Remittance

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

Remittances are transfers of money by foreign workers to their home countries.

Money sent home by migrants constitutes the second largest financial inflow to many developing countries, exceeding international aid. Latest World Bank estimates are that some US$250 billion was remitted globally in 2006 and these figures are increasing by almost 30% year on year. Remittances contribute to economic growth and to the livelihoods of needy people worldwide. Moreover, remittance transfers can also promote access to financial services for the sender and recipient, thereby increasing financial and social inclusion.

(Remittance can also refer to the accounting concept of a monetary payment transferred by a customer to a business.)

Remittances are playing an increasingly large role in the economies of many countries, contributing to economic growth and to the livelihoods of needy people (though generally not the poorest of the poor). 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 World Bank has a web page for remittances [1], and the World Bank and the Bank for International Settlements [2] have developed international standards for remittance services [3].

Early research on the effect of remittances in particular countries include Richard P.C. Brown's "Public Debt and Private Wealth. Debt, capital flight and the IMF in Sudan" (1992) Basingstoke: Macmillan.

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) [4] and USAID [5] began to look into ways in which the cost of remitting money, and thus, the amount of money reaching the recipient in the developing world, could be lowered. One of DFID's responses was to develop a programme called 'Sending Money Home?'[6].

Recent studies by the Humanitarian Policy Group (HPG) [7] have shown that remittances not only play an important part in many people's daily lives but are particularly important for people during crises [8] ]

Latin American and the Caribbean

In Latin America and the Caribbean, remittances play an important role in the economy of the region, totaling over 60 billion USD in 2006, 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 six 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. The Inter American Development Bank's Multilateral Investment Fund has been the leading agency on regional remittance research. All IDB[9] remittances info can be found at the MIF's remittance portal[10]. This research has often been carried out in collaboration with Manuel Orozco of the Inter-American Dialogue, his remittance research can be found at the Dialogue[11] and at remittances.eu[12]. In this region Mexico, one of the best documented examples of migration and remittances, received remittance inflows of 26 Billion US$ in 2006, 95% of which originated in the US [13].

Asia

A majority of the remittances from the US have been directed to Asian countries like India (approx. 26 billion USD), Philippines (approx. 14 billion USD) and China (approx. 23 billion USD). Most of the remittances happen by the conventional channel of agents (Western Union, Moneygram). However, with the increasing relevance and reach of the Internet, online money transfer has gained momentum over the years. Some of the popular online global remittance providers include Remit2India [14], Remit2Home[15], Western Union [16], eMoneygram[17] and Xoom[18].

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 of natural disaster. This is being increasingly recognised as important by aid actors who are considering better ways of supporting people in emergency responses [19].

History

Remittances are not a new phenomena in the world, being a normal concomitant to migration which has ever been a part of human history.

In the 1800s, the English usage of the word was usually to refer to money sent away from England - the opposite direction to today's usual usage of the term. A "remittance man" was an exile living on money sent from home. Within Victorian British culture, this often meant the black sheep of the family who was sent away (from the UK to the Empire), and paid to stay away

Several European countries such as Spain, Italy or Ireland have been 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 polices 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. One source for these historical facts is the Spanish think tank Remesas [20].

Terrorism

The global struggle against terror has also had an effect on the migrants sending remittances since these are sometimes sent through informal channels which often have histories far predating the modern banking system. Since 9-11 many governments have taken steps to address these informal money transfer businesses In the US through the Patriot Act (Title III) 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 remittance channels remains a serious government concern. The effects of enforcement action have sometimes had counterproductive effects as in the case of Al-Barakaat, a Hawala network responsible for the largest remittance flows to Somalia.

Examples

Examples of remittances include:

• Samoans and other Pacific islanders living in New Zealand, Australia and Hawaii.
• Latin Americans living and working in the United States.
• Middle Easterners living and working in Europe.
• Ethnic Koreans residing in Japan sending money back to North Korea.[21]

External links

• MAPESA  : Blog specialised on money transfer, remittances and cards issues www.mapesa.org
• Briefing Paper: Remittances This brief explains what a remittance transfer is and assesses the impact that remittances may have on developing economies.
• Financial Market Integiry unit, the World Bank Bilateral Remittance Corridor Analysis (BRCA)
• Sending Money Home? The UK Government's Department For International Development's website provides free, impartial, and transparent informaton on the services, costs etc of sending money to the developing world. It also has links to relevant sites and papers on the subject of migrant remittances.