The Indian Diaspora and its impact on Startups
India has one of the more interesting cultural landscapes in the world. A mixture of millennia old religions and lifestyles, long periods of colonial rule by various European countries, and vast regional differences make it very difficult, if not impossible, to provide quick snapshot descriptions of the country.
The same applies to India's economy
India is a key area to watch in the world economy. The country is fairly newly industrialised and the economy is growing at an average rate of 7% per year.
As in most newly industrialised countries, the employment sectors are a diverse mix of traditional and new generation jobs.
The traditional era jobs are heavily weighted toward agricultural, diary, and cottage industries with an equally large number of pre-industrialised service and production jobs such as mining, transportation, education and government. The new generation jobs are concentrated in the high tech, IT, financial services, call centre, telecom and tourism sectors.
This wide diversity has created a vast wealth gap in the country.
Upper level high tech salaries can easily reach 8 or 9 lakh (a lakh equals 100,000 rupees or INR). However most of the agricultural and unskilled positions offer extremely low pay. This vast difference brings the daily average wage in India down to about 300 INR, a little less than $5.00, a day
The Indian Diaspora, Banking, and Remittances
The Indian diaspora is the largest in the world and numbers about 24 million. The diaspora plays a vital role in the stability and growth of the country's economy.
Since remittance transactions became fairly easy in the 1990s, India has led the world in the amount of remittances received. Even though the total amount of remittances fell in 2016 by almost 9%, the annual amount of remittances totals $67.7 billion. About $11 billion of this amount comes from the United States with remittances from the UAE coming in second.
These remittances account for 4% of India's GDP.
While this number is impressive in itself the true impact of remittances is far reaching.
On a national level remittances increase a country's creditworthiness and act as a stabilising factor for the overall economy.
On an individual level remittances have been proven to help alleviate poverty, increase the skill level of workers by paying for education, increase real estate investment, and provided the security necessary for entrepreneurs to start their own businesses.
The Other Remittance Impact
In 2016 India suddenly demonetised all 500 and 1000 notes in the Mahatma Gandhi series making them virtually worthless overnight. In some countries the impact of demonetisation is somewhat mitigated by the fact that most individuals kept their money in bank accounts.
India, however, is a cash-based society. According to Forbes, at the time of the government's move, 96% of all transactions in India were made in cash. A large number of Indians do not have a bank account of any type. One of the reported reasons for the government's action was to encourage Indians to open bank accounts.
Traditionally India's remittance market is run by commercial banks, foreign exchange bureaus, companies such as Western Union, and India Post.
Remittances are an important profit centre for banks and businesses and account for a large number of jobs. Remittances are also expensive.
According to Forbes, "The global economy spent approximately $44 billion last year on fees for remittances. Remittances-money sent from one country to another-most often goes to low-income households and is proven to reduce the overall poverty of a given nation. They also come with high transaction fees and long transfer delays-significant obstacles to people trying to pull themselves out of poverty."
The importance of remittances and the high costs have given rise to a growing number of disrupters who are providing alternatives to the traditional institutions. These money transfer companies have lower fees and usually faster transfer times.
One of the companies providing money transfers to the Indian market is TransferGo. The company's CEO, Daumantas Dvilinskas summed up the company's vision by saying "The main goal and vision of TransferGo is helping migrant families to save the money they earn. It's important to realise that the average transfer (size cannot be disclosed) sometimes amounts to 20% of the monthly income at the recipient end. This money has a huge impact on the quality of life for those families, even helping them to enter a middle-class lifestyle, and we're very proud to be a part of this transformational impact."
Other than avoiding the high costs and hassles of traditional money transfer institutions another factor is a major contributor to fintechs and money transfer start-ups in India; the rise in mobile phones.
Like many developing nations, the growth and use of mobile communication devices is India is rapid, with a large number of Indians doing business digitally.
According to Forbes the demonetisation announcement resulted in a boost in digital use. "The providers of e-wallet and other digital payment systems have correctly viewed demonetization as a way to promote their services and to obtain new users. Since Modi's announcement, Paytm, a popular e-wallet, has seen a threefold increase in new sign-ups, while Oxigen Wallet's daily users spiked by 167%."
India Post has launched a mobile payment platform that does not require users to have a bank account and many traditional banks are deploying mobile platforms as well. The Indian government is also working on methods to make digital banking easy and accessible to its citizens.
However, most industry observers feel that the rest of 2017 and the near future to be a boon for fintechs, money-transfer, and e-wallet companies and start-ups.