Gaining rural currency (and remitting it)

Circa 1980: The villagers of Pasarani, 7 km from Wai Taluka in Western Maharashtra's Satara District, had to travel roughly 60 km to a bank in the main town of Satara to remit their money order sent to them by their kin in West Asia. It used to take 20-22 days to receive the money after it was sent.

Circa 2009: People in the village now get money within five minutes of their relatives sending it from the Gulf, thanks to global money transfer giant Western Union, which has a sub-agent in Pasarani.

Pasarani is a small, sleepy village with a population of 8,000, no Internet connection and not even 24-hour electricity. That's precisely why Western Union has penetrated there. Ever since 1980, when the young men of the village began leaving for West Asia, most as unskilled labourers and a few in managerial cadres, foreign exchange has been flowing in. Till date, some 2,500 youngsters have gone to West Asia. That's a market—however upcountry it may be—the 150-year-old, $5.3-billion US leader in global payments does not want to ignore.

It was in 2006 that Western Union decided to appoint a sub-agent in Pasarani. Ramesh S. Yeole (45), traditionally a farmer, operates out of a small room in his home, armed with just a telephone line. He is cash-rich and a messiah for 300 families of the 2,500 in the village, who depend on him every month to get their money from their brothers, sons or husbands based in the Gulf.

"We discovered this village four years ago when our research showed that several youngsters from this village are abroad. The nearest bank with a core banking system is in Satara and the post office is at Wai. It made a lot of sense to have a sub-agent here," says Amarendra Chitale, Team Leader (Rest of Maharashtra), Western Union.

Ganesh Vasant Gulve is one of the 2,500 who avails himself of Western Union's Pasarani operation. He earns about Rs 13,000 per month in the Gulf, of which he sends his family of 13 Rs 8,000 a month.

Yeole is just one of Western Union's 1,000-odd subagents in rural India; and Pasarani just one amongst the several villages Western Union has made inroads into. Villages such as Nindru in Uttar Pradesh, Uchagaon in Bihar, Moorarpalayam in Tamil Nadu, Perupalem in Andhra Pradesh and many more in Punjab all have a Western Union outpost.

"Our rural strategy initially started with tie-ups with post offices. We then moved on to tie up with bank branches. Then, we found this huge white spot where there were villages with no post offices or bank penetration so we have subagents in these remote villages," says Anil Kapur, Managing Director (South & South-East Asia), Western Union. So, how does the process work in these remote villages?

The sub-agents operate through phone and fax, explains Chitale. The receiver receives a MTCN (Money Transfer Control Number) from the sender, which he takes to the sub-agent. The sub-agent fills in a form along with the transaction amount to be remitted. He then verifies the MTCN and the transaction amount with the principal agent's office, which, in Yeole's case, is based in Pune.

(Western Union has 10 principal agents in India, who, in turn, appoint the sub-agents.) Once all the details are verified, the transaction is cleared. The sub-agent then hands over the cash against a photo ID of the receiver. Typically, a sub-agent earns Rs 3,000-4,000 a month on an average.

The average ticket size of a transaction is between Rs 5,000 and Rs 10,000. The sub- agent gets a commission on each transaction, which ranges between 0.5 and 0.8 per cent of the transacted amount. (The higher the value of the transaction, the higher is the commission. It could go up to 1 per cent, but this largely depends on the country from where the money is being sent. Money sent from the US and Europe could earn better commission.)

For Western Union, India has the potential to emerge as one of its largest markets in the world—it is already one of the largest contributors to its overall revenues. Last year, overseas remittances into India touched $50 billion. According to World Bank estimates, by the end of 2009, that number would have reached $52 billion.

"The market in India is ideal for Western Union. India is the largest recipient of remittances in the world, followed by China and Mexico. There are 30 million nonresident Indians (NRIs) spread across the world and a large part of this population comes from rural areas," says Kapur. Western Union started operations in India in 1994; till 2001, it had set up 3,000 locations, mostly in big cities.

Between 2001 and 2008, the company has added 54,000 agent locations, some 5 per cent of them in the rural hinterlands where there are no bank branches. Today, Western Union is more village-centric, with almost 60 per cent of its entire network in rural India. Of the 54,000 agent locations, approximately 1,000 are sub-agents, 8,500 are post offices and 20,000 are bank branches. This would make Western Union the largest money transfer player in India in terms of reach. Another global name in the business, Moneygram, has a presence only in big cities.

In a bid to further deepen its reach and tap new customers, Western Union is now experimenting with new channels like microfinance institutions and e-governance service providers. In 2009, it tied up with e-governance and IT solutions provider CMS Computers, which has the government's mandate to roll out 17,000 e-governance locations across India. "Our endeavour is to continue to penetrate as much into the rural areas. We are looking at multiple classes of trade to catapult growth. Synergies with e-governance providers will transform financial service offerings in rural India," explains Kapur.

It's not a smooth ride all the way, however. The biggest challenge for Western Union is the availability of cash in the villages. "We need sub-agents who are cash-rich and are able to give money to the receiver as and when he has a need," says Kapur. Another issue is awareness of the Western Union service, which is currently low in rural India.

The company is conducting awareness programmes to educate receivers on the system. "We see this as a longerterm challenge as the people we deal with do not have even a bank account or a post office account," adds Kapur. But if he's able to find a large enough pool of cash-rich farmers, Kapur may be able to reach out millions who can receive money sent by their loved ones without stepping into a bank branch or a post office.

WU’s rural reach

• It has 54,000 agent locations across India.
• Rural India accounts for 60 per cent of its India network. Most sub-agents are farmers with some cash to spare.
• Most transactions are between Rs 5,000 and Rs 10,000 per month.
• Remittances into India will cross $50 billion in 2009.