The Southeast Asian Market for Remittance

In today’s time, it’s important to know that remittance serves as the lifeline between migrant workers and their families back home, especially during a crisis. The money transferred provides an efficient and effective safety net to people living on the margins of economies. Across these SAEs, remittances comprise large shares of their gross domestic product. There are few countries in Southeast Asia that carry a reputation for high volume remittance. The top five countries in 2021 were India, Mexico, China, The Philippines, and Egypt. With USD 87 billion being India’s top remittance recipient in all of 2021 (UN report). In addition, in about 66 countries remittances account for more than 5% of the GDP. In South Asian Economies, remittances play a rather important role in their development roadmap.

Southeast Asia has a relatively large market for remittance with a few of the countries being the corridor for money transfer. In this article, we are going to focus on the three main corridors India, Indonesia, and the Philippines. Firstly, India’s remittance market is estimated to be USD 40.21 billion in 2022 and is expected to reach USD 54.12 billion by 2027, growing at a Compound Annual Growth Rate (CAGR) of 6.12%. Additionally, the market dynamics are forces that impact the prices and the behaviours of India’s remittance market stakeholders (Yahoo Finance). These forces create pricing signals which result from the changes in the supply and demand curve for a given product or service. India’s remittance market segment is based on Appliance, Channel, Type, and End User.

The “Appliance” is where the market is classified into consumption, saving, and investment. “Channel” is where the market is classified into Life-Time coverage, and Term Insurance. Lastly, “Type” is where the market is classified into inward digital remittance and outward digital remittance. The End User market is classified into businesses.

Moving on from the technicality of the Indian market dynamics, it’s safe to say that Lotus Remit serves as the best remittance provider to transfer money to India with the best services and competitive rates.

Moreover, the case for remittance in Indonesia is such that it averaged USD 1978,88 Million from 2005 until 2022 (Trading Economics). The Corridor between Malaysia and Indonesia is the second largest remittance outflow from Malaysia and the largest remittance inflow for Indonesia. In the East Asia and Pacific region, Indonesia is the second largest supplier of labor migration with 680,000 overseas worker contracts concluded in 2006 alone. The cultural and geographical proximity of Indonesia makes Malaysia a destination for both documented and undocumented Indonesian migrant workers (report combined effort between the Financial and Private Sector Development and the East Asia and Pacific Social Development units of the World bank).

Furthermore, in the Philippines, the transaction value in the digital remittance segment is projected to reach USD 0.97 Billion in 2022. Transaction value is expected to show an annual growth rate (CAGR 2022-2027) of 11.30% resulting in a projected total amount of USD 1.66billion by 2027. Remittance does play a role in helping to reduce poverty in the Philippines, however, they are not enough to rebalance the country’s growth and create long-term human and capital investment. Since the country’s debts are mostly in US dollars, a strong Peso will minimize the debt. The Philippines Peso gets stronger with higher Overseas Filipino Worker (OFW) remittance which means it is worth more relative to other currencies. The steady inflow of remittance empowers the country to buy more foreign goods and services. Thus, rooting to improve the economy alongside.

Nevertheless, Southeast Asia has its own market for remittance. Remittance flows are a major source of income for all countries in South Asia, larger than all other capital inflows combined. In 2019, India received more remittances than any other country in dollar terms, and Nepal ranked 3rd in the world in terms of remittance GDP at 27 percent. Several factors help explain the large increase in remittance in 2020. Firstly, there is Financial Innovation where the shift to more formal channels was facilitated by the accelerated development of Fintech and digital transfer apps such as “G-pay” and “Alipay”, which have made the digital transfer of funds more accessible and cheaper per transaction, leading to an overall increase in remittances. Then, we have Savings Repatriation, where a portion of the recorded rise in remittances could represent repatriated savings of emigrants returning home after losing their jobs or not finding new opportunities. We also have the Tax Incentives, where increasingly, policymakers want to encourage greater formal remittance. Pakistan and Bangladesh, which (along with Mexico) saw the highest surge in remittances in a sample of 45 developing countries, had recently introduced new remittance tax incentives, this one-off change may explain the high growth rate in 2020 (World Bank Blogs).

In conclusion, the market for remittance in Southeast Asia is profoundly developing according to the studies taken place. This is due to the higher concentration of migrant workers that originate from Southeast Asian countries. However, there are a few countries that act as an important corridor for money transfer from Malaysia which is India, Indonesia, and the Philippines. Lotus Remit provides efficient services to these corridors and specializes in them. The development of the market for remittance in these countries can further help improve efficiency and financial technology in years to come. Hence, bringing about improvement in the Southeast Asian remittance market with time.