Towards the Remittance Holy Grail

♠ Posted by Emmanuel in at 11/21/2007 12:06:00 AM
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The chart above depicts remittance flows to developing countries throughout the world. It accompanies a new report by the UN-IFAD (International Forum for Agricultural Development) on remittances which is quite important. One of the things that has hindered attempts to quantify just how much remittances are being sent to the developing world is the large presence of unrecorded remittance flows. That is, many remittances go through informal channels such as migrants asking fellow migrants returning home to deliver remittances to their relatives and informal remittance systems such as the hawala network. What this report does is attempt to quantify formal and informal remittances, the latter by means of extrapolation:
The following worldwide remittance map compiles the best available information drawn from data collected on migrant populations, percentage of migrants sending remittances, average amounts remitted annually, as well as the average frequency of annual transfers. Central banks and other official government sources, money transfer companies, international organizations and academic institutions were used for reference support. The map covers 162 developing countries – many for the first time – and, together with the accompanying analysis and data tables, it provides comparative indicators to measure the relative importance of remittances among twenty subregions of the developing world.
Going by the World Bank estimate for recorded remittances of $206B in 2006, the $301B figure arrived at by IFAD indicates that about half again as much remittances are sent via informal channels. Definitely, the associated brochure is a must-read if you are at all interested in migration and remittances. Here is its summary:

150 million migrants worldwide sent more than US$300 billion to their families in developing countries during 2006

Remittances, the portion of migrant workers’ earnings sent back home to their families, have been a critical means of financial support for generations. But, for the most part, these flows have historically been “hidden in plain view”, often uncounted and even ignored. All that is now changing – as the scale of migration increases, the corresponding growth in remittances is gaining widespread attention.

Today, the impact of remittances is recognized in all developing regions of the world, constituting an important flow of foreign currency to most countries and directly reaching millions of households, totaling approximately 10 per cent of the world’s population. The importance of remittances to poverty alleviation is obvious, but the potential multiplier effect on economic growth and investment is also significant.

The driving force behind this phenomenon is an estimated 150 million migrants worldwide who sent more than US$300 billion to their families in developing countries during 2006, typically US$100, US$200 or US$300 at a time, through more than 1.5 billion separate financial transactions. These funds are used primarily to meet immediate family needs (consumption) but a significant portion is also available for savings, credit mobilization and other forms of investment. In other words, the world’s largest poverty alleviation programme could also become an effective grass roots economic development programme, particularly in the rural areas that present some of the greatest challenges to financial inclusion.