{
  "title": "Remittances: Funds for the Folks Back Home",
  "sourceUrl": "https://www.imf.org/en/publications/fandd/issues/series/back-to-basics/remittances",
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  "summary": "For many countries, money transfers from citizens working abroad are a lifeline for development",
  "sections": [
    {
      "heading": "Overview and definitions",
      "content": "- Workers’ or migrant remittances: transfers of cash or goods sent by migrants to support family members in their home country.\n- Officially recorded international migrant remittances were projected to exceed $483 billion in 2011, with $351 billion flowing to developing countries.\n- Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows."
    },
    {
      "heading": "Economic importance and distribution",
      "content": "- Remittances have become the largest source of foreign income for many developing countries.\n- They are more evenly distributed among developing countries than capital flows, including foreign direct investment.\n- Remittance flows to low-income countries are nearly 6 percent of their gross domestic product (GDP), compared with about 2 percent of GDP for middle-income countries.\n- In Haiti they represented about 12 percent of GDP in 2011.\n- In some areas of Somalia, remittances accounted for more than 70 percent of GDP in 2006."
    },
    {
      "heading": "Transaction process and settlement",
      "content": "- Typical remittance transaction steps:\n  - Step 1: The migrant sender pays the remittance to the sending agent using cash, check, money order, credit card, debit card, or a debit instruction sent by e-mail, phone, or through the Internet.\n  - Step 2: The sending agency instructs its agent in the recipient's country to deliver the remittance.\n  - Step 3: The paying agent makes the payment to the beneficiary.\n- For settlement between agents, in most cases there is no real-time fund transfer; balances are settled periodically through a commercial bank.\n- Informal remittances are sometimes settled through goods trade."
    },
    {
      "heading": "Uses and poverty impacts",
      "content": "- Remittances are targeted to meet specific household needs and thus tend to reduce poverty.\n- Cross-country analyses find remittances have reduced the share of poor people in the population.\n- World Bank household-survey findings cited:\n  - International remittance receipts helped lower poverty by nearly 11 percentage points in Uganda.\n  - By 6 percentage points in Bangladesh.\n  - By 5 percentage points in Ghana.\n  - Between a fifth and half of the 11 percent reduction in poverty in Nepal between 1995 and 2004 has been attributed to remittances.\n- Typical uses:\n  - Poorer households: basic consumption goods, housing, children's education and health care.\n  - Richer households: capital for small businesses and entrepreneurial activities.\n  - National-level: help pay for imports and external debt service; banks have raised overseas financing using future remittances as collateral."
    },
    {
      "heading": "Stability and cyclical behavior",
      "content": "- Remittance flows tend to be more stable than capital flows and countercyclical—increasing during downturns or after natural disasters in migrants’ home countries.\n- During the global financial crisis that began in 2008, remittances proved resilient in source countries such as the United States and western European countries.\n- Mechanisms of resilience noted: migrants absorbing income loss by cutting consumption and rental expenditures; sectoral job shifts; discouraged return migration maintaining migrant population levels."
    },
    {
      "heading": "Costs and potential downsides",
      "content": "- Potential economic costs:\n  - Emigration of highly skilled workers or labor shortages in origin countries.\n  - Large remittances can lead to appreciation of the real exchange rate, reducing international competitiveness.\n  - Possible dependency effects that could undercut work incentives; negative correlations with growth may reflect remittances’ countercyclical nature.\n- Human costs: migrants often endure family separation, sacrifices, and risks to work abroad."
    },
    {
      "heading": "Transaction costs and price structure",
      "content": "- For smaller remittances (under $200, typical for poor migrants), remittance fees typically average 10 percent, and can be as high as 15–20 percent of the principal in smaller migration corridors.\n- For large remittances, transaction costs are relatively small as a percentage of principal.\n- Factors contributing to costs:\n  - Sending-agent fee (typically paid by sender).\n  - Currency-conversion fee for delivery of local currency.\n  - Beneficiary collection fees in some small operators.\n  - Interest or “float” earned by remittance agents by investing funds before delivery."
    },
    {
      "heading": "Transfer costs (reported figures; third quarter of 2011)",
      "content": "- Notes: Figures include currency-conversions charge, except for Russia-Ukraine. — denotes data not available. Source: World Bank Remittance Prices Worldwide database; and World Bank Global Economic Prospects 2006: Economic Implications of Remittances and Migration.\n- Approximate cost of remitting $200 (as a percent of principal):\n  - Australia–Papua New Guinea: MTOs 15.3, Banks 18.1, Hawala —\n  - Germany–Serbia: MTOs 20.9\n  - Japan–Brazil: MTOs 10.1\n  - Malaysia–Indonesia: MTOs 1.9, Banks 7.1\n  - New Zealand–Tonga: MTOs 9.4, Banks 18.2\n  - Russia–Ukraine: MTOs 2, Banks 1–2\n  - South Africa–Mozambique: MTOs 11.8, Banks 22.4\n  - South Africa–Zimbabwe: MTOs 15.8, Banks 19.2\n  - Saudi Arabia–Pakistan: MTOs 3.3, Banks 3\n  - United Arab Emirates–India: MTOs 2.5, Banks 13.1\n  - United Kingdom–India: MTOs 2.4, Banks 5\n  - United Kingdom–Philippines: MTOs 6.2, Banks 4.9\n  - United States–Colombia: MTOs 17.5\n  - United States–Mexico: MTOs 6.7, Banks 3.6\n  - United States–Philippines: MTOs 6.5, Banks 10\n- Hawala: an informal remittance transfer system that operates outside traditional financial channels—largely in the Middle East and other parts of Africa and Asia."
    },
    {
      "heading": "Policy recommendations to reduce transaction costs and boost inclusion",
      "content": "- Make remittance fees a low fixed amount rather than a percentage of principal, since transaction costs (labor, technology, networks, rent) are significantly below current fee levels.\n- Increase competition by:\n  - Harmonizing and lowering bond and capital requirements.\n  - Avoiding overregulation (for example, not requiring full banking licenses for money transfer operators).\n- Maintain anti–money laundering and terrorism-financing safeguards, but avoid measures that make it difficult for legitimate money service businesses to maintain correspondent-bank accounts.\n- Use a risk-based regulatory approach in which only suspicious transactions are checked and small transactions below, say, $1,000 are exempt from requiring proof of identity and address.\n- Facilitate nonexclusive partnerships between remittance-service providers and existing postal and other retail networks to expand services without large fixed investments.\n- Increase migrants’ access to banking, because banks tend to provide cheaper remittance services than money transfer operators, by:\n  - Allowing origin-country banks to operate overseas.\n  - Providing identification cards (such as the Mexican matricula consular) that banks accept to open accounts.\n  - Facilitating participation of microfinance institutions and credit unions in the remittance market.\n- Caution on incentive programs:\n  - Tax incentives may attract remittances but could also encourage tax evasion.\n  - Matching-fund programs may divert funds from other local priorities.\n  - Efforts to channel remittances to investment have met with little success.\n  - Remittances are private household funds and policies should focus on broader improvements in the investment climate, savings incentives, and financial inclusion rather than targeting remittances directly.\n\nRemittances: Funds for the Folks Back Home — F&D Magazine, Dilip Ratha.\n\n---\n\n\nSource: https://www.imf.org/en/publications/fandd/issues/series/back-to-basics/remittances"
    }
  ],
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    "Authors: Dilip Ratha",
    "Published: February 5, 2019",
    "Workers’ or migrant remittances: transfers of cash or goods sent by migrants to support family members in their home country.",
    "Officially recorded international migrant remittances were projected to exceed $483 billion in 2011, with $351 billion flowing to developing countries.",
    "Unrecorded flows through informal channels are believed to be at least 50 percent larger than recorded flows.",
    "Remittances have become the largest source of foreign income for many developing countries.",
    "They are more evenly distributed among developing countries than capital flows, including foreign direct investment.",
    "Remittance flows to low-income countries are nearly 6 percent of their gross domestic product (GDP), compared with about 2 percent of GDP for middle-income countries.",
    "In Haiti they represented about 12 percent of GDP in 2011.",
    "In some areas of Somalia, remittances accounted for more than 70 percent of GDP in 2006.",
    "Typical remittance transaction steps:",
    "For settlement between agents, in most cases there is no real-time fund transfer; balances are settled periodically through a commercial bank.",
    "Informal remittances are sometimes settled through goods trade.",
    "Remittances are targeted to meet specific household needs and thus tend to reduce poverty.",
    "Cross-country analyses find remittances have reduced the share of poor people in the population.",
    "World Bank household-survey findings cited:",
    "Typical uses:",
    "Remittance flows tend to be more stable than capital flows and countercyclical—increasing during downturns or after natural disasters in migrants’ home countries.",
    "During the global financial crisis that began in 2008, remittances proved resilient in source countries such as the United States and western European countries.",
    "Mechanisms of resilience noted: migrants absorbing income loss by cutting consumption and rental expenditures; sectoral job shifts; discouraged return migration maintaining migrant population levels.",
    "Potential economic costs:",
    "Human costs: migrants often endure family separation, sacrifices, and risks to work abroad.",
    "For smaller remittances (under $200, typical for poor migrants), remittance fees typically average 10 percent, and can be as high as 15–20 percent of the principal in smaller migration corridors.",
    "For large remittances, transaction costs are relatively small as a percentage of principal.",
    "Factors contributing to costs:",
    "Notes: Figures include currency-conversions charge, except for Russia-Ukraine. — denotes data not available. Source: World Bank Remittance Prices Worldwide database; and World Bank Global Economic Prospects 2006: Economic Implications of Remittances and Migration.",
    "Approximate cost of remitting $200 (as a percent of principal):",
    "Hawala: an informal remittance transfer system that operates outside traditional financial channels—largely in the Middle East and other parts of Africa and Asia.",
    "Make remittance fees a low fixed amount rather than a percentage of principal, since transaction costs (labor, technology, networks, rent) are significantly below current fee levels.",
    "Increase competition by:",
    "Maintain anti–money laundering and terrorism-financing safeguards, but avoid measures that make it difficult for legitimate money service businesses to maintain correspondent-bank accounts.",
    "Use a risk-based regulatory approach in which only suspicious transactions are checked and small transactions below, say, $1,000 are exempt from requiring proof of identity and address.",
    "Facilitate nonexclusive partnerships between remittance-service providers and existing postal and other retail networks to expand services without large fixed investments.",
    "Increase migrants’ access to banking, because banks tend to provide cheaper remittance services than money transfer operators, by:",
    "Caution on incentive programs:"
  ],
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