Remittances and Money Transfers
Migrant remittances have gained policy relevance in the contemporary analysis of development economics as research shows a relationship between migration, remittances, and development. Research has ranged from analysis methods, to flow measures, to the impact of these person-to-person transfers on poverty alleviation, finances, and macroeconomic variables.
Studies show that remittance-recipients are more likely to have savings, and recipients of larger amounts are more likely to also have bank accounts and investments. The demand for financial services, however, has yet to be met by a supply of appropriate products from banking institutions, thus posing a development policy problem.
From a development policy perspective, some of the approaches on remittances have looked at the estimates of the size of flows, intermediation of these flows vis-à-vis regulatory and development finance frameworks, and policy instruments that can enhance their impact on development.
Policy issues include reducing the barriers to entry for effective competition among money transfer operators and payers that can mitigate transaction costs and financial access, understanding the implications of the links between finance and remittances (including solutions to the lack of remittance senders’ and recipients’ access to financial institutions), and assessing the long term sustainability of flows.
The USAID Microenterprise Development office’s (MD) activities on remittances aim to achieve the following objectives:
- To share the latest trends and developments in the area of remittances and development to a wide audience of USAID staff, other donors, banks and microfinance institutions (MFIs), and money transfer operators.
- To document the flows and analyze the competitive landscape of the remittance market in specific corridors of interest to USAID missions.
- To develop practical tools that could help USAID missions better understand the role and importance of remittance flows in their country and identify potential policy and programmatic actions that reinforce ongoing economic growth and poverty reduction strategies.
- To support pilot activities for “productizing” remittances and expanding financial access by banking the unbanked.
- To share the latest debates, developments, initiatives, data, case studies, events, and publications on migrant remittances.
KNOWLEDGE AND PRACTICE
MD’s activities in this area aim to extract lessons from research findings and policy instruments about how best to leverage these foreign savings into wealth generating activities. Such work has included:
- Estimates of remittances to Armenia and prospects on future flows;
- A study of remittances to Nigeria, the competitive landscape and barriers;
- A study of microfinance and remittances in Latin America and the Caribbean;
- Designing baseline guidelines on remittance-related household survey analysis;
- Producing a quarterly Migrant Remittances Newsletter that highlights remittances, regulatory issues, cooperation and new projects, and the intersection of remittances and financial intermediation.
The Nigeria and Armenia projects (remittance destinations with different migration patterns) show the continued prevalence of informal flows and thus, the importance of finding alternative methods to accurately measure the volume of remittances and expand competition. In Armenia, an important finding about the continuity of remittances and migration shows that one-quarter of people are planning to migrate and two-thirds of recipients expect to continue receiving money over time. Furthermore, the lack of jobs and unemployment are important predictors of amounts received, intention to migrate, and the expectation of future flows. In Nigeria, findings show that policy must address regulatory challenges that constrain the marketplace of remittance transfers. Furthermore, significant opportunities exist through developing innovative financial products.
Many lessons have emerged from the linkage of remittances and financial access within the MFI context. Despite the fact that one-third of MFIs in Latin America are paying remittances, with varying degrees of performance, common patterns are apparent. These include a lack of adequate competitive capacity, data collection and mining for financial analysis and forecasting, and adequate financial product design. Policy solutions address technical assistance on financial literacy, product design, and data management.
International migration and increases in remittances show no signs of slowing in the coming years. Indeed, as seen in Armenia, remittance income provides an incentive to migrate in countries suffering from high unemployment and limited prospects for growth. Understanding the mechanisms and the human and financial dynamics of migrant money transfers can help shape policy that targets remittance income as a key source of asset accumulation.
Under MD’s Financial Integration, Economic Strengthening and Broad-Based Dissemination program (FIELD-Support), the World Council of Credit Unions is conducting a pilot in Guatemala to develop remittance-linked savings and credit products. USAID is also supporting a Global Development Alliance/Development Credit Authority activity with Microfinance International Corporation to pilot a remittance-linked home mortgage product with several partner MFIs in El Salvador and Mexico.