How the UAE’s Cosmopolitan Population Helped It Become a Global Remittance Hub

Yasser Imam

Senior Consultant – Middle East Lead

As opposed to most of the Middle East, the United Arab Emirates (“UAE”) boasts unique consumer demographics, with expatriates constituting around 90 percent of the population of the region’s second-largest economy. Such a population acts as a core catalyst for remittances, as these expatriates regularly send funds back to their respective home countries — to the extent that the UAE currently ranks as the second-largest hub for outbound remittances globally, just trailing the United States. So where do expatriates hail from? Which remittance channels are popular among them? And what are the trends, developments, and forecasts for transfers in and out of the UAE?

The Remittances Landscape in the UAE

Family support is the standard purpose of payment for outbound remittances, especially among low-income earners who live in the UAE and send money monthly to their families back home. As for middle- to high-income earners, purposes expand to range from personal investments and overseas business interests to saving plans and education fees, among others. Many of these expatriates invest in real estate or other asset classes in their home countries and accordingly make periodic transfers for their respective mortgages or beneficiaries; this practice is common among expatriates from many countries, like the United Kingdom, Egypt, Lebanon, India, Pakistan, and Jordan, to name a few.

The volume of remittances has also changed after the pandemic. The latter resulted in higher inflation rates, surging asset prices, and increasing costs of living, aggregately culminating in an often higher volume of transfers exported from the UAE. However, there have been variations in this regard that were shaped by other factors coming into play, like fluctuating exchange rates: Egypt is a key example. The Egyptian Pound (“EGP”) devalued against the UAE Dirham (“AED”) from an EGP/AED exchange rate of 0.20 in March 2022 to the current level of 0.12, i.e., a 40% drop or a 97% AED appreciation, so that Egyptian expats in the UAE held higher purchasing power in their homeland. As such, the average transfer value increased by 75% from mid-2022 to mid-2023, despite the volume of remittances dropping by 94% and frequency shrinking by 41% during the same time,¹ as customers monitored exchange rate fluctuations to strike remittances at the right price.

Remittance Channels

Exchange houses have always been the traditional platform for outbound transfers in the UAE, like Al Ansari Exchange, Lulu Exchange, Al Fardan Exchange, Al Rostamani Exchange, Wall Street Exchange, Travelex, and Sharaf Exchange. Many of these exchanges partner with global payments and money transfers companies like Western Union and MoneyGram. Banks — with their online platforms — have remained the second favorite channel for outward payments, followed by up-and-coming payment fintechs like Wise, Revolut, 3S Money, and Remitly, to name a few. The sector estimate is that 15% of outward remittances are made through digital platforms.² This is behind the global average of 52%, demonstrating the growth potential digital remittances have in this market.³

Several factors shape consumers’ choices over which money transfer platforms to use. It has been observed that low-income earners — which mostly includes workers from Southeast Asia, the Indian Subcontinent, and Africa — still favor the traditional exchange houses for outgoing transfers, owing to factors like higher trust, better customer experience, lower charges, and higher in-person interaction. Digital players similarly provide high levels of trust and customer experience as well as convenience, yet at a higher cost. Such mix justifies why digital remittances are more common among high-income earners, who would make their payments through online channels rather than exchange houses.

Outward Remittances

With the UAE being a melting pot for expatriates from many parts of the world, we find that outward remittances are channeled to several countries. Since most of the UAE’s population hails from Asia and the Indian Subcontinent, the data indicates that 50% of the UAE’s outward remittances through exchange houses in 2022 – amounting to US$39.7 billion (AED 145.7 billion)– were channeled to the trio of India, Pakistan, and the Philippines.⁴ Such aggregate amount comprised private remittances of US$28.8 billion (AED 105.9 billion), trade remittances of USD 7.8 billion (AED 28.5 billion), other remittances of US$2.9 billion (AED 10.6 billion), and investment remittances of US$0.2 billion (AED 0.7 million).⁵ Other popular destinations for outbound transfers are China, Egypt, and the UK, thanks to the UAE’s cosmopolitan population.

India is the largest recipient market for outward remittances — not only from the UAE but also from all over the world. In 2020 it toppled China from the top spot, and in 2022, received US$100 billion in remittances. UAE is the second-largest remittance source to India (accounting for 18% of remittances sent), after the United States, which accounts for 23%.

When we rank transfer destinations by average ticket per remittance, however, the United Kingdom tops the list with US$1,263.2 (AED 4638.97), followed by India with US$288.7 (AED 1060.32), Egypt at US$246.4 (AED 905), Nepal with US$227.3 (AED 834.66), and Indonesia at US$200.8 (AED 737.32).⁶  Multiple factors come into play with reference to average remittance ticket, which include the economic status of remitters in the UAE, the exchange rate between the underlying currencies, and the cost of living in recipients’ jurisdictions. The UK receives the highest average remittance value by virtue of its relatively higher cost of living versus destinations like India, Egypt, Nepal, and Indonesia.

The UAE-India Corridor: Growth Opportunities

Noting the prominence of outward remittances to India, in 2022 the UAE and India agreed on establishing a framework to (a) use local currencies for cross-border transactions and (b) link their respective payment and messaging systems, notably India’s Unified Payments Interface with the UAE’s Instant Payment Platform. The agreement has been shaped by establishing a local currency settlement system (“LCSS”) to promote the use of the Indian Rupee (“INR”) and the AED bilaterally, which allows exporters and importers to invoice and pay in INR and AED. Such setup is anticipated to boost the INR-AED foreign exchange market, optimize transaction cost and time, and ultimately promote investments between the two countries.

Future Outlook

The UAE’s consumer demographics — with expatriates representing around 90% of the country’s population in 2023 — will continue driving the payments and remittances landscape. The UAE’s population has considerably grown in 2023, thanks to higher job creation and the implementation of the golden residence visa scheme, whereby such circumstances have in turn spurred remittances that are directly proportional with population structure and growth. Moving into the forecast period 2023-2027, it is expected that the UAE’s population with demonstrate robust growth rates and as well as the volume of remittances and penetration of digital channels.

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