Oct 17, 2007
Migrant workers worldwide sent home more than US$300 billion in 2006, new study finds
IFAD, IDB present first global map of remittance flows to developing nations
“This figure, which is a conservative estimate, shows that the seemingly small sums sent home by migrant workers, when added together, dwarf official development assistance,” said Kevin Cleaver, IFAD’s assistant president.
Donor nations provided almost $US104 billion in aid to developing countries last year, according to the Organisation for Economic Co-operation and Development. Remittances are generated by some 150 million migrants who send money home regularly, typically between US$100 and US$300 at a time, and mostly from industrialized nations in North America, Europe and Asia.
Donald F. Terry, general manager of the IDB’s Multilateral Investment Fund, pointed out that migrant remittances also surpassed foreign direct investment in developing countries, which last year totaled around $167 billion, according to the Institute of International Finance.
“Generating information about the scale of remittances is the first step towards lowering their costs and improving our ability to leverage these flows to achieve a greater development impact,” said Terry, whose fund has been analyzing remittances to Latin America and the Caribbean since 2000.
Cleaver and Terry presented the study, Sending money home: Worldwide remittances to developing countries, and a map produced by IFAD, the first one to show remittances on a worldwide basis and to highlight the rural share of these flows.
According to the study, in 2006 Asia was the top destination of remittances, receiving more than US$114 billion, followed by Latin America and the Caribbean (US$68 billion), Eastern Europe (US$51 billion), Africa (US$39 billion) and the Near East (US$29 billion).
Taking nations individually, India received the most (US$24.5 billion), followed by Mexico (US$24.2 billion), China (US$21 billion), the Philippines (US$14.6 billion) and Russia (US$13.7 billion).
Of the countries covered in the report, 59 receive more than US$1 billion a year in remittances and 45 receive more than 10 percent of their GDP from their expatriates.
The IFAD study, which was carried out in collaboration with the IDB, based its figures on official data from governments, banks and money transfer operators, as well as on estimates of informal flows, such as money carried home.
IFAD, a specialized United Nations agency that fights poverty in rural areas in developing countries worldwide, underscored the finding that more than one third of these remittances flow to families in rural areas, where poverty tends to be worse than in cities.
“For IFAD the most important thing to look at is how to channel this money so that it contributes to prosperity in rural areas,” said Cleaver. “One of our priorities is to improve poor people’s options by finding ways to cut transaction costs and link remittances to other financial services such as savings, investments and loans.”
While remittances are mostly used for basic necessities such as food, clothing and medicines, between 10 percent and 20 percent is saved. However, too often these savings are hidden in homes, stuffed under mattresses or in cooking pots, rather than put to work in financial institutions, constituting a major missed opportunity for local economic development.
Over the past few years the IDB’s Multilateral Investment Fund has encouraged microfinance institutions, credit unions and banks that cater to lower-income clients to provide remittance services in Latin America and the Caribbean. As a result of increased competition, transaction cost have fallen sharply for money transfers to major urban areas in this region.
"It's always been harder to expand financial services beyond cities. Operating costs are higher, communications more difficult, clients poorer, few and far between. But remittances can be a key for credit unions or microfinance institutions to offer more services to rural clients. This is the kind of solution the IDB-IFAD partnership seeks to promote," added Terry.
The study and the map were released on the eve of the International Forum on Remittances 2007, which will take place on October 18-19 at the IDB’s conference center (1330 New York Avenue, NW, Washington, D.C.).
The event, cohosted by IFAD and the IDB, will bring together migrant associations, financial institutions and nongovernmental organizations to discuss the impact of these flows on development and rural economies, as well as to explore the links between remittances and banking, technology and microfinance.
IFAD is an international financial institution dedicated to fighting poverty and hunger in rural areas of developing countries. Through low-interest loans and grants, it is currently supporting 191 rural poverty eradication programs and projects worth a total of US$6.6 billion.
The IDB is the largest and oldest regional development bank and the leading source of multilateral financing for Latin America and the Caribbean. Its Multilateral Investment Fund promotes private sector development in the region, with an emphasis on microenterprise.