NGO Addresses Remittance Costs

♠ Posted by Emmanuel in at 8/25/2007 12:45:00 PM
Just when I thought I'd seen every sort of NGO under the sun comes another whose time seems to have come. Although there already are NGOs dedicated to migrants' rights advocacy and enterprise development from remittances, there has not yet been, to the best of my knowledge, one addressing the cost of sending home remittances until now. TIGRA (Transnational Institute for Grassroots Research & Action) does just that. It claims that fees charged on remittances average in the low double figures as a percentage of amounts sent. With remittances totaling about a quarter of a trillion dollars yearly, this is not an insignificant bite out of the money sent home.

The business of handling remittances is not exceedingly complicated. Firms engaging in this business make money through four main ways: (1) fees as discussed; (2) exchange rate commissions; (3) interest rate float on funds prior to transmission; and (4) handling charges if door-to-door is the mode of delivery chosen. Here are some charts from a recent report TIGRA put out on what it views as the high and regressive cost of sending remittances through typical money transfer services:

Also, here is a selection of combined transfer fees and exchange rate commissions as a percentage of amounts transferred to some Latin American countries:

Clearly, remittance cost is an interesting and important topic that does not get much NGO attention. However, do note that there are many innovative ways of sending remittances being developed that use technological innovation to reduce costs, such as the case of GCash in the Philippines piggybacking on cell phone text-messaging services to reduce transfer fees to as little as 1%. Another example is of Skype teaming up with PayPal to enable sending money transfers between PayPal users--say, from the US to Mexico--without transfer fees. (You can then withdraw proceeds from a local bank account in Mexico.) Still, TIGRA has a point: competition among remittance providers is simply not there in many remote areas of developing countries, and this form of "monopoly power" allows some remittance services to charge more than they could if more competition was present.