India and China are reaping the financial benefits produced by wealthy remitters

Emerging markets are being powered by their wealthy communities.

Every year, billions of dollars are being remitted back into countries such as China and India, which are proving to be a hotbed for the rich. This has been done through special bank services that encourage wealthy populations to feed their money back into their home economies.

How? Well, take your average wealthy, non-resident Indian (NRI) as an example – or in layman’s terms, a wealthy Indian who lives abroad or darts about from country to country. Sending money back home has been simplified through banking.

Over the past 25 years, the idea of offshore Indians sending money home has been transformed itself into a multi-beneficial business for clients, their banks and India’s economy at large. NRIs are being largely serviced by banks abroad – banks that have tapped into this market to squeeze “emerging economy” wealth and benefit from the remittance culture.

The main feature of NRI banking is the remittance facility, which allows the client to send money to India, which is then received by the recipient in the local currency, rupees. This is the ultimate lure for clients because it also allows offshore Indians to have a fixed-deposit account maintained only in foreign currencies, (with untaxed interest earned in India as an added benefit).

According to the Reserve Bank of India, the country’s central bank, NRIs remitted $26.4 billion home in 2006, the highest remittance for any nationality. Their remittances are growing by a hefty 25 per cent annually.

Total NRI wealth is estimated to exceed a bulky $1 trillion, in which global investible NRI liquid wealth is estimated at $500 billion, Barclays Wealth data estimates.

“It’s a client base with extremely high growth, which means it is good business for us,” the head of Barclays Wealth Southeast and South Asia unit, Srinivas Siripurapu, told UK-based Private Banker International.

This is not only good news for the banks and the clients, but for India’s economy, too. India is expected to grow rapidly in the coming years, and by 2020 it is expected to become the fourth-largest contributor to the world’s gross domestic product growth, with a contribution of almost 4.9 percent. (The U.S. will be the largest contributor, followed by China and Japan.)

Meanwhile, “new wealth” being generated within such emerging markets as India and China (as opposed to initially being created offshore) is also proving to be a rising trend. India and China are both examples of ripening economies; they are developing through rapidly growing business activity and industrialization. India’s wealth pool is estimated to belong to a 20-million-strong international NRI community, while the global Chinese community is set to become another demographic that global banks begin to tap.

At Citi private bank, director Vaibhav Sharma believes just that.

“The second diaspora people are talking about is global Chinese, they have almost the same needs as the global Indians,” explains Sharma, who refers to the NRI client set as “Global Indians.”

“Emerging market economies include people that want to experiment with international services. India is ahead in terms of financial services, but this may happen in China very soon,” Sharma told Private Banker International.

China, a holder of the world's largest foreign exchange reserves, at $3.2 trillion, has recently become a major player in the European debt crisis talks; the region’s European Financial Stability Facility bailout fund has been trying to win help from Beijing. This is because China’s GDP is set to grow to almost 9 percent in 2011. Compare that with the United States and the eurozone (growth forecasted at a joint 1.6 percent), and China’s economic charm is clear.

Indeed, the main reasons behind Chinese and Indian economic growth remain: their relatively cheap labor force and a thriving domestic market that has fed well into the global manufacturing supply chain. But their wealthy on- and offshore communities have cranked up their economic caliber and their global appeal for investors.

India appears in the top five countries where the offshore affluent now have more than $1 million investable assets on average, according to the Global Affluent Investor study conducted by research company TNS.

“India and China have already surpassed major European markets like Germany and France. It’s interesting to see that the entrepreneurial spirit of people in these markets is already paying off in terms of personal wealth,” Reg van Steen, director of business and finance, TNS, said, according to Reuters.

Such emerging markets paint a cheery picture of wealth and how it can leverage economies in the wake of the 2008 global recession and amid the continuing fiscal crises.