Making foreign remittances easier

Besides service fee, there is a currency conversion charge

With the number of Indians working abroad rising fast, remittances have become a part of life for many families. According to the World Bank’s Migration and Remittances Factbook, 2011, India is set to receive the highest remittances in the world this year.

No wonder money transfer agencies (MTAs) such as Western Union and Money Gram are advertising big time and tying up with leading banks, including State Bank of India (SBI). But there are other options for transferring money as well.

SWIFT transfers
These are through the SWIFT network – a system for international inter-bank fund transfers.

Most banks do not cap the amount an individual can send. The number of transactions per year is also not restricted. However, there may be a threshold limit, usually $100-500.

The transfer is instant if both the sender and the beneficiary have accounts with the same bank. If not, the process can be cumbersome, both in terms of cost and time. “More the number of banks involved, the more is the fund transfer time,” says a senior official at SBI. It takes three-four working days for a transaction.

There are a number of costs involved. Banks charge a service fee, ranging from $2-20. Also, there is a foreign currency conversion charge. In some cases, like HDFC Bank, there is a flat charge of Rs100.When the amount is credited, conversion is done according to the prevalent exchange rate.

While these charges don’t have to be paid separately to the bank, they reduce the amount received.

Online transfers
This is similar to internet banking. Banks facilitate online transfers for remittances from the US and the UK, by the US Automated Clearing House and the Customer Initiated Payment transfer systems of the UK, respectively.

HDFC Bank (Quick Remit-US), SBI (SBI Express Remit US and SBI Express Remit UK) and Bank of Baroda (Baroda Remit Express) offer these services. Neither the sender nor the beneficiary needs an account for this service. You can transact a minimum of $100-500 and a maximum of $5,000- 10,000.

The charges can be flat — SBI charges Rs25 a transaction, whereas Bank of Baroda charges $9 for a transaction of $500-5,000. There is a separate fee of Rs100 for NEFT/ RTGS transfers.

Money transfer agencies
These include independent money transfer agencies such as Western Union and Money Gram. These are ideal for transferring money to those who do not have bank accounts. However, unlike banks, which allow unlimited transfers in a year, senders can do up to only 12 transactions through these agencies in a year. While there is no minimum amount, the maximum is $2,500 or equivalent.

The sender goes to an authorised agent of these services abroad (mostly money changers or banks), fills a form giving the recipient’s details and the branch location at which the money will be picked up. There is a service charge based on the amount being transferred. For instance, to remit $1,000 from the US to India through Money Gram, you have to pay approximately $13 as service charge. To remit $2,500, you will have to pay about $20, according to their website.

The sender is given a 10-digit code, known as the ‘money transfer control number’. The transfer is instantaneous. All the recipient needs to collect the money is give the code to the agent. There are no charges.

“Since the foreign exchange rate gets locked-in at the sender’s side, there is no loss if there is a sharp fall in the currency,” says Madhavan Menon, managing director, Thomas Cook, India.

Exchange houses
A popular mode of transferring cash, especially in the Middle East. Exchange houses are similar to MTAs. But since they do not have a network like MTAs, they have tie-ups with banks. The money is deposited into the recipient’s account. Or, the exchange house’s partner bank in India issues a rupee draft to the beneficiary.