Remittances offer $301bn lifeline
Thursday, 25 October 2007
Richard Lapper
MIGRANT workers last year sent home more than $301bn (£148bn, €212bn) to their families in developing countries -- an amount nearly a third higher than previous published estimates -- according to the latest research publication.
The study by the UN's International Fund for Agricultural Development (IFAD) and the Inter-American Development Bank (IDB) compares with recent World Bank figures for 2006 of $207bn, although the bank said the total would be higher if money sent through informal channels were included.
The study represents the first attempt to calculate fully remittances sent through informal channels, in addition to those recorded by central banks.
It shows that the economies of some poorer countries and regions, especially in sub-Saharan Africa and parts of Asia, are more dependent on remittances than had been thought. "Remittances represent a lifeline to struggling economies," said Lennart Båge, the president of IFAD.
As well as using the official numbers recorded by central banks, researchers from IFAD and IDB drew on opinion polls, surveys of household spending and academic research, and on official records from banks and money transfer operators.
Economic liberalisation and rising cross-border migration has triggered a sharp rise in remittance flows in the last two decades, with flows to developing countries up from $18.4bn in 1980. But part of the increase reflects the fact that central banks in several countries have adjusted the way they collect data.
Greater knowledge of the size of remittance flows has helped policy-makers focus on the issue and encouraged politicians to eliminate restrictions that make it difficult to send money.
It has also attracted financial institutions to the business of money transfer, increasing competition and driving down the average cost of making a remittance.
In Latin America, for example, where central banks have made most progress in assessing the real size of the remittance market, competition between banks and money transfer companies, such as Western Union and MoneyGram, is acute and commissions have fallen by about two thirds to average about 5.0 per cent in the past seven years.
The report suggests that a similar process could take place in sub-Saharan Africa, where transmission costs tend to be much higher at about 10 per cent, in part because the formal business is dominated by one or two banks and most flows handled by informal channels.
According to the report, remittances to the countries of sub-Saharan Africa reached more than $20bn, more than double the $9.3bn estimated by the World Bank. Remittances to the Middle East - where networks of informal brokers known as hawaladars play an important role in the business - and North Africa amount to $34.7bn according to the report, compared with the bank's estimate of $25.1bn.
The report said remittances tended to be undercounted in remote rural areas, where bank branches were few and far between and informal channels dominated delivery. Arguing that European countries such as Italy, Spain and Portugal owed much of their own development to rural banks and credit unions set up after the second world war to receive money sent home by migrants, Mr Båge claimed the development potential of these money flows was enormous.
Under syndication arrangement
with FE
MIGRANT workers last year sent home more than $301bn (£148bn, €212bn) to their families in developing countries -- an amount nearly a third higher than previous published estimates -- according to the latest research publication.
The study by the UN's International Fund for Agricultural Development (IFAD) and the Inter-American Development Bank (IDB) compares with recent World Bank figures for 2006 of $207bn, although the bank said the total would be higher if money sent through informal channels were included.
The study represents the first attempt to calculate fully remittances sent through informal channels, in addition to those recorded by central banks.
It shows that the economies of some poorer countries and regions, especially in sub-Saharan Africa and parts of Asia, are more dependent on remittances than had been thought. "Remittances represent a lifeline to struggling economies," said Lennart Båge, the president of IFAD.
As well as using the official numbers recorded by central banks, researchers from IFAD and IDB drew on opinion polls, surveys of household spending and academic research, and on official records from banks and money transfer operators.
Economic liberalisation and rising cross-border migration has triggered a sharp rise in remittance flows in the last two decades, with flows to developing countries up from $18.4bn in 1980. But part of the increase reflects the fact that central banks in several countries have adjusted the way they collect data.
Greater knowledge of the size of remittance flows has helped policy-makers focus on the issue and encouraged politicians to eliminate restrictions that make it difficult to send money.
It has also attracted financial institutions to the business of money transfer, increasing competition and driving down the average cost of making a remittance.
In Latin America, for example, where central banks have made most progress in assessing the real size of the remittance market, competition between banks and money transfer companies, such as Western Union and MoneyGram, is acute and commissions have fallen by about two thirds to average about 5.0 per cent in the past seven years.
The report suggests that a similar process could take place in sub-Saharan Africa, where transmission costs tend to be much higher at about 10 per cent, in part because the formal business is dominated by one or two banks and most flows handled by informal channels.
According to the report, remittances to the countries of sub-Saharan Africa reached more than $20bn, more than double the $9.3bn estimated by the World Bank. Remittances to the Middle East - where networks of informal brokers known as hawaladars play an important role in the business - and North Africa amount to $34.7bn according to the report, compared with the bank's estimate of $25.1bn.
The report said remittances tended to be undercounted in remote rural areas, where bank branches were few and far between and informal channels dominated delivery. Arguing that European countries such as Italy, Spain and Portugal owed much of their own development to rural banks and credit unions set up after the second world war to receive money sent home by migrants, Mr Båge claimed the development potential of these money flows was enormous.
Under syndication arrangement
with FE