Why is the average annual spend by expatriates on money remittance relatively high in the UAE despite the country having one of the lowest money transfer fee rates in the world?
According to global financial planning firm Guardian Wealth Management, an expatriate in the UAE - the sixth largest remittance-sending country in the world - spends, or rather loses, an average of Dh6,000 (~$1,630) per year on money transfers.
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The finding by the online currency trading service firm comes in the wake of a recent hike of remittance fees by money exchange companies in the UAE to "cope with rising cost" of doing business.
However, Sudhir Kumar Shetty, president, UAE Exchange, has a different view. "The money transfer space in the GCC countries is highly competitive and strongly regulated. Hence, the cost of remittances here is always under check," he said.
According to Shetty, exchange houses in the region charge a flat fee for the money transfer transactions and not a percentage of the amount transferred.
"As per the World Bank, the cost for remittances sourced out of the GCC are among the lowest. This again points out at the fact that the cost aspect is not a bottleneck for money transfer in the region."
Adeeb Ahamed, managing director, Lulu International Exchange, said the GCC region continues to be one of the most affordable in terms of cost of remittances. "In the UAE, exchange houses charge only a fixed amount for remittances," he argued.
"We have maintained a nominal amount for the service charge even with increased operational costs amid new regulations. While the global average cost for sending money stands at around seven per cent, according to latest World Bank reports, it is much lower in the UAE and the GCC countries. There is also good competitiveness among exchange houses in the region, which allows for good exchange rates to be provided to customers," said Ahamed.
In April, a few leading money exchange houses in the UAE have increased remittance fees by 7-10 per cent. Fee for remittance below Dh1,000 has been increased by Dh1, up from Dh15 to Dh16, and for amounts above Dh1,000, to Dh22 from Dh20.
Analysts at Guardian Wealth Management, which has launched its online currency trading service, GWM FX, believe the money being lost on transfers is higher due to increased fees being charged by banks and money exchange firms in the region, which are among some of the highest in the world.
The losses can prove substantial for expatriate population in countries such as the UAE from where huge amount of money is being transferred, said Guardian Wealth Management, which has launched its own currency trading service "due to overwhelming demand from its clients aimed at minimising these losses for its customers".
The amount of money that UAE expatriates send to their home countries is estimated at above $20 billion per annum.
The 2016 World Bank migration and remittances fact-book ranks the UAE as the fourth top remittance-sending country in the world. The aggregate outflows represent 4.8 per cent of the UAE's gross domestic product. The six GCC countries accounted for $98 billion in outward remittance flows in 2014.
Mike Coady, chief commercial officer of the company, said many expatriates are taking advantage of favourable exchange rates against currencies such as the pound.
"Many workers send home large sums monthly to take care of mortgages or to transfer their savings offshore. However, they don't always realise they are losing sizeable amounts of their hard-earned cash each time. Customers are often charged up to five per cent in transaction fees by banks and are not receiving the optimum exchange rates."
GWM FX is an online currency service which will allow 'increasingly mobile international workers' to make efficient and cost-effective money transfers using an extensive range of currencies. Exchange rates offered can be up to five per cent better than those offered by both major and local banks.
According to the World Bank's latest Remittance Prices Worldwide report, the global average fee remained stable at 7.45 per cent in first quarter 2017, compared to the 7.40 per cent recorded in fourth quarter 2016.
Cost of remittances is one of the major hindrances in the flow of money across borders "It impacts the low-wage earning blue-collared workers, who might reduce the frequency of sending money for family maintenance in the home country. Or it could encourage them to switch to informal means of sending money home," analysts said.
By Issac John
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