Impact of Development Dynamics on Remittance in Malaysia

Remittance flows tend to be more stable than capital flows, and in turn, tend to be countercyclical: increasing during economic downturns or after natural disasters, private capital flows tend to decline. In recent times, Covid-19 and Ukraine and Russian war has served as a huge hit to the economy causing private inflows to decrease. However, countries affected by political conflict, are often an economic lifeline for the poor. Remittances to developing countries since 2000 have been remarkable both as a share of the Gross Domestic Product (GDP) and compared with Foreign Direct Investment (FDI) and Official Development Assistance (ODA). Given their size and the fact that they finance the consumption needs of recipients, remittances have the potential to counterbalance adverse output effects during economic downturns and sudden stops in capital flows (Migration and Remittance for Development in Asia)- May 2018.

Foremost, there are general dynamics to remittance with the most common being cyclical development dynamics. There are cyclical properties of remittance which we will look at in this section. In theory, the cyclical property of remittances is closely related to the motives that drive remittances. At the individual level, these motives have direct implications for the amount, timing, and frequency of remittance. At the aggregate level, they might affect the volume of flows and their variability across economic ups and downs, in both remittance origin and recipient countries. Remittances are driven by either altruistic motives or self-interest. The altruistic motive is known to be counter-cyclical and self-interest is known to be pro-cyclical. The cyclical feature of remittance is such that when instant money transfer continues to grow, economists’ and policymakers’ interest in this type of foreign currency flow is not only due to size but also to their stability over time in comparison with other foreign currency flows. The empirical evidence on how remittances react to business cycle fluctuations in the recipient country, however, remains inconclusive(Migration and Remittance for Development in Asia)- May 2018.

On the other hand, we look at the development of remittance in Malaysia. Migrantshave become an integral part of Malaysia’s economy and support their families by sending money overseas to their home countries. In fact, remittance growth by migrants in Malaysia has been dramatic since 2006 with an increase in remittance outflows of more than 500% in the past ten years. Migrants represent 15% of Malaysia’s workforce, making the country home to the fourth largest number of migrants in the East Pacific Region(World Bank Blogs- Isaku Endo, Jose De Luna-Martinez& Dieter De Smet- June 01, 2017). Among these, the use of information and communication technology by migrants has helped with the development of remittance in Malaysia. Among the survey migrants, 74% own a smartphone and 90% have access to the internet through it. These numbers are high and present a tremendous business opportunity for technology-driven remittance service providers who invest in educating their customer base and providing reliable and competitive remittance services (World Bank Blogs- Isaku Endo, Jose De Luna-Martinez & Dieter De Smet- June 01, 2017).

Fortunately, by issuing Financial Technology (FinTech) Regulatory Sandbox Framework, The Central Bank of Malaysia (BNM) acknowledged FinTech as a catalyst for the development of progressive financial services. This framework allows regulatory flexibilities to be granted to financial institutions and FinTech companies to experiment with FinTech solutions in a live controlled environment for a limited period. Through this initiative, BNM will ensure that the Malaysian financial services sector keeps up with the paradigm shift in the use of technology in financial services and therefore continues to remain relevant regionally and globally World Bank Blogs- Isaku Endo, Jose De Luna-Martinez & Dieter De Smet- June 01, 2017). There are more such initiatives aiding the development of remittance in Malaysia. The cost of sending money to neighbouring countries is expected to decline. Thus, a larger volume of remittance outflows will be channelled through financial institutions in a secure, efficient, and cost-effective manner for both senders and recipients.

In conclusion, there are a few such initiatives in Malaysia that help improve the development of remittance. Such frameworks will aid the remittance industry alongside the financial sector of the country. Here at Lotus Remit, we focus on delivering the best possible services to our clients by keeping ourselves up to date with financial technology improvements and efficient wire transfer services. Lotus Remit plays an integral role in contributing to the cyclical development dynamics in Malaysia by contributing to the economic ups and downs at the best rates possible. However, there is always room for more initiatives anddevelop ways to be ventured by the government and relevant parties as well as to develop remittance further in Malaysia.