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Money Transfer Services
opportunities in the home language. Given the existence of the money order system, expensive
though it is, and informal channels, remittances are not likely to be the most important of
their needs. But they do provide an entry point for new MFIs, and an opportunity to existing
MFIs, to broaden their portfolio of services, and to do so profitably, in the process increasing
access, decreasing the cost of remittances considerably in relation to Money Orders (MOs),
and removing the sense of uncertainty migrants experience about whether remittances have
reached their destination.
Box 5.4 Serving migrants through remittance services: The case of Adhikar
Adhikar, a Bhubaneshwar-based MFI registered as a cooperative, extended operations to
Gandhidham, in Gujarat, in 2003, to serve the approximately 10,000 Oriya migrants working
in nearby Kandla port, hosiery units in an SEZ, and local plywood and salt-making units, with
a remittance and other financial services. In early 2005 it opened another branch office in
Surat, which has a much larger Oriya population from Adhikar's three districts in Orissa, estimated
to number about 70,000. Membership of Adhikar has grown much faster in Surat, to 913 in
June 2006, as compared to only 220 members in Gandhidham at the same age.
There are estimated to be over 5 lakhs Oriyas working in Surat, the largest single number from
Ganjam district, followed by those from Adhikar's three-district area. Most of them are workers
in the powerloom factories, and average earnings may be a little higher than in Gandhidham,
as is the average size of remittance (about Rs 3,500). The total volume of monthly remittances
from Surat to Orissa by all channels is estimated variously at Rs 10 to 50 crore.
A large part of this is handled by informal money transfer operators of which there are estimated
to be 30 to 40, and of which the largest 5 are reported to have monthly remittances above Rs
1 crore, and the next 15 above Rs 50 lakh. They charge 4 percent for amounts below Rs 5,000,
3 percent for the next slab up to Rs 20,000 and 2 percent above that. They remit instructions
to a partner by fax, who makes payments at the doorstep out of funds with him in Orissa,
faxing back the signed receipt along with signatures of witnesses, reportedly within 24 hours. 9
Adhikar's service fees for remittances are 3 percent for amounts up to Rs 10,000 and 2.5
percent thereafter. Thus for remittances of between Rs 5,000 to Rs 10,000 the service fee is
the same for both channels. However for the mean remittance size in Surat of about Rs 3,500,
Adhikar's service fee is one percentage point cheaper. As against this, the service is available
only thrice a week, and it usually takes at least 1 day more than the private operators. Also,
receipts signed by the remittee are sent back by the partners by mail.
According to Adhikar, about 60 percent of total costs are incurred on account of collections
and 40 percent on distribution. To reduce collection costs Adhikar has appointed 4 collection
agents in Surat, who collect remittances door to door, and receive a share of 1 percentage
point of the service fee. Apart from this, in view of the size of the market, (Adhikar expects to
add 500 remitters a quarter in Surat) it now has two branches (with plans to open more) as
against the single branch in Gandhidham.
Only a study of overall operations at both ends would indicate the prospect of achieving
sustainability (estimated to be about 40 percent at present).
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