How does remittance cost in the GCC stack up?

Cost of remittance varies across GCC countries and is dependent both on the source and destination. Based on the average remittance cost across MTOs, it is observed that operators involved in transferring money from Qatar and Saudi Arabia have the highest remittance costs while that of Kuwait and the UAE have the lowest cost. For instance, the average cost of remittance of USD 200 from Qatar to India stands at 3.9% while that of Kuwait to India is 1.9%. Certain bilateral corridors involving Kuwait and the UAE have some of the lowest remittance costs in the world. In spite of having a relatively high remittance cost, both Saudi Arabia’s and Qatar’s remittance costs fall well below the global average cost of 7%. There is significant variation observed even among MTOs as well. In the case of remittance from Qatar to Bangladesh, one operator charges as low as 1.02% while another operators charges 12.42%.

Bilateral Remittances and costs – GCC outflows to major receivers (USD Mn.)

Source: World Bank; Note – Average Remittance cost is for sending USD 200, Average remittance cost is for Q1 2019 & Remittance flow is for 2017 (latest available), N.A. – Not Available

GCC countries have often featured among the biggest remitters in the world over the years, thanks to high demand for foreign labor, competitive wages, restrictions on asset ownership and a nearly tax-free environment. ‘Remittances’ generally refers to money sent from foreign-born individuals in a country to others abroad. The remittance market in the GCC is substantially big with Saudi Arabia, UAE, Kuwait and Qatar contributing to a large part of the global remittance outflows and consistently featuring among the top 10 countries in terms of outflows during the past few years.

Monetary remittances to developing nations has witnessed a sharp rise over the last few years and are now, behind foreign direct investment, the second largest source of external financial flows to developing countries. Ideally, with the increase in remittance volumes and improvements in technology should reduce the remittance costs. However, when compared to the growth in remittance flows, the rate at which remittance costs have reduced has been much slower.

As most migrant workers who remit money back to their home countries belong to the low and middle income group, the cost of remittance becomes a critical component that needs to be taken into consideration. A very high cost of remittance would eat into the amount sent back home and potentially lead to the development of alternative channels or parallel black markets for remittance.

The cost of remittance has two components i.e. the remittance fee and the exchange rate spread and can vary depending on the country to which the transfer is done.  The remittance fee for receiving, processing and paying out the cash transfer is collected from the sender by the sending agent. The exchange rate spread is the difference between the retail foreign exchange rate that the Money Transfer Operator (MTO) charges the sender and the more favourable wholesale foreign exchange rate that the MTO actually pays. The fee and the exchange rates differ based on the MTOs and the banks and lower charges are used as a key factor to attract more senders to use their remittance services.

In 2015, member states of the United Nations decided to adopt policies called Sustainable Development Goals (SDGs), which aimed to end poverty, protect the planet and ensure that all people enjoy peace and prosperity by 2030. According to the SDG, member countries are expected to work towards reducing the remittance cost to a target of 3% by 2030. However, as of Q1 2019, the average cost of sending USD 200 to Low and Middle Income countries stood at 7%, which is more than double of the SDG target. Regionally, Sub-Saharan Africa, had the highest average cost at 9.3% during the same period.

The South Asian region, which comprises of India, Bangladesh, Pakistan and several other countries had the lowest average remittance cost amongst different regions, at 5.2% as of Q4 2018. Lower remittance costs could be attributed to high volumes, competitiveness among MTOs and the deployment of technology. These countries are among the highest remittance receivers from GCC countries. Similarly, Philippines, which also sees a high inflow from GCC countries had the lowest fees in the East Asia and Pacific Region.

Remittance has been a very profitable business for Exchange companies operating in the GCC region. For instance, based on the cost of remittance and the respective proportion of remittances across different corridors, the revenue generated by exchange companies in Kuwait stood at KD 59.1 mn in 2018, growing from KD 38.3 mn in 2012 at a CAGR of 7.5%. Their Net Profits for 2018 stood at KD 18.4 mn, also growing at a CAGR of 7.5% since 2012. (Central Bank of Kuwait Statistics)

Despite accounting for the variations among different operators and the relatively higher costs in economies like Qatar and Saudi Arabia, the overall remittance charges in the GCC remain in line or much lower than current global levels and the SDG target for 2030. These low charges could potentially add to the attractiveness of the GCC as a destination, which is something that GCC governments have been working upon through the initiation of reforms like permanent residence and long-term visas.