Remittances – an economic and development policy factor
Money transfers by migrants to their families back home were long seen as a private matter. Yet in many recipient countries, these remittances have a major economic impact. It is hence very important for development policy to ensure that a swifter, cheaper and safer remittance system is put in place.
Immigration to Germany has significantly increased over the past years. In the year 2015 alone, a record number of more than 2 million people came to Germany. The number of asylum seekers has been rising slowly since 2008, with a significant increase since 2014: Whereas the number of applications for asylum in 2013 was 127,000, in 2016 it has reached almost 700,000 to date. This is due to large migration flows from countries in crisis all over the world – the largest number of refugees in 2014 came from Syria.
Many of them come to Germany to build a new life, just like the more than eight million foreigners currently living here have done before them. Most of them make an effort to maintain a relationship with their home countries and the families and relatives they left behind.
They do so by making occasional visits and keeping in touch. However, many migrants go further than that. They regularly send their parents or children, spouses or other family members money in the form of remittances in order to help them in emergency situations or even just with the cost of living. This is often done via informal channels such as private or commercial courier services. For a long time, these remittances were viewed as a purely private matter. Yet once the World Bank had established that remittances account for a major portion of gross domestic product (GDP) in some developing countries, the topic suddenly appeared on the political agenda.
Last year's remittances: USD 442 billion
Over 250 million people – or around 3 percent of the world’s total population – are estimated to live in a country other than the one where they were born. According to World Bank estimates, the remittances they send to their home countries amounted to around USD 585 billion in 2016, 442 billion of this sum went to developing countries. Even if the times of rapid increases in remittances are over, according to the World Bank, this is still more than three times the amount of official development aid. In Honduras, for instance, remittances accounted for around 18 percent of the country's national income (or GDP, to be more precise) in 2015; in Haiti the figure was 25 percent, in Tajikistan 29 percent, and in Nepal it was almost one third, or 32 percent. In some countries, the proportion of households who receive remittances from abroad is very high: In Nicaragua, for instance, the figure stands at around 40 percent. In the Philippines, 25 to 50 percent of the average incomes of private households come from abroad. According to estimates of the Asian Development Bank, 4.3 million people only manage to stay above the poverty line thanks to private money transfers from abroad.
As the Deutsche Bundesbank says, more than EUR 20 billion is transferred to the migrants’ home countries every year. Most of these transfers go to EU-states (especially to Poland, more than 2 billion US-Dollars), but the families of migrants in countries like Lebanon (818 million), Vietnam (705 million) or China (647 million) also received large amounts of money. This money goes directly towards private household budgets and helps to cover the cost of living. These figures, it should be stressed, can be no more than estimates. It is impossible to completely account for money transfers in Germany, because only a portion is subject to registration (transfers over EUR 12,500) and another significant portion is transferred via informal channels.
Remittances as a form of development assistance
Studies have shown that the money sent by migrants is mainly used to meet basic needs (food, clothing, repairs), but expenses for education and health care are also often mentioned in studies. In South Africa, for instance, a child is 30 percent more likely to attend school if his or her family receives remittances. Often the money is a form of social security for the families. Remittances hence serve the same purpose as traditional development assistance, namely to alleviate poverty.
This is the main reason why it is such an important topic for development policy. Yet even though remittances have a visible economic and social impact, at the end of the day the fact that migrants send money home is their own private business and there is hence little opportunity to influence the process politically.
That said, there is one aspect that can be improved by political intervention. The system for remittances should be organised in such a way that migrants are able to send money via formal international banking channels faster, more safely and at lower cost. The biggest obstacle to remittances from Germany continues to lie in the high transfer fees. These fees have shown a slight decrease from 9.8 percent to 7.6 percent worldwide over the past few years (or as much as from 14 to 7.3 percent in Germany), but they are still far too high, especially in Sub-Saharan Africa with a record fee of 9.6 percent. As part of the Sustainable Development Goals (SDG), the global community has agreed to lower the fees to less than three percent by 2030.
GeldtransFAIR.de creates transparency for remittances
The Federal German Government has responded to this situation. On behalf of the Federal Ministry for Economic Cooperation and Development (BMZ), GIZ and the Frankfurt School of Finance & Management jointly established an online portal at GeldtransFAIR.de several years ago, where migrants can find information on the various providers of remittance services and their terms and conditions (charges, transfer time and channels). The portal currently lists 20 providers that offer remittances to Egypt, plus their terms and conditions, for instance.
Many migrants are unable to use the formal channels to send remittances because the recipient needs to have a bank account, and people who do not have a passport or some other form of identification cannot open one. Moreover, the nearest bank branch is sometimes far away from where the recipients live. This is where microfinance institutions or savings and credit cooperatives can come in, many of which maintain a presence in rural areas, too. However, they need to cooperate with banks so that they can handle domestic and international money transfers. A rising number of mobile carriers (e.g. M-Pesa) are also starting to offer remittances services. In several countries, mobile phone users can send each other fairly small amounts of money and can pay in and collect the cash from an agency, such as a village grocery store or a petrol station.
The regulatory authorities, the private sector, the financial services industry and development cooperation need to ensure that these simple payment systems can also be used for international transfers. In this context, customer protection, the security of the financial system, and cost effectiveness are the three concerns that have to be reconciled.
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