Remittances

What remittances are and why they matterПодробный разбор

A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, sent for household income in their home country or homeland. The World Bank defines it more narrowly as the portion of earnings that a migrant worker sends back to family members in the country of origin.

In 2021, an estimated $780 billion was sent to 800 million people through remittances worldwide. That figure is more than three times the total global foreign aid of $200 billion in the same year. Most flows move from high-income countries to lower-income countries, making remittances one of the largest financial inflows to developing economies, competing with international aid for that position.

Research identifies the primary motivations for remitting as altruism, self-interest in exchange, and repayment of past expenses. Scientific literature summarises the mixed motivational state as 'tempered altruism and enlightened selfishness'. Scholars have linked remittance flows to improved health and education outcomes in low-income countries, as the money provides access to food, medicine, health treatments, and education.

Historical development of remittances: 19th century to 2000Подробный разбор

Several European countries, including Spain, Italy, and Ireland, were heavily dependent on remittances received from their emigrants during the 19th and 20th centuries. In Spain's case, remittances amounted to 21 percent of all current account income in 1946. Each of these countries subsequently developed remittance policies after significant research efforts.

Italy was the first country in the world to enact a law protecting remittances, doing so in 1901. Spain was the first country to sign an international treaty specifically to lower the cost of remittances received, concluding such a treaty with Argentina in 1960.

Global remittance flows totalled US$72.3 billion in 2001, according to World Bank figures. The United States has been the leading source of remittances globally every year since the early 1980s.

Growth and policy milestones in the 21st centuryПодробный разбор

Since 2000, remittances increased sharply worldwide, nearly tripling to $529 billion by 2012. In 2012 alone, migrants from India and China sent more than $130 billion to their home countries. In 2018, overall global remittance grew 10 percent to US$689 billion; remittances to low- and middle-income countries reached US$529 billion that year, a record high at the time. By 2022, flows to low- and middle-income countries grew a further five percent, reaching US$626 billion.

In 2004, the G8 met at the Sea Island Summit and decided to take action to lower the costs for migrant workers sending money home, prompting bodies such as the UK's Department for International Development (DFID) and the United States Agency for International Development (USAID) to examine cost-reduction approaches. At the July 2009 L'Aquila Summit, G8 heads of government endorsed the objective of reducing the cost of remittance services by five percentage points over five years.

In September 2008, the World Bank established the first international database of remittance prices, the Remittance Prices Worldwide Database. It covers over 200 country corridors, tracking flows from 32 major sending countries to 89 receiving countries, accounting for more than 60 percent of total remittances to developing countries. Its stated purposes are benchmarking improvements, enabling cross-country comparisons, supporting consumer choice, and exerting pressure on service providers. At the 2011 G20 Summit in Cannes, Bill Gates stated that cutting global transaction costs from around 10 percent to 5 percent would unlock $15 billion a year in poor countries.

The 2008 financial crisis and remittance resilienceПодробный разбор

The 2008 financial crisis originated in the United States and spread through the financial systems of developed countries. Despite the severity of the crisis, remittances were among the less volatile sources of foreign exchange for developing countries throughout that period. Financial literature regards remittances sent by migrant workers as counter-cyclical: they tend to be maintained or increased when the economy of the recipient country is struck by hardship such as a financial crisis, natural disaster, or political instability.

In 2009, remittance payments to developing countries declined globally for the first time in the recorded history of the global financial system. However, the decline was only 5.2 percent, significantly smaller than the contraction in private capital flows including foreign direct investment. After the Great Recession, remittances from the United States to Latin America fell from US$69.2 billion in 2008 to $58.9 billion in 2011, a trend attributed to the recession, greater economic opportunity in Latin American countries, and rising fees charged by people smugglers.

Major operators and transaction costsПодробный разбор

Western Union is the world's leading handler of remittances. Its 170,000 agents handle approximately 25 percent of total global remittance traffic. Western Union operates as a bureau de change with fees ranging from 8 to 12 percent. MoneyGram has also been a significant operator for decades. Two entities dominate international electronic funds transfer for interbank payments: the Clearing House Interbank Payments System (CHIPS) and the Society for Worldwide Interbank Financial Telecommunication (SWIFT). Banks and businesses may also use the international communications network Telex to initiate international financial transfers.

A substantial share of remittances ends up with banks and money-transfer companies through fees. Although the market diversified when fintech startups entered in the 2010s, Western Union continued to dominate the majority of the remittance market. The rise of digital remittances brought comparison platforms and aggregators such as FXcompared and Monito in Europe and in Southeast Asia. In Africa, most countries restrict remittance payments to banks, which typically enter exclusive arrangements with large money transfer companies, producing limited competition and the highest transfer fees in the world.

A sizeable portion of remittances in some corridors is sent through informal channels, including family connections, travelling friends, and local money lenders. Governments can reduce transaction costs through regulatory measures, and the United Nations Sustainable Development Goal 10 sets a target of reducing migrant remittance transaction costs to less than 3 percent by 2030. The World Bank and the Bank for International Settlements have developed international standards for remittance services.

Regulation, security concerns, and data qualityПодробный разбор

Remittances can be difficult to track and are potentially sensitive to anti-money laundering (AML) and counter-terrorism financing (CTF) concerns. Following the September 2001 attacks, many governments and the Financial Action Task Force (FATF) took steps to address informal value transfer systems, often through Financial Intelligence Units (FIUs). The principal legislative initiatives in this area are the USA PATRIOT Act Title III in the United States and a series of EU Money Laundering Directives in Europe. While no serious terrorist risk should be associated with migrants sending money to their families, misuse of the financial system remains a stated government concern. Internationally coordinated anti-laundering and anti-terror-financing efforts have directly increased costs to companies facilitating transfers and indirectly increased costs to the person remitting.

Data quality presents a separate problem. Some countries do not report remittance data at all, according to the World Bank. Where data exists, the methodologies used for compilation are often not publicly available. A 2010 world survey of central banks found significant differences in data quality across countries; some central banks used only data reported by commercial banks, failing to account for flows through money transfer operators and post offices.

Economic effects on recipient countriesПодробный разбор

The extent to which remittances produce development benefits is contested among economists. Many developing countries receive over 10 percent of their GDP in remittances each year, with some exceptional cases as high as one-third. Remittances make up a significant portion of the economies of developing countries, and in 2015 some $441 billion of the total flow went to developing economies — nearly triple the $131 billion of global Official Development Assistance that year.

World Bank economists argue that remittance receivers' higher propensity to hold bank accounts can promote access to financial services for both senders and recipients. Studies in Armenia, where remittances represented about 7–8 percent of GDP, suggest that households receiving remittances have a higher propensity to save, but these savings are not used to leverage additional borrowing from the financial system to grow businesses. Research in the South Caucasus found that having a migrant household member is associated with a higher probability of establishing a family business. However, other findings for Armenia suggest that remittances help potential migrants finance emigration itself, shifting emigration intentions upward rather than acting as a contractual tool between migrants and non-migrants.

From a macroeconomic perspective, there is no conclusive relationship between remittances and GDP growth. While remittances can boost aggregate demand and spur economic activity, other research indicates they may also increase income inequality and reduce labour supply among recipient countries. Critical migration scholars have expressed concern about the ability of remittances to address the structural causes of economic underdevelopment, and see increasing policy emphasis on remittance finance as symptomatic of a shift towards 'self-help development' that burdens the poor.

During disasters or emergencies, remittances can serve as a vital income source when other livelihoods have been destroyed by conflict or natural disaster. According to the Overseas Development Institute, aid actors are increasingly recognising this. Remittances are generally considered counter-cyclical: their stability during financial crises and economic downturns makes them a relatively reliable source of foreign exchange for developing countries, particularly when sent by circular migrants who move repeatedly between home and host countries.

Regional flows: leading senders and recipientsПодробный разбор

The United States has been the leading source of remittances globally every year since the early 1980s. The United Arab Emirates, Saudi Arabia, and Switzerland have been the next largest senders since 2015. Between 9 million and 11 million workers send remittances from Russia each year. India is the world's top recipient of remittances, receiving approximately US$87.0 billion in 2021 and claiming more than 12 percent of global remittances in 2015. China received approximately US$60.0 billion in 2021. The Philippines received approximately US$33.5 billion in 2020, accounting for 8.9 percent of the country's GDP.

In Latin America and the Caribbean, remittances totalled over US$66.5 billion in 2007, about 75 percent of which originated in the United States — more than the combined sum of foreign direct investment and official development aid. In seven countries in the region, remittances exceeded 10 percent of GDP. Percentages ranged from 2 percent in Mexico to 18 percent in El Salvador, 21 percent in Honduras, and up to 30 percent in Haiti. Mexico alone received nearly US$24 billion in 2007, 95 percent from the United States.

In Africa, an estimated 20 to 30 million adult immigrants send around US$40 billion annually to their families and local communities, representing 50 percent more than net official development assistance from all sources. Nigeria is by far the top remittance recipient in Africa, accounting for $10 billion in 2010. Other significant recipients in that year include Sudan ($3.2 billion), Kenya ($1.8 billion), and Senegal ($1.2 billion). As a share of GDP, Lesotho was the top recipient in 2009 at 25 percent, followed by Togo at 10 percent. In Tajikistan, remittances made up 48 percent of GDP as of 2024, with the majority coming from Tajik labour migrants in Russia.