CHAPTER 7:

REMITTANCES
LEARNING OBJECTIVES

 At the end of this chapter you should be able to:

 Classify various types of remittance
 Explain the usage of each remittance account
 Elaborate the process of applying for remittance a/c
 Distinguish the feature of each remittance account
 REMITTANCES
Defined as:
The sending of money to someone at distance;
An instrument by which money is remitted.
eg: sending money to children studying abroad, foreign labourers
sending money to families back home.
 Transfer of money – no physical movement of cash.
 Remittance of funds can only be done by:
i. Licensed Commercial Bank
ii. BIMB/Bank Muamalat
iii. BSN
iv. Post Malaysia Bhd (for money orders/postal orders only)
 OUTWARD/INWARD REMITTANCE

Outward vs. Inward Remittance – Payment vs.

Receipt of monies.

i. Outward Remittance – monies that a person

want to send out of a country

ii. Inward Remittance - monies that a person expect

to receive from external country
 LOCAL REMITTANCE

 Local Remittance – transfer of domestic currency

within a country (RM in M’sia).
 FOREIGN REMITTANCE

 Foreign Remittance – effected by means of a bank

draft or TT drawn on or effected thru an overseas
branch or foreign correspondent bank of the
issuing/initiating bank.
 Foreign Outward Remittance – transfer of any
foreign currency to a payee outside the originating
country.
 Foreign Inward Remittance– incoming payment in any
foreign currency from a foreign country to a local
beneficiary.
 TYPES OF REMITTANCE

1. Demand Draft;
2. Telegraphic Transfer.
3. Online Transfer
4. Standing Instructions/Orders (SI)
1. CASHIER’S ORDER / DEMAND DRAFT
 It is…
 an unconditional order in writing,
 addressed by a bank to another,
 signed by the issuing bank,
 requiring the bank to whom it is addressed
 to pay on demand the sum stated in the draft
 to or to the order of the person specified on the draft.
 Used for payment to a different clearing area or to a foreign
country.
TYPES OF DEMAND DRAFT

i. Local Demand Draft

ii. Foreign Demand Draft

i. LOCAL DD

• DD is drawn in Malaysian Ringgit and payable in

Malaysia
• The applicant will indicate where he wants the DD to
be payable
• The bank officer will locate the branch of the bank in
that town
 If no branch available, DD draft can be drawn at
correspondence bank
 If no correspondence bank available, bank officer will try to
find other bank
CONT’D

 Drawing bank/issuer has to inform the drawee

bank that is has issued the DD and make
necessary arrangement to transfer fund
 Maturity of DD is six (6) months
 2 types of local DD
1. Outward DD – DD drawn by an issuing bank/drawing
bank
2. Inward DD - DD issued by other bank and received by
a drawee bank
 (1) Approach bank to
Customer/ purchase DD Remitting
Remitter Bank
(Kedah) Kedah)
(2) Hands on DD

(3) Notifies the bank

(4) Despatch the DD
of the issuances of
the DD

(5) Present DD for Payment

Branch
Developer
Bank
(KL)
(KL)

Assumption: To pay for down payment for buying new house to housing developer
ii. FOREIGN DD

 Foreign DD will be in foreign currency

 Foreign DD is drawn on an overseas branch or a
foreign correspondent or an agent bank of the issuing
bank.
 2 types of foreign DD
1. Outward foreign DD – DD drawn by an issuing
bank/drawing bank
 It is necessary to mention the amount and currency involved
2. Inward foreign DD - DD issued by other bank and
received by a drawee bank
 3. TELEGRAPHIC TRANSFER S

 Transfer of funds domestically or internationally, by

using cable, telex, fax, telephone & through SWIFT
(Society for Worldwide Interbank financial
Telecommunication)

 2 types of TT:
i. Outward TT
ii. Inward TT
i. OUTWARD TT

 Can be for IN a country or OUT a country

 Local outward TT can be done in RM
 Outward TT can be done in RM or FOREIGN currencies
 Cost involved – amount to be remitted, cost of inland
exchange (for local TT only) and transmission charges
 ii. INWARD TT

 Can be from IN or OUT the country

 Either from local branches, local agents or from overseas
branches or overseas agents
 To remit the fund, bank has to contact the beneficiary
 Details required – amount & currency; the details of the
beneficiary (a/c no. & contact no.)and the beneficiary’s bank
 1) Complete & sign
Customer/ application form Remitting
Remitter Bank
(KL) (KL)
2) Receive payment
and acknowledge
receipt 4)- Instruct by
telex or SWIFT to
3) Notify the pay
payment 6) Notify payment
& reimbursement
4 6

5) Notifies and pays

Correspondent
Beneficiary
Bank
(USA) (USA)

Assumption: To send money for children studying abroad

3. ONLINE TRANSFER (GIRO)
 Interbank fund transfer system provided by Malaysian
Electronic Payment System (MEPS) to facilitate payment and
collection processes
 MEPS Interbank GIRO (MEPS IBG) makes interbank funds
transfer more convenient to bank customers via an electronic
channel.
 Payments to be made without physical supporting vouchers or
documents such as cheques, bank drafts,
 A secure system/channel for all sorts of payments through
direct debiting of the customers' account(s) and crediting into
the beneficiaries account; with any IBG participating banks
CONT’D
 Fund transfer can be made between:
1. Own Accounts
Transfer funds between customer personal accounts either:
a. Immediate transfer - Allows immediate transfer of funds
b. Future transfer - Allows transfer of funds at a selected future
date
2. 3rd Party Accounts
Transfer funds to 3rd party accounts
 Transaction Limit Maintenance
The maximum limit for 3rd party and Interbank Funds
Transfers is set by default at RM3,000 per day. However,
the transaction Limit Maintenance function allows the
customer to set daily transaction limit between 1 sen to
RM5,000 maximum
ONLINE TRANSFER BENEFITS

1. Less risk: Need not use cheques or cash for payments.

2. Better cash management : Accurate record of all
collections and payment made.
3. Operational efficiencies: For corporations, accounting
reconciliations will be reduced and simplified, thus
freeing staff for more productive work.
4. Secure: IBG transactions are encrypted and the
services conform to Bank Negara Malaysia's strict
security requirements.
 4. STANDING INSTRUCTIONS

 An instruction of a customer to his banker to remit

periodic payment of fund to a same person by debiting
his account.

 Example of periodic payment:

 Loans, insurance premium, monthly gift to parents/children

 Funding responsibility = the customer’s (a bank can’t be

held liable of any delay).
INFORMATION REQUIRED FOR STANDING INSTRUCTION

 SI form to be filled:
 Name & address of beneficiary
 Amount involved
 Payment intervals
 Date of payment
 From which account the remittance is to be made eg: debit
authorization
 indemnity against delay consequences.
 The bank executes the SI by crediting the beneficiary account,
banker’s cheques, demand drafts or TTs.