Migrant remittances to developing countries: a scoping study: overview and introduction to issues for pro-poor financial services

This study offers an introduction to remittances and their developmental contributions, with a particular focus on issues related to financial services. It looks at remittance flows, channels and transaction costs, related regulations and policies, use and developmental effects of remittances, current trends and donor interests.

Key findings include:

• remittances have become the second largest capital flow behind foreign direct investment (FDI) and ahead of overseas development assistance (ODA)
• in 2001, remittances represented 42% of total FDI flows and 260% of ODA
• remittances have more than doubled in value in the past decade and also grown faster than migration
• Latin America and the Caribbean received the lion share of remittances in nominal terms with $25 billion, whereas South Asia was the region where receipts were the largest in relative terms, amounting to 2.5% of GDP
• this picture is heavily skewed by underreporting and complete lack of data, especially for Africa
• on average, one third of remittances flow through informal channels
• the single biggest contribution of remittances is to the welfare and improved livelihood of the receiving household
• an estimated average of 80% of remittances goes to consumption
• there are spill-over effects into extended families and the local economy as well as into community development projects
• benefits of remittances by far outweigh any actual or potential drawbacks
• donors have begun to recognise the role of remittances and have become interested primarily in how to facilitate an increase of the flow and use of remittances for developmental benefits. This includes how to facilitate a reduction in transaction cost and better access to formal sector transfer services, as well as how to better integrate and improve access to a broader range of financial services through remittances as an ‘entry point’
• remittances and their investment are significantly hampered by inefficiencies and access barriers in financial systems and services, both in sending and receiving countries
• early initiatives to cross-sell financial services with remittance transfers indicate a good potential for uptake more generally

[adapted from author]