Putting Money in Motion: How Much do Migrants Pay for Domestic Transfers?

The study provides insights into the different remittance channels that migrants opt for and the associated money-transfer costs they incur, to understand the various difficulties faced by migrants in transferring money within the country, despite considerable willingness to pay for safe and convenient mode of transfer.

Background

Due to poor conditions and limited employment opportunities in rural areas, Indians are increasingly migrating to cities or towns to find work. Some estimates suggest that there are more than 100 million seasonal domestic migrants in the country. A major concern for these individuals is being able to transfer money safely and efficiently from their place of work to their family back home. Because migrants come from socially vulnerable households that use the funds to finance household consumption and investment, it is essential that they be able to transfer as much of their hard-earned money as possible, without incurring unnecessary charges.

Approach

A sample of 274 migrants and their families were surveyed for the study, along four major migration “corridors.” 

  • Bihar to Hoskote, Karnataka (a small town)
  • Semi-urban Tamil Nadu to Mumbai
  • Rural Orissa to Surat
  • Semi-urban West Bengal to New Delhi

The research team worked with local NGOs and leaders to identify large migrant communities in each of the four migration corridors. The survey included respondents from different professions such as construction workers, factory workers, skilled labourers, self-employed shop owners, drivers and casual and domestic labourers. Purposive sampling was used to identify respondents for the study. 

Findings

The majority of respondents, 57%, use informal methods to transfer money to their families – most commonlyhawala couriers. Almost half of the migrants in the study prefer to use banks for transfers but only 30% do so; reflecting possible demand for bank services. Sending money across the country remains expensive – migrants pay close to 80 rupees when transferring a median remittance amount of Rs. 2000. The average cost of using a bank for a median fund transfer of Rs.2000 ($44 approx) was 3%, significantly cheaper than other commonly-used methods like the India Post (6.4%) and the informal hawala couriers (4.6%).

Banks transfers are economical but very inconvenient – the total time required to send remittances through a bank (travel and waiting time) was much higher than any other mode of transfer at 150 minutes. More than three quarters of the financially-excluded migrants in our survey cited not having proper documentation as the primary reason why they do not have a bank account.

Researchers found that the two formal methods of remitting money, banks and post offices, are either inconvenient or expensive (Post). Notably about 19% of households who did not use banks to transfer money would prefer to use them instead of their current method.

Though households incur significant costs in sending and receiving money, cost is only the third most important attribute that migrants value in a payment system. 

Implications

The findings from this study have important implications for the design and delivery of financial services to migrant households and communities in India, given the tremendous volumes of remittances that they generate. Business correspondent networks can be leverage to bring deposit and transfer services closer to migrants (perhaps by expanding mobile verification of transfers). India Post’s vast network in rural India can be leveraged to reach these segments, but its technological infrastructure must be upgraded. Currently, the remittance service offered by Post offices is slow and expensive, a key reason why migrants are switching to other methods of transfer. 

Thematic area

Financial Inclusion

Project Leads

Shreyas Gopinath, Justin Oliver, Ajay Tannirkulam, Supriyo Bhattacharya, R.R. Kulkarni

Location

India

Partners

CAB, RBI

Status

Completed