A remittance is a transfer of money by a foreign worker to an individual in his or her home
country.
Money sent home by migrants competes with international aid as some of the largest financial
inflows to developing countries.
In 2012, according to the World Bank Report, $401 billion went to developing countries
with overall global remittances at $514 billion.
The economic impact remains contested among researchers, however, remittance transfers
do draw people towards the financial services that are available to them.
Significance Remittances are playing an increasingly large
role in the economies of many countries, contributing to economic growth and to the livelihoods
of less prosperous people.
According to World Bank estimates, remittances totaled US$414 billion in 2009, of which US$316
billion went to developing countries that involved 192 million migrant workers.
For some individual recipient countries, remittances can be as high as a third of their GDP.
As remittance receivers often have a higher propensity to own a bank account, remittances
promote access to financial services for the sender and recipient, an essential aspect
of leveraging remittances to promote economic development.
According to some social scientists remittances have social significance that extends well
beyond the mere financial dimensions.
The World Bank and the Bank for International Settlements have developed international standards
for remittance services.
In 2004 the G8 met at the Sea Island Summit and decided to take action to lower the costs
for migrant workers who send money back to their friends and families in their country
of origin.
In light of this, various G8 government developmental organizations, such as the UK government's
Department for International Development and USAID began to look into ways in which the
cost of remitting money could be lowered.
In September 2008, the World Bank established the first international database of remittance
prices.
The Remittance Prices Worldwide Database provides data on sending and receiving remittances
for over 200 "country corridors" worldwide.
The "corridors" examined include remittance flows from 32 major sending countries to 89
receiving countries, which account for more than 60% of total remittances to developing
countries.
The resulting publication of the Remittance Prices Worldwide Database serves four major
purposes: benchmarking improvements, allowing comparisons across countries, supporting consumers’
choices, and putting pressure on service providers to improve their services.
At a July 2009 summit in L'Aquila, Italy, G8 heads of government and states endorsed
the objective of reducing the cost of remittance services by five percentage points in five
years.
To drive down costs, the World Bank has begun certifying regional and national databases
that use a consistent methodology to compare the cost of sending remittances.
History Overview
Remittances are not a new phenomenon in the world, being a normal concomitant to migration
which has always been a part of human history.
Several European countries, for example Spain, Italy and Ireland were heavily dependent on
remittances received from their emigrants during the 19th and 20th centuries.
In the case of Spain, remittances amounted to the 21% of all of its current account income
in 1946.
All of those countries created policies on remittances developed after significant research
efforts in the field.
For instance, Italy was the first country in the world to enact a law to protect remittances
in 1901 while Spain was the first country to sign an international treaty to lower the
cost of the remittances received.
Since 2000, remittances have increased sharply worldwide, having almost tripled to $529 billion
in 2012.
In 2012, migrants from India and China alone sent more than $130 billion to their home
countries.
By region The US has been the leading source of remittances
globally in every year since 1983.
Russia, Saudi Arabia, and Switzerland have been the next most significant senders of
remittance since 2007.
Asia A majority of the remittances from the US
have been directed to Asian countries like India, China, the Philippines, Bangladesh
and Pakistan and.
Most of the remittances happen by the conventional channel of agents, like Western Union, Xpress
Money, UAE Exchange, Intel Express and MoneyGram.
However, with the increasing relevance and reach of the Internet, online and mobile phone
money transfers from companies such as Remit2India, Azimo and Xoom.com have grown significantly.
Philippines
According to a World Bank Study, the Philippines is the second largest recipient for remittances
in Asia.
It was estimated in 1994 that migrants sent over US2.6 billion back to the Philippines
through formal banking systems.
With the addition of money sent through private finance companies and return migrants, the
1994 total was closer to US6 billion annually.
Looking at current remittance flows, the total is estimated to have grown by 7.8 per cent
annually to reach US21.3 billion in 2010.
Remittances are a reliable source of revenue for the Philippines, accounting for 8.9 per
cent of the country's GDP.
The Estrada administration in 2000 declared it "The Year of Overseas Filipino Worker in
the Recognition of the Determination and Supreme Self-Sacrifice of Overseas Filipino Workers."
This declaration connects monetary remittances of overseas workers as the top foreign-exchange
earnings in the Philippines.
Latin America and the Caribbean In Latin America and the Caribbean, remittances
play an important role in the economy of the region, totaling over 66.5 billion USD in
2007, with about 75% originating in the United States.
This total represents more than the sum of Foreign direct investment and official development
aid combined.
In seven Latin American and Caribbean countries, remittances even account for more than 10%
of GDP and exceed the dollar flows of the largest export product in almost every country
in the region.
Percentages ranged from 2% in Mexico, to 18% in El Salvador, 21% in Honduras, and up to
30% in Haiti.
The Inter American Development Bank's Multilateral Investment Fund has been the leading agency
on regional remittance research.
This research has often been carried out in collaboration with Manuel Orozco of the Inter-American
Dialogue, his remittance research can be found at the Dialogue and at the IDB.
In this region, Mexico, one of the best documented examples of migration and remittances, received
remittance inflows of almost 24 Billion US$ in 2007, 95% of which originated in the US.
A significant study conducted by the Inter-American Development Bank in 2004 provides useful insight
into remittance and related migration patterns between Latin America and the United States.
The study reveals that over 60% of the 16.5 million Latin American-born adults who resided
in the United States at the time of the survey regularly sent money home.
The remittances sent by these 10 million immigrants were transmitted via more than 100 million
individual transactions per year and amounted to an estimated $30 billion during 2004.
Each transaction averaged about $150–$250, and, because these migrants tended to send
smaller amounts more frequently than others, their remittances had a higher percentage
of costs due to transfer fees.
Migrants sent approximately 10% of their household incomes; these remittances made up a corresponding
50–80% of the household incomes for the recipients.
Significant amounts of remittances were sent from 37 U.S. states, but six states were identified
as the "traditional sending" states: New York, California, Texas, Florida, Illinois, and
New Jersey.
The high growth rate of remittances to Mexico is unlikely to continue.
In fact, according the Mexican central bank, remittances grew just 0.6 during the first
six months of 2007, as compared to 23% during the same period in 2006.
Experts attribute the slowdown to a contraction in the U.S. construction industry, tighter
border controls, and a crackdown in the U.S. on illegal immigration.
As the foregoing statistics illustrate, increased migration from Latin America to the United
States has resulted in a very significant amount of remittance activity.
The numbers also help us understand the dependence between a developed country and developing
countries: The United States needs Latin Americans to supply its labor markets—the migration
improves business profitability and reduces the costs of production, while Latin American
countries depend on the flows of remittances that result from the migration of labor.
This dependence has also resulted in what experts call "micro-geographies," tightly
knit networks that integrate U.S. communities with communities throughout Latin America,
such as migrants from Oaxaca, Mexico who have settled in Venice Beach, California.
Oaxacans not only send money back to their communities, but they also travel back and
forth extensively.
As of recently, remittances from the U.S. to Latin America have been on the decline.
While there were USD 69.2 billion worth of remittances sent in 2008, that figure has
fallen to USD 58.9 billion for 2011.
This trend is a result of many factors including the global recession, more economic opportunity
in Latin American countries, and rising fees charged by coyotes to smuggle immigrants across
the border.
The pattern of migration has changed from a circular flow, in which immigrants work
in the U.S. for a few years before returning to their families in their home countries,
to a one-way stream whereby migrants find themselves stuck in the United States.
As a result, the new wave of migrants are both less likely to leave and more likely
to stay in the U.S. for longer periods of time.
Overall, this trend has contributed to falling levels of remittances sent to Latin American
countries from the United States.
Africa Remittances to Africa play an important role
to national economies, but little data exists as many rely on informal channels to send
money home.
Today's African Diaspora consists of approximately 20 to 30 million adults, who send about USD
40 billion annually to their families and local communities back home.
For the region as a whole, this represents 50 percent more than net official development
assistance from all sources, and, for most countries, the amount also exceeds foreign
direct investment.
In several fragile states, remittances are estimated to exceed 50 percent of GDP.
Most African countries restrict the payment of remittances to banks, which in turn, typically
enter into exclusive arrangements with large money transfer companies, like Western Union
or Money Gram, to operate on their behalf.
This results in limited competition and limited access for consumers, although there are a
number of new players aiming to disrupt this established MTO model, such as Xoom and Willstream,
which leverage increasing mobile phone penetration in the region and provide different rate structures
to Diaspora customers.
According to a World Bank study, Nigeria is by far the top remittance recipient in Africa,
accounting for $10 billion in 2010, a slight increase over the previous year.
Other top recipients include Sudan, Kenya, Senegal, South Africa, Uganda, Lesotho, Ethiopia,
Mali, and Togo.
As a share of Gross Domestic Product, the top recipients in 2009 were: Lesotho, Togo,
Cape Verde, Guinea-Bissau, Senegal, Gambia, Liberia, Sudan, Nigeria, and Kenya.
Emergencies During disasters or emergencies, remittances
can be a vital source of income for people whose other forms of livelihood may have been
destroyed by conflict or natural disaster.
According to the Overseas Development Institute, this is being increasingly recognized as important
by aid actors who are considering better ways of supporting people in emergency responses.
Potential security concerns The recent internationally coordinated effort
to stifle possible sources of money laundering and/or terrorist financing has increased the
cost of sending remittances directly increasing costs to the companies facilitating the sending
and indirectly to the person remitting.
As in some corridors a sizable amount of remittances is sent through informal channels.
According to the World Bank, some countries do not report remittances data.
Moreover, when data is available, the methodologies used by countries for remittance data compilation
are not publicly available.
A 2010 world survey of central banks found significant differences in the quality of
remittance data collection across countries: some central banks only used remittances data
reported from commercial banks, neglecting to account for remittance flows via money
transfer operators and post offices.
Remittances can be difficult to track and potentially sensitive to money laundering
and terror financing concerns.
Since 9/11 many governments and the Financial Action Task Force have taken steps to address
informal value transfer systems.
This is done through nations' Financial Intelligence Units.
The principle legislative initiatives in this area are the USA PATRIOT Act, Title III in
the United States and, in the EU, through a series of EU Money Laundering Directives.
Though no serious terror risk should be associated with migrants sending money to their families,
misuse of the financial system remains a serious government concern.
Top recipient countries Note: These are the largest recipient countries
of remittances for the year 2012.
World Bank data is used for all countries and years.
As a share of GDP, the top recipients of remittances in 2012 were Tajikistan, Kyrgyzstan, Nepal,
Moldova, Samoa, Lesotho, Armenia, Haiti, and Liberia.
Economic benefits As remittance receivers often have a higher
propensity to own a bank account, remittances promote access to financial services for the
sender and recipient, an essential aspect of leveraging remittances to promote economic
development.
The stability of remittance flows despite financial crises and economic downturns make
them a reliable financial resource for developing countries.
As migrant remittances are sent cumulatively over the years and not only by new migrants,
remittances are able to be persistent over time.
Remittances are often sent by circular migrants, migrant workers who move back and forth between
their home and host countries in a temporary and repetitive manner.
These workers have the benefit of working in a high-income country and sending their
remittances to a low-income country, thus benefitting financially.
At the state level, countries with diversified migration destinations are likely to have
more sustainable remittance flows.
From a macroeconomic perspective, remittances can boost aggregate demand and thereby GDP
as well as spur economic growth.
However, some research indicates that remittances may also have adverse macroeconomic impacts
by increasing income inequality and reducing labor supply among recipients.
A 2011 study develops a long-run growth model for a labour exporting country that receives
large inflows of external income—the sum of remittances, FDI and general government
transfers—from major oil exporting economies.
The long-run economic benefits of external income is then evaluated using data for Jordan.
References
External links The incredible rise of migrants' remittances
Data visualisation of remittances' development since 1970.
Integration : Building Inclusive Societies UN Alliance of Civilizations online community
on Good Practices of Integration of Migrants across the World
Outlook for remittance flows to developing countries: Recovery after the global financial
crisis but risks lie ahead Migration and Remittances