FINO may change remittance business in India’s hinterland

The landscape of the migrant-driven domestic remittance business, dominated by informal channels, may undergo a sea change with India’s largest business correspondent FINO PayTech Ltd ramping up its money transfer network. It will soon set up dedicated remittance points in the hinterland of the nation.

A business correspondent is an agent working on behalf of banks to carry banking services to areas where there are no bank branches. Fino has a customer base of 68 million.
A 2011 study by Analysys Mason, a global think tank, found that the total transaction value of domestic remittances in India stood at $13 billion (around Rs.79,400 crore today) in 2010, with 80% directed towards rural areas. The market is expected to reach about $20.3 billion by 2014, growing at a compounded annual rate of 12%.

FINO, which began offering remittance services two years ago, is eyeing a share of this growing pie. In fiscal 2013, the volume registered in its remittance services was Rs.1,000 crore. An average of 300,000 transactions are executed per month through FINO channels and most have a ticket size of Rs.5,000.
So far, remittances for FINO have been done with the traditional business correspondent model that the company offers. FINO has more than 30,000 agents spread across 400 districts, who accept and disburse cash on behalf of banks to rural customers.

Remittances form a part of that service. The agents work through more than 125 locations, each functioning as a centre point covering several villages.
Business correspondents are generally equipped to disburse Rs.500-1,000 in cash, and tend to run out of cash when a heavy remittance amount has to be disbursed. This is making the remittances task tough for FINO and leading to the creation of specialized remittance service points.
“In a village, if 20 transactions take place, it will mean the agent has to carry Rs.1 lakh in cash. Logistically this is not possible unless we set up dedicated remittances kiosks,” said FINO’s chief operating officer and executive director Rishi Gupta.

FINO plans to open up such service points as a pilot project in Uttar Pradesh by December. It will set up dedicated remittance service points across the country by the next fiscal year, Gupta said. The company expects this to double transaction volume to Rs.2,000 crore by the end of fiscal 2014.
The 64th round of the National Sample Survey in 2007-2008 found that 60% of the $10 billion remittances happens at the inter-state level. Uttar Pradesh, accounting for 24% of the domestic remittances, Bihar (17%), Rajasthan (12%), West Bengal (7%) and Odisha (6%) were the major beneficiaries, while Maharashtra, Delhi and Gujarat were the major source regions of these remittances.
Incorporating data from other sources as well, researcher Chinmay Tumbe in a paper for the Indian Institute of Management, Bangalore, found that 80% of the remittances were directed toward rural households, while 30% of household consumption expenditure in remittance-receiving households formed nearly 10% of the total in rural India.

Interestingly, the top 25% households received around 50% of domestic remittances, suggesting that remittances could be increasing source region inequality, Tumbe wrote in his paper.
The informal sector accounted for 70% of domestic remittances, against 25% in China “revealing a huge opportunity for financial institutions to serve migrant workers”, Tumbe wrote in his paper.
In an emailed response to Mint queries, Tumbe said because of high inflation and population growth, the domestic remittance market is likely be above Rs.1 trillion at present.

According to him, the informal sector has existed simply because apart from post offices, no financial institution has seriously looked at domestic remittances as a service.
“In international remittances, the main source of earning is the profit on exchange rate differentials, which is absent in the domestic remittance business. Thus, domestic remittances can be profitable only with detailed customer knowledge and economies of scale through extensive banking networks,” Tumbe said in his email.

According to Gupta of FINO, remittances flow both ways.
“We have seen remittances from villages to urban areas as well. It is a small portion, but it happens. People receive money here in metros, maybe for exigencies,” said Gupta.
The remittances services are linked to bank accounts. One bank account is needed in a group where up to three beneficiaries can be linked. The bank account can either be of the sender or the receiver.

The small commission that FINO charges for this service puts it in a commanding position when compared to others in this business.
Apart from informal channels, migrant workers also send money home through money order services offered by India Post. However, a maximum of Rs.5,000 can be sent through a single money order and the fee is 5% of the amount.
FINO charges 1-1.5% of the value as fee. In informal channels, the fee ranges between 3% and 6%.
A formal channel will work if it can provide good customer service in terms of timely and accurate delivery of money and office hours convenient for migrant workers, among other things, Tumbe said.
“The main constraint towards using formal channels is that migrants are intimidated by formal institutions,” the researcher said. “A migrant thinks twice before entering a bank because it is a completely different environment, and hence trusts the local community service operators more.”

Source: Live Mint

By: Anup Roy

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