It is now evident that the pandemic is here to stay till the time an effective vaccination is available in the market. While the pandemic’s impact has been devastating and is still being felt in various sectors, life is slowly returning to normal with people venturing out of their homes and businesses getting back on their feet. For the banking and fintech sector, the scenario is not too different. The sector has steadily been gaining momentum over the past few months, and domestic remittance levels have been one of the most promising aspects for the sector so far.
With migrants moving back to urban areas to resume their work in the peak festive season of the year, domestic remittance flows are finally returning to pre-pandemic levels. The migrant economy, which was hard hit by the COVID-19 pandemic, contributes a major portion to domestic remittance transfers. According to the Economic Survey of 2017, the volume of these transfers was estimated to be around INR 1.5 trillion, thereby accounting for a large chunk of the overall domestic transfers.
The domestic remittance scenario in India
Internal migrants mostly send remittances from urban to rural areas. Thus, domestic remittance is a vital source of income for rural households. So, the volume of domestic remittance is a major indicator of the health of the informal sector and rural economy in India. According to Nielsen, India’s migrant economy has over 120 million workers. More than 80% of them belong to poorly connected rural areas and they account for 80% of the country’s domestic remittances. A large chunk of domestic remittance generates from Andhra Pradesh, Bihar, Maharashtra, Telangana, U.P., Orissa, Delhi. Bihar and UP receive close to 60% of the remittance.
The channels to send such transfers vary largely. Companies use the NPCI’s Aadhaar-enabled payment system and the IMPS/ NEFT channels of banks. Much of the remittance transfer in India happens through firms holding the Prepaid Payment Instrument (PPI) license from the Reserve Bank of India and who are working as Bank BCs. They act as business correspondents (BCs) for banks, providing a range of basic banking services in India’s hinterlands. As per RBI guidelines, they also provide small savings accounts, fixed and recurring deposits, remittance, cash withdrawal, micro-credit, and general insurance.
Yet another reason for a surge in domestic remittances even amidst the ongoing crisis has been the country’s grandest festival season. As people begin to venture outside and with the festivities having happened in full swing, domestic remittance flows have been at an all-time high since the onset of the pandemic and have, in fact, returned to pre-COVID levels. The festive season is also a time when there is increased movement of migrants, further contributing to this surge in remittance levels.
Impact of COVID-19 and the road to recovery
The COVID-19 pandemic, followed by nationwide economic closures severely constrained internal migrant’s ability to send money to their families in rural areas, severely impacting rural livelihoods. Many lost their jobs and went back to their native places. The segment witnessed a major slump in money transfers and domestic remittances plummeted by 70%-80% in 6-7 months.
Now, with domestic remittance flows returning to pre-pandemic levels according to reports, players in the banking and fintech sector have been witnessing increased activity from citizens, particularly the migrant population. Some leading startups in the segment even report year’s highest ever GTV in October’20 which was 21% higher as compared to September.
Markets have reopened, businesses have begun to operate with almost full capacity, and the economy is on the road to recovery and domestic remittances, which are predominantly an urban-to-rural phenomenon, are set to increase further in the near future. This bouncing back of remittance levels is an obvious indication of a sense of normalcy being restored in the world as people return to work, and the migrant population begins to earn again and send money back to their homes/families.
Overall, the economy is gradually gaining pace and although the road to revival may be long, it is certainly promising. As for domestic remittances, according to industry data, they are set to return to 100% pre-pandemic levels. In fact, it is also expected to surpass pre-COVID levels as the country gears up to bring the economy back to normalcy soon.
DISCLAIMER : Views expressed above are the author’s own.