Remittance

Remittance can also refer to the accounting concept of a monetary payment transferred by a customer to a business. See remittance advice

A remittance is a transfer of money by a foreign worker to his or her home country. See "remittance man" below for the historical use of the word, which is the opposite of the modern use.

Money sent home by migrants constitutes the second largest financial inflow to many developing countries, exceeding international aid. Estimates of remittances to developing countries vary from International Fund for Agricultural Development's US$301 billion (including informal flows) to the World Bank's US$250 billion for 2006 (excluding informal flows).^[1] Remittances contribute to economic growth and to the livelihoods of people worldwide. Moreover, remittance transfers can also promote access to financial services for the sender and recipient, thereby increasing financial and social inclusion. Remittances also foster, in the receiving countries, a further economic dependence on the global economy instead of building sustainable, local economies. Note that in 19th century usage a remittance man was someone (often a black sheep) exiled overseas and sent an allowance on condition that he not return home.

Remittance advertising in Oxford Street, London with Polish and Russian text

Significance

Remittances are playing an increasingly large role in the economies of many countries, contributing to economic growth and to the livelihoods of less prosperous people (though generally not the poorest of the poor). According to World Bank estimates, remittances totaled US$414 billion in 2009, of which US$316 billion went to developing countries that involved 192 million migrant workers.^[2] For some individual recipient countries, remittances can be as high as a third of their GDP.^[2] As remittance receivers often have a higher propensity to own a bank account, remittances promote access to financial services for the sender and recipient, an essential aspect of leveraging remittances to promote economic development. The top recipients in terms of the share of remittances in GDP included many smaller economies such as Tajikistan (45%), Moldova (38%), and Honduras (25%).^[3]

The World Bank and the Bank for International Settlements have developed international standards for remittance services.^[4]

In 2004 the G8 met at the Sea Island Summit and decided to take action to lower the costs for migrant workers who send money back to their friends and families in their country of origin. In light of this, various G8 government developmental organizations, such as the UK government's Department for International Development (DFID) and USAID began to look into ways in which the cost of remitting money could be lowered.

In September 2008, the World Bank established the first international database of remittance prices. The Remittance Prices Database provides data on sending and receiving remittances for 200 “country corridors” worldwide. The “corridors” examined include remittance flows from 28 major sending countries to 86 receiving countries, which account for more than 60% of total remittances to developing countries.^[5] The resulting publication of the Remittance Prices Database serves four major purposes: benchmarking improvements, allowing comparisons across countries, supporting consumers’ choices, and putting pressure on service providers to improve their services.^[5]

At a July 2009 summit in L’Aquila, Italy, G8 heads of government and states endorsed the objective of reducing the cost of remittance services by five percentage points in five years. To drive down costs, the World Bank has begun certifying regional and national databases that use a consistent methodology to compare the cost of sending remittances.^[6]

History

Overview

Remittances are not a new phenomenon in the world, being a normal concomitant to migration which has always been a part of human history. Several European countries, for example Spain, Italy and Ireland were heavily dependent on remittances received from their emigrants during the 19th and 20th centuries. In the case of Spain, remittances amounted to the 21% of all of its current account income in 1946.^[7] All of those countries created policies on remittances developed after significant research efforts in the field. For instance, Italy was the first country in the world to enact a law to protect remittances in 1901^[8] while Spain was the first country to sign an international treaty (with Argentina in 1960) to lower the cost of the remittances received.

Remittance man

Remittance man has a historical English meaning from the 19th century referring to money sent from Britain to a person living in a far away place such as a British colony – thus sending money in the opposite direction to today's usual usage of the term. The reader would be wise to look for the context within which the term is used when reading or hearing it since today's and old usages are opposites and the old meaning is still in wide use.

A remittance man, by simple dictionary definition, is an emigrant supported or assisted by payment of money from their paternal home.

As a general term remittance man or remittance woman could mean anyone living away from home supported mainly by their family in a different house, neighborhood, city, or country regardless of their reason for being there. Such a person may be seeking business fortune, education, extended vacation, a new place for the family to move, employment, or safety from personal, family, or legal troubles.

Successful remittance men

A remittance man could be a younger son trying to escape the shadow of elder dominating sons to seek his own fortune and proof of worth, such as George Vanderbilt of the Biltmore Estate. Other less famous persons who lived off family remittance payments came from middle class families who could afford to send them. These might move from their east coast family home to the west coast seeking fortune and starting new businesses as American commerce historically expanded west.

Dark-side remittance men

Within Victorian British culture, this often meant the black sheep of an upper or middle class family who was sent away (from the UK to the Empire), and paid to stay away. These men were generally of dissolute or drunken character, and may have been sent overseas after one or more disgraces at home. There were also "remittance men" in several towns in the American and Canadian West [1]. American writer Mark Twain and Canadian poet Robert Service make references to those specific "remittance men" in some of their literary works. The term was in casual use in Alaska until the late 20th century, usually with a derogatory intent.

In past commercial mass entertainment novels the dark side remittance man has been popularized. An example of this usage is in Robert Louis Stevenson's book The Wrecker where the character Tommy Hadden is cast as the 'remittance man'.^[9] In the book

“

Tom Hadden (known to the bulk of Sydney folk as Tommy) was heir to a considerable property, which a prophetic father had placed in the hands of rigorous trustees. The income supported Mr. Hadden in splendour for about three months out of twelve; the rest of the year he passed in retreat among the islands.

”

By region

In 2010, US and Saudi Arabia, respectively, were the top two senders of remittance globally.^[10]

Asia

A majority of the remittances from the US have been directed to Asian countries like India (approx. 26 billion USD), Philippines (approx. 20 billion USD) and China (approx. 23 billion USD). Most of the remittances happen by the conventional channel of agents, like Western Union or MoneyGram. However, with the increasing relevance and reach of the Internet, online and mobile phone money transfers from companies such as Remit2India, Money2India, Xoom.com have significantly grown.

Philippines

According to a World Bank Study,^[11] the Philippines is the second largest recipient for remittances in Asia. It was estimated in 1994 that migrants sent over US2.6 billion back to the Philippines through formal banking systems. With the addition of money sent through private finance companies and return migrants, the total is closer to US6 billion annually.^[12] Looking at current remittance flows, the total is estimated to have grown by 7.8 per cent to reach US21.3 billion in 2010. Remittances are a reliable source of revenue for the Philippines, accounting for 8.9 per cent of the country’s GDP.^[13]

The Estrada administration in 2000 declared it “The Year of Overseas Filipino Worker in the Recognition of the Determination and Supreme Self-Sacrifice of Overseas Filipino Workers.” This declaration connects monetary remittances of overseas workers as the top foreign-exchange earnings in the Philippines.^[12]

Latin America and the Caribbean

In Latin America and the Caribbean, remittances play an important role in the economy of the region, totaling over 66.5 billion USD in 2007, with about 75% originating in the United States. This total represents more than the sum of Foreign direct investment and official development aid combined. In seven Latin American and Caribbean countries, remittances even account for more than 10% of GDP and exceed the dollar flows of the largest export product in almost every country in the region.^[14] Percentages ranged from 2% in Mexico, to 18% in El Salvador, 21% in Honduras, and up to 30% in Haiti.^[15] The Inter American Development Bank's Multilateral Investment Fund (IDB-MIF) has been the leading agency on regional remittance research.^[14]

Through the providers listed on Send Money Home migrant workers can now view a price comparison on remittances to Latin American and Caribbean countries.

This research has often been carried out in collaboration with Manuel Orozco of the Inter-American Dialogue, his remittance research can be found at the Dialogue^[16] and at the IDB. In this region, Mexico, one of the best documented examples of migration and remittances, received remittance inflows of almost 24 Billion US$ in 2007, 95% of which originated in the US.

A significant study conducted by the Inter-American Development Bank (IDB) in 2004 provides useful insight into remittance and related migration patterns between Latin America and the United States. The study reveals that over 60% of the 16.5 million Latin American-born adults who resided in the United States at the time of the survey regularly sent money home. The remittances sent by these 10 million immigrants were transmitted via more than 100 million individual transactions per year and amounted to an estimated $30 billion during 2004. Each transaction averaged about $150–$250, and, because these migrants tended to send smaller amounts more frequently than others, their remittances had a higher percentage of costs due to transfer fees.^[17]

Migrants sent approximately 10% of their household incomes; these remittances made up a corresponding 50-80% of the household incomes for the recipients. Significant amounts of remittances were sent from 37 U.S. states, but six states were identified as the "traditional sending" states: New York (which led the group with 81% of its immigrants making regular remittances), California, Texas, Florida, Illinois, and New Jersey. The high growth rate of remittances to Mexico (not the total amount) is unlikely to continue. In fact, according the Mexican central bank, remittances grew just 0.6 during the first six months of 2007, as compared to 23% during the same period in 2006. Experts attribute the slowdown to a contraction in the U.S. construction industry, tighter border controls, and a crackdown in the U.S. on illegal immigration.^[11]

As the foregoing statistics illustrate, increased migration from Latin America to the United States has resulted in a very significant amount of remittance activity. The numbers also help us understand the dependence between a developed country and developing countries: The United States needs Latin Americans to supply its labor markets—the migration improves business profitability and reduces the costs of production, while Latin American countries depend on the flows of remittances that result from the migration of labor. This dependence has also resulted in what experts call "micro-geographies," tightly-knit networks that integrate U.S. communities with communities throughout Latin America, such as migrants from Oaxaca, Mexico who have settled in Venice Beach, California. Oaxacans not only send money back to their communities, but they also travel back and forth extensively.^[11]

As of recently, remittances from the U.S. to Latin America have been on the decline. While there were USD 69.2 billion worth of remittances sent in 2008, that figure has fallen to USD 58.9 billion for 2011. This trend is a result of many factors including the global recession, more economic opportunity in Latin American countries, and rising fees charged by coyotes to smuggle immigrants across the border. The pattern of migration has changed from a circular flow, in which immigrants work in the U.S. for a few years before returning to their families in their home countries, to a one-way stream whereby migrants find themselves stuck in the United States. As a result, the new wave of migrants are both less likely to leave and more likely to stay in the U.S. for longer periods of time. Overall, this trend has contributed to falling levels of remittances sent to Latin American countries from the United States^[18].

Africa

Remittances to Africa play an important role to national economies, but little data exists as many rely on informal channels to send money home. Today’s African Diaspora consists of approximately 20 to 30 million adults, who send about USD 40 billion annually to their families and local communities back home. For the region as a whole, this represents 50 percent more than net official development assistance (ODA) from all sources, and, for most countries, the amount also exceeds foreign direct investment (FDI). In several fragile states, remittances are estimated to exceed 50 percent of GDP.^[17] Most African countries restrict the payment of remittances to banks, which in turn, typically enter into exclusive arrangements with large money transfer companies, like Western Union or Money Gram, to operate on their behalf. This results in limited competition and limited access for consumers.

According to a World Bank study,^[11] Nigeria is by far the top remittance recipient in Africa, accounting for $10 billion in 2010, a slight increase over the previous year ($9.6 billion). Other top recipients include Sudan ($3.2 billion), Kenya ($1.8 billion), Senegal ($1.2 billion), South Africa ($1.0 billion), Uganda ($0.8 billion), Lesotho ($0.5 billion), Ethiopia ($387 million), Mali ($385 million), and Togo ($302 million). As a share of Gross Domestic Product, the top recipients in 2009 were: Lesotho (25 percent), Togo (10 per cent), Cape Verde (9 per cent), Guinea-Bissau (9 per cent), Senegal (9 per cent), Gambia (8 per cent), Liberia (6 per cent), Sudan (6 per cent), Nigeria (6 per cent), and Kenya (5 per cent).^[17]

Emergencies

During disasters or emergencies, remittances can be a vital source of income for people whose other forms of livelihood may have been destroyed by conflict or natural disaster. According to the Overseas Development Institute, this is being increasingly recognized as important by aid actors who are considering better ways of supporting people in emergency responses.^[19]

Potential security concerns

The recent internationally coordinated effort to stifle possible sources of money laundering and/or terrorist financing has increased the cost of sending remittances directly increasing costs to the companies facilitating the sending and indirectly to the person remitting. As in some corridors a sizable amount of remittances is sent through informal channels (family connections, traveling friends, local money lenders, etc.). According to the World Bank,^[20] some countries do not report remittances data. Moreover, when data is available, the methodologies used by countries for remittance data compilation are not publicly available. A 2010 world survey of central banks found significant differences in the quality of remittance data collection across countries: some central banks only used remittances data reported from commercial banks, neglecting to account for remittance flows via money transfer operators and post offices.^[21]

Remittances can be difficult to track and potentially sensitive to money laundering (AML) and terror financing (CFT) concerns. Since 9/11 many governments and the Financial Action Task Force (FATF) have taken steps to address informal value transfer systems. This is done through nations' Financial Intelligence Units (FIUs). The principle legislative initiatives in this area are the USA PATRIOT Act, Title III in the United States and, in the EU, through a series of EU Money Laundering Directives. Though no serious terror risk should be associated with migrants sending money to their families, misuse of the financial system remains a serious government concern.

Top recipient countries

Country	Remittances 2006	Remittances 2007	Remittances* 2008	Remittances 2009	Remittances* 2010
Israel	$ 13.5 billion	$ 14.4 billion	$ 16.6 billion	$ 20.2 billion	NA
India	$ 26.9 billion	$ 27 billion	$ 45 billion	$ 55.06 billion	$ 55 billion
China	$ 22.52 billion	$25.7 billion	$ 40.5 billion	NA	$ 51 billion
Philippines	$ 12.7 billion	$ 14.4 billion	$ 16.4 billion	$ 17.3 billion	$ 21.3 billion
Mexico	$ 25.6 billion	$ 26.1 billion	$ 25.1 billion	$ 21.2 billion	$ 22.6 billion
Poland	$ 8.5 billion	$ 12.5 billion	$ 13.75 billion	NA	$ 9.1 billion
Bangladesh	$ 5.5 billion	$ 6.6 billion	$ 9.0 billion	$ 10.7 billion	$ 11.7 billion
Nigeria	NA	NA	NA	$ 9.6 billion	$ 10 billion
Pakistan	$ 5.1 billion	$ 6.0 billion	$ 7.0 billion	$ 8.7 billion	$ 11.2 billion[22]
Morocco	$ 5.1 billion	$ 5.7 billion	$ 6.9 billion	$ 8.0 billion[23]	$ 6.4 billion
Vietnam	NA	NA	$ 7.2 billion	$ 6.8 billion	$ 7.2 billion

*World Bank estimated [2][3]
Central Bank data for: Bangladesh, Mexico, Pakistan, Philippines

Economic benefits

As remittance receivers often have a higher propensity to own a bank account, remittances promote access to financial services for the sender and recipient, an essential aspect of leveraging remittances to promote economic development.^[11]

The stability of remittance flows despite financial crises and economic downturns make them a reliable financial resource for developing countries.^[11] As migrant remittances are sent cumulatively over the years and not only by new migrants, remittances are able to be persistent over time. At the state level, countries with diversified migration destinations are likely to have more sustainable remittance flows.^[11]

A 2011 study develops a long-run growth model for a labour exporting country that receives large inflows of external income - the sum of remittances, FDI and general government transfers - from major oil exporting economies. The long-run economic benefits of external income is then evaluated using data for Jordan.^[24]

References

1. ^ http://www.ifad.org/remittances/maps/brochure.pdf
2. ^ ^{a b} http://go.worldbank.org/NPD63OTRR0
3. ^ Remittance flows to developing countries are estimated to exceed $300 billion in 2008. 02/18/2009.
4. ^ World Bank, Payments and Remittances.
5. ^ ^{a b} http://go.wolrdbank.org/316JULD1Z0
6. ^ World Bank, National and Regional Databases Certified by the World Bank.
7. ^ Remesas.org, Emigrantes construyendo escuelas: La primera política oficial de codesarrollo.
8. ^ Remesas.org, La primera Ley de remesas de la historia.
9. ^ Watson, Roderick (2007). "‘"The unrest and movement of our century": the universe of The Wrecker". The Journal of Stevenson Studies 4. https://dspace.stir.ac.uk/dspace/bitstream/1893/839/1/The%20unrest%20and%20movement%20of%20our%20century.pdf. 
10. ^ Sender of Remittance
11. ^ ^{a b c d e f g} World Bank - Migration and Development Brief 13
12. ^ ^{a b} Pratt. Working Feminism. pp. 40. 
13. ^ Huang, Yeoh, Rahman. Asian Women as Transnational Domestic Workers (Maruja ed.). pp. 21–53. 
14. ^ ^{a b} MIF - Inter-American Development Bank
15. ^ Hawley, Chris (July 10, 2009). "With USA in a recession, rural Mexico feels the pain". USA Today. http://www.usatoday.com/news/world/2009-07-09-mexico_N.htm. Retrieved October 12, 2009. 
16. ^ http://www.thedialogue.org/programs/policy/trade/remittances/default.asp
17. ^ ^{a b c} E. Carrasco & J. Ro (2007), "Remittances and Development" University of Iowa Center for International Finance and Development E-Book
18. ^ One-way Ticket or Circular Flow: Changing Stream of Remittances to Latin America
19. ^ Welcome to the Humanitarian Policy Group
20. ^ http://data.worldbank.org/data-catalog/migration-and-remittances
21. ^ Irving, Mohapatra, Ratha. "Migrant Remittance Flows: Findings from a Global Survey of Central Banks". World Bank Working Paper No.194. World Bank. http://www.scribd.com/doc/29647167/Migrant-Remittance-Flows-Findings-from-a-Global-Survey-of-Central-Banks. Retrieved 4/3/2011. 
22. ^ State Bank of Pakistan Home remittance data for the FY2011
23. ^ Remittances from USA to Morocco dropped in 2009
24. ^ Mohaddes, Kamiar; Raissi, Mehdi (2011). "Oil Prices, External Income, and Growth: Lessons from Jordan". Cambridge Working Papers in Economics. http://www.econ.cam.ac.uk/teach/mohaddes/Jordan_VARX.pdf. 

• [4]
• [5]
• [6]
• [7]
• Ezra Rosser, Immigrant Remittances, 41 Conn. L. Rev. 1 (2008) [8]

External links

• Money Transfers at the Open Directory Project
• Integration : Building Inclusive Societies (IBIS) UN Alliance of Civilizations online community on Good Practices of Integration of Migrants across the World
• Outlook for remittance flows to developing countries: Recovery after the global financial crisis but risks lie ahead
• Migration and Remittances