Remittance

This article is about the transfer of money by migrant workers. For a payment sent by a customer to a business, see remittance advice. For an allowance sent to an exiled person on condition that they do not return home, see remittance man.

Remittance advertising in Oxford Street, London with Polish and Russian text.

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 one of the largest financial inflows to developing countries. Workers' remittances are a significant part of international capital flows, especially with regard to labour-exporting countries. In 2014, $436 billion went to developing countries, setting a new record. Overall global remittances also totaled $583 billion. Some countries, such as India and China, receive tens of billions of US dollars in remittances each year from their expatriates. In 2014, India received an estimated $70 billion and China an estimated $64 billion.

Global extent

Remittances are playing an increasingly large role in the economies of many countries. They contribute to economic growth and to the livelihoods of less prosperous people (though generally not the poorest of the poor). According to World Bank estimates, remittances totalled 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.

Top recipient countries

Top recipient countries of remittances (in billions of US Dollar)

Country	Remittances 2009	Remittances 2010	Remittances 2011	Remittances 2012	Remittances 2013	Remittances 2014	Remittances 2015
India	49.20	53.48	62.50	68.82	69.97	70.97	72.2
China	41.60	52.46	61.58	57.99	59.49	61.49	63.9
Philippines	19.96	21.56	23.05	24.61	26.70	27.90	29.70
France	16.06	19.46	22.56	22.05	23.34	23.94	24.6
Mexico	22.08	22.08	23.59	23.37	23.02	24.5	25.7
Nigeria	18.37	19.82	20.62	20.63	20.89	20.88	20.89
Egypt	7.15	12.45	14.32	19.24	17.83	19.83	20.4
Germany	12.34	12.79	14.52	15.14	15.20	16.60	17.50
Pakistan	8.72	9.69	12.26	14.01	14.63	17.8	20.1
Bangladesh	10.74	11.28	12.96	14.24	13.86	15.1	15.8
Belgium	10.44	10.29	10.98	10.16	11.11	11.11	11.10
Vietnam	6.02	8.26	8.60	10.00	11.00	11.8	12.30
Ukraine	5.94	6.54	7.82	8.45	7.67	8.45	6.2
Spain	8.95	9.10	9.92	9.66	9.58	10.1	10.5
Indonesia	6.79	6.92	6.92	7.21	7.62	8.66	10.51

Note: These are the largest 15 recipient countries of remittances only for the year 2013. World Bank data is used for all countries and years.

As a share of GDP, the top recipients of remittances in 2013 were Timor-Leste (216.6%), Tajikistan (42.1%), Kyrgyzstan (31.5%), Nepal (28.8%), Moldova (24.9%), Lesotho (24.4%), Samoa (23.8%), Haiti (21.1%), Armenia (21.0%), The Gambia (19.8%), Liberia (18.5%), Lebanon (17.0%), Honduras (16.9%), El Salvador (16.4%), Kosovo (16.1%), Jamaica (15.0%) and Bosnia and Herzegovina (13.4%, which is about 1.817 billion $ on 31 December 2014).

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 largest senders of remittances since 2007.

Asia

A majority of the remittances from the US have been directed to Asian countries like India (approx. 66 billion USD in 2011), China (approx. 57 billion USD), the Philippines (approx. 23 billion USD), Bangladesh (approx. <13.8 billion USD) and Pakistan (approx. 16 billion USD).

Most of the remittances happen by the conventional channel of agents, like Western Union, Al Ansari Exchange, 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 Xendpay, Remit2India, Azimo, OrbitRemit and Xoom.com have grown significantly.

Jordan

The flow of remittances to Jordan experienced rapid growth during the 1970s and 1980s when Jordan started exporting skilled labour to the Persian Gulf. These remittances represent an important source of funding for many developing countries, including Jordan. According to the World Bank data on remittances, with about 3 billion USD in 2010 Jordan ranked at 10th place among all developing countries. Jordan ranked among the top 20 recipients of remittances for the preceding decade. In addition, the Arab Monetary Fund (AMF) statistics in 2010 indicate that Jordan was the third biggest recipient of remittances among Arab countries after Egypt and Lebanon. The host countries that have absorbed most of the Jordanian expatriates are Saudi Arabia and the United Arab Emirates, where the available data indicate that about 90% of Jordanian migrants are working in the Persian Gulf.

Philippines

A common shop for remittance in Angeles City, 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 US$2.6 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 US$6 billion annually.

The total is estimated to have grown by 7.8 per cent annually to reach US$21.3 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 (IDB-MIF) has been the leading agency on regional remittance research.

Mexico received remittance inflows of almost US$24 billion in 2007, 95% of which originated in the US.

North America

The United States

A 2004 study found 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 (which led the group with 81% of its immigrants making regular remittances), California, Texas, Florida, Illinois, and New Jersey. The high growth rate of remittances to Mexico (not the total amount) is unlikely to continue. In fact, according to 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.

Remittance culture in the US has contributed to the formation of "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. However, little data exists as many rely on informal channels to send money home. Immigrants from Africa today number approximately 20 to 30 million adults, who send around $40 billion USD 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 (ODA) from all sources, and, for most countries, the amount also exceeds foreign direct investment (FDI). 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 (Money Transfer Operator) 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 ($9.6 billion). Other top recipients include Sudan ($3.2 billion), Kenya ($1.8 billion), Senegal ($1.2 billion), South Africa ($1.0 billion), Uganda ($0.8 billion), Lesotho ($0.5 billion), Ethiopia ($387 million), Mali ($385 million), and Togo ($302 million). As a share of Gross Domestic Product, the top recipients in 2009 were: Lesotho (25%), Togo (10%), Cape Verde (9%), Guinea-Bissau (9%), Senegal (9%), Gambia (8%), Liberia (6%), Sudan (6%), Nigeria (6%), and Kenya (5%).

Nigeria

Next to petrodollars, the second biggest source of foreign exchange earnings for Nigeria are remittances sent home by Nigerians living abroad. In 2014, 17.5 million Nigerians lived in foreign countries, with the UK and the USA having more than 2 million Nigerians each.

According to the International Organization for Migration, Nigeria witnessed a dramatic increase in remittances sent home from overseas Nigerians, going from USD 2.3 billion in 2004 to 17.9 billion in 2007, representing 6.7% of GDP. The United States accounts for the largest portion of official remittances, followed by the United Kingdom, Italy, Canada, Spain and France. On the African continent, Egypt, Equatorial Guinea, Chad, Libya and South Africa are important source countries of remittance flows to Nigeria, while China is the biggest remittance-sending country in Asia.

Somalia

Somali expatriates often send remittances to their relatives in Greater Somalia through Dahabshiil and other Somali-owned money transfer companies. In order to ensure that these funds go to their intended recipients rather than Al-Shabaab and other militant groups, the governments of the United States, Australia, and a number of other Western countries tightened their banking requirements or stopped processing altogether the remittances. To address the concerns, the United States Congress passed the Money Remittances Improvement Act of 2014.

In April 2015, the Federal Cabinet of Somalia also officially launched the Special Task Force on Remittances (STFR). The multi-agency initiative is mandated with facilitating the Federal Government of Somalia's new national policy pertaining to the money transfer industry. Its main priority is centered on establishing a comprehensive strategy and a consultative implementation plan for the formalization of the local financial sector. Additionally, the STFR is tasked with helping to foster a business environment and financial infrastructure conducive to growth. It is also empowered to coordinate and speed up the endorsement of financial governance instruments and transparency associated legislation, such as the laws on Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT). In accordance with the Financial Action Task Force (FATF)'s recommendations, the STFR is in turn slated to oversee the Somali federal government's campaign to ratify various international treaties. The Task Forces' membership is scheduled to be announced shortly, and will be drawn from government institutions, the remittance industry, banks and other key private sector stakeholders.

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 (with Argentina in 1960) 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.

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 (DFID) 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 the 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.

At the G20 2011 Summit in Cannes, Bill Gates stated that, “If the transaction costs on remittances worldwide were cut from where they are today at around 10% to an average of 5%…it would unlock $15bn a year in poor countries.” A number of low-cost online services such as Azimo have emerged with the objective of lowering the cost of money transfers to developing and emerging economies.

Dynamics

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 (family connections, traveling friends, local money lenders, etc.). 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 (AML) and terror financing (CTF) concerns. Since 9/11 many governments and the Financial Action Task Force (FATF) have taken steps to address informal value transfer systems. This is done through nations' Financial Intelligence Units (FIUs). 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.

Economic benefits for developing countries

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.

Remittance has also a significant effect on new and existing wire transfer startups and companies. Growing competition in the market has significantly lowered money transfer fees in the US as well as in Europe. Because of increasing remittance wire transfer market has become highly competitive, especially after successful market entries of TransferWise, Dwolla, TransferGo.

The World Bank and the Bank for International Settlements have developed international standards for remittance services.

External links

• The incredible rise of migrants' remittances Data visualisation of remittances' development since 1970.
• Integration : Building Inclusive Societies (IBIS) 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