof on the poor
  migrants continues at a general level without
  much data to support it.

6
Objectives

• Factors determining the remittance behaviour
• Channels and modalities associated with money
  remittances
• Reasons of migrants discontinuing or never using
  formal channels for transferring money
• Costs of transferring money among agencies
  providing such services
• Risks and difficulties faced by private service
  providers in providing money transfer services.

7
Database

• Oriya Migrants from Surat City
• Sample size 100 (random sampling)
• These migrants work in 27 different occupations.
• However, we have grouped them on the basis of
  their nature of jobs as
• (i) Wage labourer (daily wage
  basis piece rate basis)
• (ii) Employee in a private sector
• (iii) Self-employed

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Table 1 Average Size of Money Remitted per Month
by Oriya Migrants in Surat by Their Nature of
Employment
9
Table 2 Average Size of Remittances Sent per
Month by Living Arrangements among the
Migrant Workers
10
Table 3 Definitions, Measurements, Descriptive
Statistics and Expected Signs of Variables used
in the OLS Equation
11
Table 4 Determinants of Size of Remittance OLS
Results
12
Main elements of money remittance system
Transfer providers
Transmission mechanism
Delivery approach
13
Money remittance channels

Transfer Providers
Formal
Informal
Bank
Post Office

• Private Operator
• Tapawala
• Co-worker
• Relatives
• Self/other family members

Cheques Bank drafts Core banking
Money Order
14
Structure of Money Transfer Channel Used by
Private Operators
Main Remittance Collection Counter (Surat)
Main Remittance Disbursal Counter (Orissa)
Statements
Statements
Collection
Deposits
Withdrawal
Disbursal
Receipts
DA1
CC1
DA2
CC2
DA3
CC3
DA4
CC4
BANK
BANK
Money Transfer
Disbursal Areas
Collection Counter/Agent
15
Table 5 Money Remittance Channels Used by Oriya
Migrants
Notes (1) includes all public and private
sector banks. (2) ? includes persons other than
family members and relatives belonging to
remitters own village or neighbouring villages
and working at Surat. (3) ? includes cousins,
uncles, brothers-in-law, fathers-in-law, nephews
etc. working at Surat
16
Table 6 Respondents Period of Migration and
Status of Using Formal Money Transfer
Channels on the Date of Interview
Notes (1) includes those migrants who have used
Banks or Post Offices at least once for
transferring money from destination to origin
after having migrated to Surat. (2) Figures in
parenthesis of each of the cells denote percent
of migrants using formal channels during the
corresponding periods of their migration.
17
Table 7 Time since When the Migrant Workers
Stopped Using Specific Money Transfer Channels
18
Table 8 Reasons for Clients Discontinuing Use
of Banks in Transferring Money
19
Table 9 Reasons for Never Using Banks for Money
Transfer
20
Table 10 Reasons for Discontinuing the Use of
Post Offices for Money Transfer
21
Table 11 Reasons for Never Using Post Offices
for Money Transfer
22
Table 12 Amount of Service Charges Taken by
Shramik Sahajog and other Informal Transfer
Providers
Note Shramik Sahajog has also been charging an
extra amount of 10 rupees per remittance for
its door to door pick and delivery services since
January 2007.
23
Table 13 Costs of Money Transfer Through
Informal Channels (for transfer of every 100 Rs.)
24
Table 14 Cost of Money Transfers (in Rs.)
Through Formal Channels (for transfer of every
100 Rs.)
25
Table 15 Amount of Money Transfers Realized by
Oriya Migrants Through Different Channels During
the Financial Year 2006-07
26
Difficulties and Risks in the Remittance Market

• Hardly any public sector bank shows interest in
  facilitating money transfer from Surat to Orissa.
  
• Sending money through private banks is costlier
  and since they remain located mainly in the urban
  centres, the transfer providers at the other end
  have to travel longer distances every time they
  have to withdraw money.
• Since they carry large sums of cash, there is
  potential risk of theft at each of the stages of
  collection, deposits, withdrawal and disbursal.
• Lack of a uniform rates of commission charged for
  fund transfer and ingress of the credit market
  have enhanced competition among informal transfer
  providers which tends to threaten the viability
  as well as feasibility of providing such services
  on a prolonged basis.
• With rise in the number of transfer providers, a
  competitive environment is very much visible in
  the remittance market at Surat. This not only
  reduces the volume of business per service
  provider, but also adversely effects the net
  profit gained per unit.
• Getting reliable and efficient staff is an
  important aspect of dealing with remittances for
  the informal service providers, for a single
  unreliable staff can turn a viable business to an
  unviable enterprise.

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Concluding Remarks

• It is found that more than 90 per cent of the
  migrants prefer informal over formal channels for
  sending money back home.
• Of the total amount remitted by our respondents,
  as much as 69.2 per cent was sent through private
  operators and tapawalas, whereas the share of
  bank and post-offices being 10.8 and 2.2 per cent
  respectively.
• The remitters find the private operators and
  tapawalas to be more effective agents than the
  formal transfer providers like banks, post
  offices as well as other informal channels such
  as co-workers and relatives.
• Popularity of such channels in the remittance
  market is apparently due to their client friendly
  features like easy accessibility, minimum
  paperwork, speed, less expensive and retention of
  confidentiality.
• In addition to being part of a cost effective and
  user-friendly system, such private service
  providers also deliver money to households at the
  farthest of villages that lacks access to any
  formal channels or agencies facilitating money
  transfers.

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Concluding Remarks

• Given the acceptance, efficacy and relative
  advantages of such channels over the formal ones,
  these agencies should be recognized and protected
  through monitoring and regulations. In fact,
  linked effectively with banks, these channels may
  be able to provide better remittance services. At
  the same time, the banks as inclusive agencies
  can introduce facilities and appropriate
  intermediations to the remitters as well as
  recipients of such money through these channels.