KUALA LUMPUR: Migrant remittances have grown four-fold in just the last seven years to RM 32.0 billion, with non-bank service providers now accounting for two thirds of all remittances said deputy Bank Negara Malaysia governor Datuk Muhammad Ibrahim.
The rapidly growing remittance market in Malaysia and other emerging economies call for lower remittance costs and greater access and coverage of remittance services.
In Malaysia, remittance costs also vary depending on corridors and types of service providers.
The cost for remitting to the major corridors is between 4 to 7 per cent using non-bank remittance providers and 6 to 9 per cent for banks.
"Therefore, there is still room for further cost reduction of at least 2 per cent for non-bank remittance providers and 4 per cent by the banks," he said, in his keynote address at the Money Transfer Asia Pacific Conference 2015 yesterday.
Remittance services provide and important flow of foreign currency to the developing countries and more than half the remittances last year was to the Asia Pacific region due to the increasing labour mobility.
The money services industry, he said, can be an important player in transforming the financial systems but there remains the unfinished agenda of lower costs and securing the trust and integrity of the public.
Cross border economic activities have increased demand for business remittances to facilitate trade-related payments and settlements and a significant part is contributed by the small and medium businesses (SMEs).
In Malaysia, demand for business remittances has been encouraging with transaction values reaching in excess of RM430 million in the first nine months of 2015, compared with RM325 million in 2014.
"Given the larger transaction values and more complex activities involved in providing such service, which may potentially expose the service providers to higher ML/TF (money laundering/terrorism funding) risks, the provision of business remittances has been implemented under a managed approach," he said.
This approach requires players to demonstrate the capability to manage risks associated with providing business remittance.
The World Bank has set a 5 per cent target and the United Nations targets to reduce the remittance cost to less than 3 per cent by 2030.
To lower costs and provide greater access and coverage of remittance services, there must be a more integrated remittance ecosystem through greater interoperability.
Muhammad also said there must be support for non-banks in facilitating safe and efficient business remittances.
Expanding cross-border networks of remittance providers can strengthen business linkages, professional standards, and pool resources to find solutions to the common challenges in the industry.
This includes dismantling barriers to competition and reduce duplicative efforts in remittance infrastructure and systems.
He said the industry can further develop more integrated arrangements that can support remittances across a broader spectrum of corridors, channels and institutions.
" The investment of these resources can be shared among remittance service providers as an industry collaborative effort, to reach critical mass and hence reduce costs. "
But a framework for multi-lateralising corridor arrangements for remittances which can be used by remittance service providers, in particular the s