Potential of Remittance Services


Written by Dr. Omar Farooq Khan • Special Features • November 2010

4-1 A remittance is a transfer of money by a foreign worker to his or her home country. Remittances are not a new phenomenon in the world; several European countries like Spain, Italy and Ireland were heavily dependent on remittances during the 19th and 20th centuries.

In the modern era a majority of the remittances are from the U.S. and are directed to Asian countries like India (approx. $ 26 billion USD), Philippines ($ 16 billion) and China ($ 23 billion). The total number of overseas Pakistanis remitting regular funds can safely be put to five million. This includes professionals from regions like Middle East, Far East, Europe and North America. The official remittances sent through banking channels amount to approximately $ 6.5 billion annually.

In the past, the better part of remittances was made through the Hawala (reference) syste. Overseas Pakistanis would pay to the Hawala agent and the corresponding office of the same business would deliver in Pakistan, the equivalent sum in Pakistani rupees to the family of the remitter. Hawala has been a popular remittance method because of its accessibility to even the most remote areas of the country, no red tape and a favorable exchange rate.

However, over the years, Hawala has now given way to proper agents like Western Union, and Moneygram, who operate in a more organized manner, having better documentation and offer greater transparency. These agents are just as accessible to all the urban and rural centers since they have offices within regular bank branches. This has made more transparent remittance practices accessible to smaller cities and towns.
Pakistan Post is also another reliable method of sending cash. The Postal services have been sending money to various parts of the country for quite some time. It has been a dependable system of sending and receiving cash and extends into nearly every region of Pakistan.

Although courier services have also become a long way but they are the least favorable way of sending cash. While these services can easily send cheques, pay orders and drafts, they avoid sending cash. According to them services like Western Union and other banking services like online transfers have already cornered the remittance market. Also it’s not financially viable for the courier services to operate in many small towns. Therefore these services have hubs in larger cities and concentrate more on transporting documents, clothes, flowers, edibles and gifts, etc.
The courier services have diversified into product delivery and cash receiving. For example now courier services are delivering products like cell phones and collecting the cash payments for it. Despite admitting that remittance market has a lot of potential the courier services have a long way to go make their presence felt.
Remittances play a vital role in supporting national economic structures of developing countries. Even during calamities or emergencies, remittances can be a fundamental source of income for people whose other forms of livelihood may have been destroyed by conflict or natural disaster. According to the Overseas Development Institute, remittances are being increasingly recognized as an important tool by aid providers who are considering better ways of supporting people in emergency responses.