Sustaining the growth of remittance
Wednesday, 2 September 2009
Masum Reza
International remittances are sent to Bangladesh mainly by three large, but distinct types of migrants. Firstly, there is an important, mainly American and British, diaspora of well-educated, high or middle income earners. Secondly, a diaspora of Bangladeshi origin belonging to the low-income or unemployed segments of the population also exists in industrialised countries. Thirdly, there is a major group of migrant labourers, who are residing for a specific period of time in Middle Eastern (mainly Saudi Arabia, UAE, Kuwait), South-East Asian (Malaysia, Singapore) and some industrialized countries. The first two groups amount to more than a million emigrants, while in the last 29 years about 3.8 million Bangladeshis have been officially recorded as migrant labourers.
Bangladesh's total earning from remittance has been estimated at about $ 10 billion in the last fiscal year (June 2008 to June 2009). Most international remittances come from the Middle East and, thus, from temporary migrant workers. Saudi Arabia accounts for more than 40 per cent. The diaspora also takes a large share, with the USA accounting for 14 per cent of the remittance flow. Besides official channels, money is remitted by hundi or hand carried by the migrant or friends or family of the migrant. These informal channels do constitute a substantial source of remittance earnings. These often involve quicker, cheaper (also in terms of exchange rate), easier, more accessible and more confidential exchanges than the those sent through the formal channels.
From the point of view of utilisation, four different types of transfers can be discerned. Firstly and most importantly, individual transfers to families or friends. The available data shows that the bulk of remittances is used for consumption purposes. Investment in business or traditional productive uses and in savings is rather limited, but remittances are also seen as important financial means to investment in human capital (i.e. education), housing and land purchase. The importance of the repayment of the cost of migration should not be underestimated. Secondly, individual transfers are sent to save or invest in the home country, and thirdly to sponsor charity or community development initiatives. Lastly, collective transfers are identified to fund charity or community development initiatives.
Remittances contribute significantly to the national economy. The impact at the household level is less straightforward. On the plus side, remittances allow families to meet their basic needs; open up opportunities for investing in education, health care, etc.; loosen up constraints in the family budget to invest in business or to save; are a kind of emergency resource; provide a social security for the elderly; and can boost the local economy. The negative impacts of remittances are a possible dependency on this money flow and inflation. However, there is no conclusive evidence of the impact on income distribution. Possibly remittances could result in neglecting the local productive activities.
Senders and receivers of remittances to Bangladesh, see themselves faced with a number of obstacles to remit and use money for different purposes. Of course, the obstacles differ, depending on the characteristics of the sender. The main hindrances relate to the costs of sending money, the geographic accessibility of financial institutions to receive money, the availability of financial services aimed at remittances, availability of investment opportunities, and, opportunities for community development projects.
The main policy initiatives taken abroad and in Bangladesh have largely focused on the following issues : Increasing remittances: e.g. facilitating and stimulating labour migration.; stimulating formal remittance methods: e.g. decreasing costs of formal transfer by stimulation of competition; information campaigns about pricing systems; development of synergies between banks and microfinance institutions; providing options using remittances for economic investment, social (i.e. education, health,…) or housing purposes; developing financial services (savings and investment schemes) for migrants; launching specific bonds and accounts; assisting migrant entrepreneurs; and supporting development initiatives of migrant associations: e.g. developing institutional framework to support and subsidize development projects of migrant initiatives.
The main issues that are currently under discussion by policy makers relate to how the flow of remittance to the country will be affected by the global economic crisis and its multi-dimensional fall-outs. It is, now doubt, a very important issue that merits an in-depth analysis of the developments that are now taking place, still in an unfolding situation, in countries like these in the Middle East, South East Asia and the Far East, besides a number of developed ones, where most Bangladeshi overseas workforce is concentrated.
Meanwhile, it is no less important to review the policies and options available, under the given circumstances, in order to help enhance the development impact of remittances. Furthermore, in the debate on remittances and development, most of related issues are contextually relevant to Bangladesh. These include:
l How can migrant associations be included in remittances (or broader) migration and development policy initiatives? What kind of institutional structure is needed to support their initiatives?
l How can financial institutions be included and motivated to develop remittance services? What kind of synergies between microfinance and savings institutions and banks are possible and how can these be supported?
l How can new technologies address the needs of senders and receivers, especially in remote areas? For instance, in a number of sub-Saharan African countries, mobile phones are being used to remit money within the country.
l What kind of development is being pursued?
The debate on remittances and development do largely focus on economic benefits for the region of origin and the migrant and his or her family. But the social and human rights cost or gains of the migration process for the migrant and his/her family are often overlooked. Hence, most policy measures aimed at remittances do not go beyond a pure economic approach. It is time to review all such things so that a sustained growth of remittance earnings is made possible.
International remittances are sent to Bangladesh mainly by three large, but distinct types of migrants. Firstly, there is an important, mainly American and British, diaspora of well-educated, high or middle income earners. Secondly, a diaspora of Bangladeshi origin belonging to the low-income or unemployed segments of the population also exists in industrialised countries. Thirdly, there is a major group of migrant labourers, who are residing for a specific period of time in Middle Eastern (mainly Saudi Arabia, UAE, Kuwait), South-East Asian (Malaysia, Singapore) and some industrialized countries. The first two groups amount to more than a million emigrants, while in the last 29 years about 3.8 million Bangladeshis have been officially recorded as migrant labourers.
Bangladesh's total earning from remittance has been estimated at about $ 10 billion in the last fiscal year (June 2008 to June 2009). Most international remittances come from the Middle East and, thus, from temporary migrant workers. Saudi Arabia accounts for more than 40 per cent. The diaspora also takes a large share, with the USA accounting for 14 per cent of the remittance flow. Besides official channels, money is remitted by hundi or hand carried by the migrant or friends or family of the migrant. These informal channels do constitute a substantial source of remittance earnings. These often involve quicker, cheaper (also in terms of exchange rate), easier, more accessible and more confidential exchanges than the those sent through the formal channels.
From the point of view of utilisation, four different types of transfers can be discerned. Firstly and most importantly, individual transfers to families or friends. The available data shows that the bulk of remittances is used for consumption purposes. Investment in business or traditional productive uses and in savings is rather limited, but remittances are also seen as important financial means to investment in human capital (i.e. education), housing and land purchase. The importance of the repayment of the cost of migration should not be underestimated. Secondly, individual transfers are sent to save or invest in the home country, and thirdly to sponsor charity or community development initiatives. Lastly, collective transfers are identified to fund charity or community development initiatives.
Remittances contribute significantly to the national economy. The impact at the household level is less straightforward. On the plus side, remittances allow families to meet their basic needs; open up opportunities for investing in education, health care, etc.; loosen up constraints in the family budget to invest in business or to save; are a kind of emergency resource; provide a social security for the elderly; and can boost the local economy. The negative impacts of remittances are a possible dependency on this money flow and inflation. However, there is no conclusive evidence of the impact on income distribution. Possibly remittances could result in neglecting the local productive activities.
Senders and receivers of remittances to Bangladesh, see themselves faced with a number of obstacles to remit and use money for different purposes. Of course, the obstacles differ, depending on the characteristics of the sender. The main hindrances relate to the costs of sending money, the geographic accessibility of financial institutions to receive money, the availability of financial services aimed at remittances, availability of investment opportunities, and, opportunities for community development projects.
The main policy initiatives taken abroad and in Bangladesh have largely focused on the following issues : Increasing remittances: e.g. facilitating and stimulating labour migration.; stimulating formal remittance methods: e.g. decreasing costs of formal transfer by stimulation of competition; information campaigns about pricing systems; development of synergies between banks and microfinance institutions; providing options using remittances for economic investment, social (i.e. education, health,…) or housing purposes; developing financial services (savings and investment schemes) for migrants; launching specific bonds and accounts; assisting migrant entrepreneurs; and supporting development initiatives of migrant associations: e.g. developing institutional framework to support and subsidize development projects of migrant initiatives.
The main issues that are currently under discussion by policy makers relate to how the flow of remittance to the country will be affected by the global economic crisis and its multi-dimensional fall-outs. It is, now doubt, a very important issue that merits an in-depth analysis of the developments that are now taking place, still in an unfolding situation, in countries like these in the Middle East, South East Asia and the Far East, besides a number of developed ones, where most Bangladeshi overseas workforce is concentrated.
Meanwhile, it is no less important to review the policies and options available, under the given circumstances, in order to help enhance the development impact of remittances. Furthermore, in the debate on remittances and development, most of related issues are contextually relevant to Bangladesh. These include:
l How can migrant associations be included in remittances (or broader) migration and development policy initiatives? What kind of institutional structure is needed to support their initiatives?
l How can financial institutions be included and motivated to develop remittance services? What kind of synergies between microfinance and savings institutions and banks are possible and how can these be supported?
l How can new technologies address the needs of senders and receivers, especially in remote areas? For instance, in a number of sub-Saharan African countries, mobile phones are being used to remit money within the country.
l What kind of development is being pursued?
The debate on remittances and development do largely focus on economic benefits for the region of origin and the migrant and his or her family. But the social and human rights cost or gains of the migration process for the migrant and his/her family are often overlooked. Hence, most policy measures aimed at remittances do not go beyond a pure economic approach. It is time to review all such things so that a sustained growth of remittance earnings is made possible.