The flow of funds from migrant workers back to their families in their home country is an important source of income in many developing economies. The recipients often depend on remittances to cover day-to-day living expenses, to provide a cushion against emergencies or, in some cases, as funds for making small investments.
 The total value of remittances has been increasing steadily over the past decade and the World Bank estimated that in 2005 the total value worldwide was over USD 230bn equivalent, involving some 175 million migrants. For some individual recipient countries, remittances can be as high as a third of GDP. Remittances also now account for about a third of total global external finance; moreover, the flow of remittances seems to be significantly more stable than that of other forms of external finance. However, remittances can be expensive relative to the often low incomes of migrant workers and to the rather small amounts sent (typically no more than a few hundred dollars or its equivalent at a time). Also, it may not be easy for migrants to access remittance services if they do not speak the local language or do not have the necessary documentation, while the relatively undeveloped financial infrastructure in some countries may make it difficult for recipients to collect the remittances. In some cases, the services are unreliable, particularly concerning the time taken for the funds to be transferred. In addition, some markets are uncompetitive or have regulatory barriers to the provision of remittance services. |
Projects Catalyzing policy change on payments systems issues and policies through international partnerships. International remittance transfers are cross-border person-to-person payments of relatively low value. In practice the transfers are typically recurrent payments by migrant workers. But while there are well established policies and principles applied to payments systems and its use, broad awareness of the impact of remittances on the application of these policies has been limited. One of the important means to raise such awareness was through discussions of such policies at the international level, in particular though World Bank participation in the Bank for International Settlements’ Committee for Payment and Settlement Systems (CPSS). (read more) Understanding the Remittances Market and Institutions. The discussion in Global Economic Prospects (GEP) on reducing remittance costs shows the complexity of the measures that are needed to realize the gains from a financial system that provides efficient and safe cross border remittance services. Building knowledge on the nature and structure of diverse remittance service providers and business, the bottlenecks faced, the role of government where there are scale economies and network externalities involved in the investments in financial infrastructure, is crucial for policy makers to opt for, and for the World Bank to provide, suitable policy advice. (read more) Understanding the various aspects of remittances, and its links with migration, through bilateral corridor analysis. Bilateral corridor studies have been used with a view to analyzing what are the major micro and macro determinants of remittances being channeled through informal or formal funds transfer systems, and identifying policy recommendations that may induce the shift to the formal sector. (read more) Strengthening policy work to understand regulatory practices that will promote financial integrity (AML/CFT) and continue to develop access to financial services. The Bank has been engaged on policy dialogue with authorities and standard setters on AML/CFT rules and practices that will not have a significant impact in the cost structure of remittance service providers and/or will not discourage market participants from providing certain or all remittance services. To inform this dialogue, several pieces of policy work are being undertaken, such as the recently launched regional initiative on “AML/CFT Regulations and Access to Finance in LAC”. The objective of this regional work is to look at how the structural impediments, compliance costs, and regulatory/reputational concerns (that may lead to an attitude of “play it safe” by providers) combine to increase the cost of accessing finance, including remittance services. The ultimate objective of this LAC study is to understand better and identify ways to design and implement policies to promote financial integrity and still maintain access to formal financial services. (read more) (back to top) |
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