A Study on Foreign Remittance and Its Impact in the Socio-Economic Development of Bangladesh

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A Study on Foreign Remittance and Its Impact in the Socio-Economic Development of Bangladesh

To know the substantial growth of remittance in Bangladesh

know the remittance clearly and also its history

To know how remittance provide services to the customers in the whole world

To know the position of remittance in the capital market and its effect in the economy

To know all of the working activities including remittance exchange process, general value of

Remittance and its merits and demerits

To know the maintenance of their risk in transferring remittance all over the world

To know the inflows and outflows of remittance in present age in Bangladesh

To know how to send and collect the remittance money

To evaluate the effect of politics on remittance

To know the investment facilities for remittance

To identify the position of Bangladesh in remittance ranking

To identify the countries involved with remittance process

The main thrust of this study has concentrated on the issues relevant to the remittance process in Bangladesh and all over the world. However, the details objectives can be divided into two parts and these are:

Broad objective:

To know the remittance and its effect on the development of economical condition of Bangladesh and to know the international remittance payment system.

Specific objectives:

To attain the broad objective following specific objectives were pursued:

To be familiar with the remittance payment system

To make a perfect knowledge about remittance policy of Bangladesh

To determine the satisfaction level of remittance with the present condition

To get the idea about the functions of all international countries remittance system

To know the rules and regulation related with remittance

To examine the way to overcome the remedy related with remittance transfer process

To examine the earnings of remittance compared to total earning in different sectors

To know the future prospect of remittance all over the world

To know about the nature of remittance in different countries

To compare remittance inflows and outflows of one country’s with the other countries

To know the present condition of remittance in Bangladesh

To understand the need of remittance utilization in perspective of Bangladesh.

To understand the macroeconomic determinants of remittance

Providing a snapshot of channel, trend and pattern of remittance in Bangladesh.

Comparing the channel used in transferring remittance.

Both primary and secondary information sources were used to complete this study. Different data and information are required to meet the goal of this thesis. Those data and information were collected from various sources, such as, primary and secondary which is showed below:


Interviews and discussions with officials of different Bank

Remittance records and observing practical work

Informal conversations with the people involving with remittance


Website of remittance

Various published documents of Bangladesh Bank on remittance

The report covers the details of remittance in Bangladesh and the world. This thesis consists of the researcher’s observation and on the working experience on remittance. The thesis emphasizes on the sequential activities involved with remittance and used by different country all over the world. It also focuses on the impact of remittance activities the economical, political and financial condition of a country. Finally, it incorporates an evaluation of the different aspect of the inflow-outflow process in comparison to different competitive countries.

The scope limited by the availability of recent data.

The insufficiency of expected information is main constraint of the study.

In many cases, up to date information was not published

There are no many options for justify the correctness of the information

A remittance is a transfer of money by a foreign worker to his or her home country. Remittance can also refer to the accounting concept of a monetary payment transferred by a customer to a business.

A remittance of funds overseas is a payment made to a person in another country. This includes sending money to children studying overseas, foreign workers sending money to families back in their home country or payments made for the import of goods and services.

Money sent home by migrants constitutes the second largest financial inflow too 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).

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 returns home.

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). 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 exiled overseas and sent an allowance on condition that he not returns home.

Illegal remittance is sending money overseas through companies that are not authorized by Bank Negara Malaysia to conduct such business. There are no money-back guarantees if you deal with illegal remittance agents.

The usual characteristics of illegal remittance agents are:

They normally operate on a small scale

They claim that they are able to provide remittance services efficiently, without the need for any documents or identification

They rarely use documents to validate and verify the transactions

If you want to send money overseas, either for yourself or on behalf of someone, do not use an illegal remittance agent. Your money may not reach its destination. Use an authorized remittance agent (e.g. a bank) instead for safety.

Foreign remittance can be defined as ‘the purchase and sale of freely convertible foreign currencies as admissible under Exchange Control Regulations of the country’. A looser translation is the sending of money home while working in a foreign country. Thousands of people are currently working and living in a country that is not their home, and sending funds regularly back to their families in their home country.

There are two types of remittance:

1. Foreign Outward Remittance:

The sending country, where the wage earner is located. The sender uses a bank or foreign exchange company to send money to foreign country. Many of the receiving banks have established remittance relationships with currency houses and banks in other countries to better facilitate the flow of remittances into the country.

2. Foreign Inward Remittance:

The receiving country, where the beneficiary resides. The bank receives the money that has been sent from the sending person in the country in which the money has been earned. Banks in Bangladesh, for example, MTBL (Mutual Trust Bank Ltd.) has established remittance arrangements with a number of exchange houses to facilitate wage earners to remit their money to Bangladesh. This bank has already been in operation with UAE Exchange Centre LLC, Wall Street Exchange LLC, Trust Exchange, Route Asia Exchange, Instant Cash and Bangladesh Money Transfer.

MTBL have obtained permission from Bangladesh Bank to start operation with Al Saad Exchange, First Solution Exchange, Al Ahalia Exchange Bureau and Federal Exchange. The bank maintains correspondence with other 16 Exchange House which are Al Fadaral Exchange, National Exchange, City Exchange, Future Exchange, Al Ghurair Exchange, Habib Exchange, Al Ansari Exchange, Emirates India International Exchange, Instant Exchange, Oman UAE Exchange, Modern Exchange, Purusuttam Kanji Exchange, Musandam Exchange, Lasidas Tharia Exchange, Oman United Exchange and ICICI Bank.

The extensive branch network of these Exchange Houses has been largely helping Bangladeshi expatriates working in the UAE, UK, Qatar, and Oman to transfer their funds speedily and efficiently through online network. MTBL’s total foreign remittance volume was Tk. 2,671.53 million in 2006. MTBL is exploring further avenues of remittance from other countries such as Saudi Arabia, Malaysia, USA and Italy in the near future. The Foreign Remittance department of MTBL Dilkusha Branch is equipped with a number of foreign remittance facilities. Following are the types of foreign remittance facilities offered by MTBL Dilkusha Branch.

A remittance advice is a document that is sometimes issued as a courtesy to a vendor or supplier. The text of the document usually confirms the delivery of goods or services ordered by the customer, affirm the products are satisfactory, and notes that payment for the order is being prepared and will be remitted by a certain date. In some instances, the advice accompanies the payment and a copy of the invoice for the order. While not considered necessary or required in most business settings, the remittance advice remains a staple of business etiquette in many nations, with technology now making it possible to forward electronic versions to suppliers along with the more traditional method of preparing and posting a hardcopy document.

The exact format of a remittance advice can be very simple or extremely complex. The most simplistic examples may contain minimal information like the order number, the date the order was received, the amount due, and the date that the payment will be forwarded to the supplier.

More examples that are complex may include an itemized list of each item included in the order, including unit and extended pricing for each of those items, a grand total, the check number for the payment, and the date that the check will be mailed. In cases where payment is remitted electronically, the remittance advice may document of a recently completed payment or advise the vendor to expect receipt of the electronic payment by a certain date.

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).

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:

Country Percentage
Tajikistan 45%
Moldova 38%
Honduras 25%

The World Bank and the Bank for International Settlements have developed international standards for remittance services. 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 lower.

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 remittance.

2.6.1 Overview:

Remittances are not a new phenomenon in the world, being a normal concomitant to migration that has ever 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. 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 while Spain was the first country to sign an international treaty (with Argentina in 1960) to lower the cost of the remittances received.

2.6.2 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 faraway 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, and extended vacation, a new place for the family to move, employment, or safety from personal, family, or legal troubles.

2.6.3 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. One such person was George Vanderbilt and 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.

2.6.4 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. 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’.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 splendor for about three months out of twelve; the rest of the year he passed in retreat among the islands.”

2.7.1 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 (Western Union, Money gram).However, with the increasing relevance and reach of the Internet and players, online money transfer Remittance to India and mobile phone money transfer has significantly grown.

2.7.2 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. Percentages ranged from 2% in Mexico, to 18% in El Salvador, 21% in Honduras, and up to 30% in Haiti. The Inter American Development Bank’s Multilateral Investment Fund (IDB-MIF) has been the leading agency on regional remittance research.

2.7.3 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. 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, 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:

Country Amount
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
Togo $302 million

As a share of Gross Domestic Product, the top recipients in 2009 were:

Country Percentage
Lesotho 25 percent
Togo 10 percent
Cape Verde 9 percent
Guinea-Bissau 9 percent
Senegal 9 percent
Gambia 8 percent
Liberia 6 percent
Sudan 6 percent
Nigeria 6 percent
Kenya 5 percent

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.

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 person remitting. As in some corridors a sizable amount of remittances is sent through informal channels (family connections, traveling friends, local money lenders etc.) 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.

Country 2006 2007 2008 2009
India $26.9 billion $27 billion $45 billion $55.06 billion
China $22.52 billion $25.7 billion $40.5 billion
Philippines $12.7 billion $14.4 billion $16.4 billion $17.3 billion
Mexico $25.6 billion $26.1 billion $25.1 billion $21.2 billion
Poland $8.5 billion $12.5 billion $13.75 billion
Bangladesh $ 5.5 billion $6.6 billion $9.0 billion $10.7 billion
Pakistan $5.1 billion $6.0 billion $7.0 billion $8.7 billion
Morocco $5.1 billion $5.1 billion $5.7 billion $6.9 billion

Over the past few years, remittances have become a major phenomenon in international finance. Although the practice of migrants in developed countries sending funds home to family members still residing in developing nations has been occurring for many decades, the magnitude of remittances has skyrocketed. Only relatively recently have scholars and policymakers begun to appreciate and study this phenomenon. How do these funds get to the receivers in other countries? How does this external source of finance to developing nations affect their economic growth? What are the short-term and long-term effects of remittances on emerging markets? Keep these and other questions in mind as you read this section of the E-Book.

3.1.1 Why Remittances Are Important? :

3.1.1(a) Generally, remittances are monies transferred from one individual to another.

International remittances are transfers of funds by foreign workers—”remitters”—who are living and working in developed countries typically to their families who are still living in their home countries. Examples include Middle Easterners living in Europe, Latin Americans in the United States, and Koreans or Filipinos in Japan. Although the use of remittance funds varies from country to country, the recipients of remittances commonly rely on them for living costs, education, and investments.

3.1.1(b) Remittances Have Increased Significantly and Become a Major Source of Income for Developing Countries.

The topic of remittances has become a popular one in the international financial community in recent years as both the rate and volume of remittances have increased exponentially. Gathering accurate data on international remittances has been very difficult for a number of reasons, including the fact that a good portion of the transfers is made on an informal basis. Some official statistics do exist, however, and they present startling numbers. In 1995, remittances to developing countries totaled about $57.8 billion and shot up to $96.5 billion by 2001. The World Bank estimated that in 2005 migrants sent home approximately $167 billion, up 73% from 2001 (the true amount could be 50% higher or more).

In 2006, the World Bank reported that remittances grew to approximately $206 billion; others put the figure at $298 billion. These flows have led analysts to conclude that the growth of remittances has exceeded private capital flows and official development assistance to developing countries. Moreover, remittances are a reliable source of foreign capital; in the 1990s they were the least volatile source of foreign exchange.

3.1.2 Remittances Mechanisms and Their Costs:

3.1.2(a) Remittances Occur Through Formal and Informal Channels.

Migrants send money to their home countries through formal and informal channels. Formal channels include major money transfer operators (MTOs), such as Western Union and Money Gram, and banks, such as Bank of America. Some migrants use formal channels, but language barriers as well as related costs for these services may deter remitters from using them. Consequently, most remittances occur through informal channels. For instance, migrants may carry cash home themselves or send cash through the mail or a friend.

3.1.2(b) Remittance Fees and Costs Can Be Significant.

Cost is a significant factor for small, personal transfers. The IDB estimated that the total cost of sending remittances to Latin America and the Caribbean approached $4 billion in 2002 (approximately 12.5% of the amount of remittances to this region). The Pew Hispanic Center estimated that the total cost of the average remittance transfer ranges between 15-20% of the total.

The costs typically include a fee charged by the sending agent and a currency-conversion fee—e.g., converting U.S. dollars sent by the remitter to Mexican pesos that can be used by the recipient. The amount of the remittance will also factor into costs.

For example, the World Bank has reported that MTOs channeling money from the United States to Mexico charge more than 10% for transfers of $100, as compared to less than 3% for $500. Moreover, sending agents fees in many instances far exceed the costs they incur in making the remittance, which translates into higher profits. For instance, in 2004 Western Union enjoyed an average profit of $8 to $9 dollars per remittance transaction.

3.1.2(c) Improving the Efficiency and Cost-Savings of Formal Remittance Systems Will Have Multiple Beneficial Effects.

The World Bank has noted that reducing remittance costs and improving the infrastructure would be beneficial in several ways. By reducing costs, remitters will have more disposable income, which may translate into increased remittances. Reduced costs will also increase remittance flows through normal channels, such as banks. And improved infrastructure will promote better financial access among the poor in developing countries.

Given these significant benefits, in 2004 the G-8 (a governmental forum comprised of Canada, France, Italy, Japan, Russia, the United States, and the United Kingdom) met in part to come up with projects to help facilitate remittances by lowering formal-channel transaction costs. This led to the creation of a task force of experts, co-chaired by the World Bank and the Bank for International Settlements, whose purpose was to establish and develop principles for international remittance services. In January 2007, the task force published a report containing General Principal of International Remittance Services, which focuses on the payment system aspects of remittances.

In addition to the high costs associated with remittances of smaller amounts, the report notes that migrants may not have adequate access to remittance services if they do not speak the local language or have the necessary documentation.

Moreover, poor financial infrastructure in some developing countries may make it difficult for the recipients to collect the remittances. The services may be unreliable, the markets may not be sufficiently competitive to reduce costs, or there may be regulatory barriers that impede the transmission of remittances.

The effort to reduce remittance costs through competition has paid off. The World Bank has reported that remittance costs in the United States-Mexico corridor have declined considerably. For example, in 1999 it cost $26 to send $300 from the United States to Mexico, whereas in 2005 it cost only $11—a 60% drop. The drop is attributable to the break-up of exclusive dealing arrangements between one dominant MTO and its distributors, allowing banks to enter the market.

3.1.3 Effects Of Remittances On Developing Countries:

3.1.3(a) On balance, remittances benefit developing countries.

Most observers have concluded that on balance remittances are beneficial to developing countries. An obvious benefit is that a portion of most funds sent to home countries goes toward the welfare and improved livelihood of the families receiving them. The recipients commonly spend the funds on necessities such as health, education, food, and clothing.

3.1.3(a)(1) Remittances may help developing countries cope with economic crises, improve their credit ratings, and help raise external financing.

On the broader macroeconomic plane, remittances may help recipient countries cope with economic crises because migrants tend to send more money back to family and friends during hard times. Remittances can also improve receipt countries creditworthiness.

This is because such inflows would effectively reduce the country’s indebtedness relative to its exports (its income), thereby improving the country’s credit ratings and lowering its borrowing costs on the international capital markets. And remittances also help developing countries raise external financing through what is known as “securitization.” In this type of transaction, developing-country banks that receive remittances can issue bonds to foreign investors backed by the future flow of those remittances. Various developing countries, led by Brazil, have raised billions of dollars through this technique.

3.1.3(b) Remittances can nevertheless pose problems.

Still, remittances are not hazard-free. For instance, large inflows into small economies can cause the domestic exchange rate to appreciate (i.e., the domestic currency becomes more expensive relative to foreign currency), thereby making tradable items, such as cash crops and manufactured goods, less profitable. Also, governments may develop a dependency on large flows of remittances, thus creating a disincentive to pursue aggressive economic policies to promote sustained development. There are other problematic aspects associated with remittances. Here we will focus on four.

3.1.3(b)(1) Significant reductions in remittances can collapse economies: the “ghost-town” phenomenon.

One negative effect that remittance flows can have on a developing economy is sometimes referred to as the “ghost-town” phenomenon. It essentially refers to an exodus from or abandonment of localized areas, typically small villages in rural regions, whose economies had grown dependent on the inflow of remittances. The result is a collapse of these local economies when the inflow decreases significantly or suddenly stops.

Central Mexico has been hit notably hard by this phenomenon over the past ten years. The trend that emerged during this time was that fathers or heads of households migrated north to the United States to work and sent money home to their families who, after a few years of saving, also migrated north to join them. Before this trend, it was common for workers to migrate to the U.S. only temporarily, and then move back to their home countries. However, increased U.S. law enforcement along the border made seasonal trips more risky. As a result, more migrants began stationing in the U.S. permanently and bringing their families across the border. Once these families left, so did their remittances, which had grown to be essential to the stability of the local economy.

3.1.3(b)(2) Remittances may be “easy money” that negatively affects economic development, but the use of remittances will vary from country to country and even among regions within countries.

Another negative aspect of remittances was revealed by a study done on twenty-two migrant communities in Mexico in 2001. It reported that only about 10% of remittance funds were invested or saved. Instead, the bulk of the money went to raising the standard of living for the receiving family—i.e. a new house, a car, a bigger T.V., etc. The study also theorized that remittances created an “easy money” cycle where the receivers of remittances treated the money like allowances and, thus, had little incentive to work. This resulted in significant social costs, such as a reduction in the labor supply, which hinders economic development.

Thus, many developing countries are watching their best and brightest leave to put their valuable human capital to use elsewhere—the “brain drain”— while the money they earn and send home contribute little to the home country’s economic growth, despite the resulting increased consumption. This phenomenon is not inevitable, however. For example, although most remittances go to individuals or families, some migrants participate in associations that send collective remittances to their home communities. Generally, one should take into consideration that the net impact of remittances will vary greatly between countries and even regions within countries, depending on the structure of the local economy, the usage patterns of the funds by the recipients, and the availability of invest opportunities.

3.1.3(b)(3) Poverty-Reduction: Inequality between Remittance-Haves and Have-Nots

There is growing evidence that remittances have reduced poverty levels in several developing nations. One study of 71 developing countries found that a per capita increase of 10% in international remittances leads to a 3.5% decline in people living in poverty. In another study, the World Bank concluded that, based on available data, remittances have been associated with reduced poverty in several low-income countries such as Uganda (11% reduction), Bangladesh (6% reduction), and Guatemala (20% reduction). However, there is also conflicting evidence that remittances have very little impact on the incidence of extreme poverty, or, even worse, the opposite effect.

Some analysts argue that remittances in some countries contribute to a growing inequality or gap, particularly in poor rural areas, between the groups of people within a community who receive remittances and those who do not. This may reflect the cost of sending family members to foreign lands to work. Migrants are typically from families that are neither the poorest (who cannot afford to send someone away) nor the richest (who have no need to send someone away) in the community, but who have a status more analogous to middle-class.

Additionally, increased income to remittance-receiving families can lead to the formation of “affluent” neighborhoods that stand apart from the rest of the poor village. The poorest families thus seem to be even poorer in comparison to the much-improved lifestyles that remittance money allows some families to suddenly have.

3.1.3(c) Growth

Overall, the relationship between remittances and economic growth is unclear because of a lack of extensive research on this relationship at this point. Some analysts and scholars argue that remittance benefits are only felt at the individual receiver’s level, but some case studies suggest that the benefits of remittances to individuals have spill-over effects that can translate into a positive impact on the local economy.

Are international remittances the final frontier for branchless banking? Formal remittance flows to developing countries are estimated to be US $325b in 2010: in some countries these flows outweigh overseas development aid and constitute a sizeable proportion of the economy – international remittances equal 12% of GDP in the Philippines.

The emergence of branchless banking, combining networks of agents that can facilitate banking transactions with communications technology such as mobile phones seem to offer an obvious opportunity as an alternative delivery channel for international remittances. These new models hold great promise for expanding access to services, reducing costs associated with service delivery, and increasing the level of competition in the industry. And given the size of the flows, it is no surprise that branchless banking service providers are looking for ways to get into this market.

Today, however, there are only eight live branchless banking deployments that allow customers to receive funds from abroad directly into an m-wallet which can be converted to cash at a large agent network. This is a small number when compared to the 100 deployments that are live according to the GSMA mobile money tracker and numerous other “bank-based” models. So what are the factors that are preventing branchless banking services from delivering a greater portion of international remittance flows?

Actors interviewed in a recent study conducted by CGAP and Dahlberg referenced three major issues:

(a) Insufficient maturity of branchless banking infrastructure on the receiving end:

In many countries the network of cash out agents is not well enough developed to enable customers to withdraw money at a sufficient number of points across the country. International remittance flows tend to flow in one direction only and can put a big strain on agents who need to maintain sufficient liquidity to provide the cash that customers need.

(b) Lack of customer awareness and trust in new services:

Even in markets like Kenya and the Philippines where there are well developed networks of agents, customers are hesitant to move away from trusted remittance service providers that they may have relied on for many years. Migrant workers who are sending home a large fraction of their monthly paycheck may not be willing to trust their hard earned cash to a provider that they have never heard of to save one or two percentage points in fees or to remove the need for a relative to take a bus ride into town to collect their money.

(c) Constraining regulatory environments:

In many countries regulations including restrictions on who can provide remittance services, capital controls or simply limits on account sizes that are below what customers typically send all provide obstacles to the use of branchless banking services to facilitate international remittances.

Officially recorded remittance flows to developing countries are estimated to increase by 6 percent to $325 billion in 2010. This marks a healthy recovery from a 5.5 percent decline registered in 2009. In line with the World Bank’s outlook for the global economy, remittance flows to developing countries are expected to increase by 6.2 percent in 2011 and 8.1 percent in 2012, to reach $374 billion by 2012. (Note that the World Bank’s definition of developing countries has changed: Poland, which is estimated to have received $9.1 billion in 2010, is no longer a classified as a developing country.)

This outlook for remittance flows, however, is subject to three key risks:

First, the economic recovery in the major destination countries in North America and Europe is not very firm yet. There is a risk that the fiscal retrenchment being planned or implemented in some of the major destination countries might restrain aggregate demand and economic growth, and contribute to high unemployment rates, which in turn could reduce the migrants’ incomes and their remittances sending for a country’s development.

Second, movements in currency exchange rates and commodity prices can pose unpredictable risks for remittance flows. While a weaker US dollar can imply larger dollar-denominated remittances from Europe, it can also increase dollar prices of assets and goods in remittance-receiving countries (such as India, Mexico and the Philippines).

Finally, there is a risk that immigration controls imposed in response to high domestic unemployment rates will deepen and adversely affect migration and remittance flows. In general, protectionist policies that slow the movement of goods and people across borders are likely to delay an adjustment to the crisis and prolong the process of recovery. Such policies are also inconsistent with the sharp increase in demand for migrants projected in the rapidly aging societies of the North.

From a medium-term view, some major trends (in addition to the above) are apparent. The implementation of the Wall Street reforms and the EU Payment Services Directive will increase competition, transparency, and consumer protection in remittance markets and reduce remittance costs. The application of mobile phone technology has been successful for domestic remittances in several developing countries in Africa and Asia, but lack of clarity on anti-money-laundering and combating the financing of terror (AML-CFT) regulations remains a major barrier to the entry of cross-border remittance service providers.

Also it has become urgent now to address whether these new technologies should be regulated under Banking regulations or telecom regulations, and how the operational risks that might arise can be addressed.

Finally, the resilience of remittances has made developing countries more aware of the potential for leveraging remittances and Diaspora wealth for raising development finance. Several countries (including most recently Greece) have implemented or are considering the issuance of Diaspora bonds and/or securitization of future remittance flows to raise lower-cost and longer-term financing for infrastructure and public works projects.

Remittances contribute to economic growth and to the financial and social inclusion of needy people worldwide. Recent studies have shown that remittances not only play an important part in many people’s daily lives but are particularly important for people during financial crises.

In Latin America and the Caribbean, remittances play an important role in the economy of the region, totaling over $66.5 billion in 2007, with about 75% originating in the United States. This total represents more than the sum of foreign direct investment (FDI) and official development aid (ODA) combined. In 7 Latin American and Caribbean countries remittances account for more than 10% of GDP and exceed dollar flows of largest export product in every country.

A majority of the remittances from the US have been directed to Asian countries such as India, the Philippines and China. Most of the remittances happen by conventional channel of agents, however online money transfer has gained substantial momentum over the years. One-third of the money sent originates in the United States, most of the rest is sent from Europe and the Middle East.

A significant volume of remittance money circulates within the developing world as well. Latin America and the Caribbean is the region receiving the highest level of remittances per capita and the money flowing to the region has risen tenfold in real terms over the past 20 years. After climbing at double-digit rates in the last decade, flow now appears to be leveling off.

Most of the money received in this region is used for everyday living expenses, from food and home repairs to school tuition. What interest’s economists most, though, is the potential for remittances to contribute to economic development. Remittances tend to increase bank deposits, reflecting potential for investment. Research has also found that higher remittance flows are associated with lower poverty, better health and higher levels of education in developing world.

Yet the increasing remittance flows have downside-families and national economies that rely on the money sent from nationals working abroad become vulnerable to distant events and trends. Also, many countries dependent on remittance see their working-age adult population shrink. Family members left behind may stop working and wait month-to-month for money from overseas.

However, today remittance checks are helping millions of households across the globe to keep food on the table and a roof overhead. Although the evidence hardly hails them as a long-term solution to global poverty, as long as remittance flows continue, they should be both facilitated and regulated.

Article Source: http://www.articlesnatch.com

India has retained its position as the highest recipient of global remittance flow at $52 billion in 2008, the World Bank has said in a report. Remittance is defined as the sum of money paid to someone at a distance. A ‘remittance transfer’ refers to the transfer of money from an individual, usually a person who has emigrated from her city or country of origin, to another individual, usually a relative who remains at home. The World Bank and the Bank for International Settlements have developed international standards for remittance services.

India: Rank 1

India received the highest of 15 per cent of the total global remittance inflows at $52 billion in 2008, which constituted 3.3 per cent of its gross domestic product. Remittance flows to developing countries reached $328 billion in 2008, an increase of 15 per cent over 2007.

It should be mentioned here that the World Bank had predicted a 7.3 per cent decline in remittance overall flows to developing nations all over the world in 2009 to $304 billion.

Most of the remittances happen by conventional channels like Western Union and Money gram. However, with the increasing reach of the Internet, online money transfer has gained momentum.

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 of natural disaster. Growth of remittances to South and East Asia is also because of the switch in motivation for remittances from consumption to investment: falling asset prices, rising interest rate differentials and a depreciation of the local currency.

China: Rank 2

People’s Republic of China is the largest country in East Asia and the most populous in the world with over 1.3 billion people, approximately one-fifth of the world’s population. Chinese population, like its Indian counterpart, has migrated to several parts of the world and has established a firm footing in new pastures through its skills, talent and professionalism.

China is the fastest growing major economy in the world. It now has the world’s third largest nominal GDP — 30 trillion Yuan ($4.4 trillion). It is a member of the World Trade Organization and is the world’s third largest trading power behind the US and Germany.

Mexico: Rank 3

Mexico is the fifth-largest country in the Americas and the 14th largest independent nation in the world. The country has the 11th largest economy in the world by GDP by purchasing power parity. The remittances from Mexican citizens working in the US account for 0.2 per cent of Mexico’s GDP and is the seventh largest source of foreign income after oil, industrial exports, manufactured good, electronics, automobiles and food exports.

According to Mexico’s central bank, the amount of total counted remittances fell 3.6 per cent in 2008 to $25 billion.

Philippines: Rank 4

The Philippines, officially known as the Republic of the Philippines, comprises 7,107 islands in the western Pacific Ocean. The Filipino economy is heavily reliant on remittances as a source of foreign currency, surpassing foreign direct investment. The Philippines is a newly industrialized country, with an economy supported by agriculture but with substantial contributions from manufacturing, mining, service industries like tourism, business process outsourcing and also remittances from overseas Filipinos.

Poland: Rank 5

Poland is the 9th largest country in Europe with a population of over 38 million people. Poland is considered to have one of the healthiest economies of the post-communist countries, with GDP growing by 6.1 per cent in 2006.Since the fall of the communist government, Poland has pursued a policy of liberalizing the economy. Privatization of small and medium state-owned companies and a liberal law on establishing new firms have allowed the development of an aggressive private sector in the country.


Nigeria is the most populous country in Africa and the eighth most populous country in the world. The International Monetary Fund has projected a growth of 8.3 per cent for Nigeria in 2009. Nigeria’s bulk of economic activity is centered in four main cities: Lagos, Kaduna, Port Harcourt, and Abuja. Nigeria is the US’s largest trading partner in sub-Saharan Africa and supplies one fifth of its oil and 11 per cent of oil imports from other countries for use.

Romania: Rank 7

Romania has the 9th largest territory and the 7th largest population (with 21.5 million people) among the European Union member states. While Romania’s income level remains one of the lowest in the European Union, reforms have increased the growth speed. Romania is now an upper-middle income country economy. After the Communist regime was overthrown in late 1989, the country experienced a decade of economic instability and decline. From 2000 onwards, however, the Romanian economy was transformed into one of relative macroeconomic stability. The country’s GDP grew by 8.9 per cent in the first nine months of 2008, but growth fell to 2.9 per cent in the fourth quarter and stood at 7.1% for the whole 2008.

Egypt: Rank 8

Egypt is one of the most populous countries in Africa and West Asia. Egypt’s economy is one of the most developed in West Asia, backed by sectors like tourism, agriculture, industry and service. Egypt’s economy depends mainly on agriculture, media, petroleum exports, and tourism. There are more than three million Egyptians working abroad, mainly in Saudi Arabia, the Persian Gulf and Europe. However, a rapidly-growing population, limited arable land, and dependence on the Nile all continue to overtax resources and stress the economy of this country.

Bangladesh: Rank 9

Bangladesh is the seventh most populous country in the world with a high poverty rate. However, per-capita (inflation-adjusted) GDP has more than doubled since 1975, and the poverty rate of this country has continuously fallen by 20 per cent since the early 1990s.Despite continuous domestic and international efforts to improve economic and demographic prospects, Bangladesh remains a developing nation.

Although two-thirds of Bangladeshis are farmers, more than three quarters of Bangladesh’s export earnings come from the garment industry. The industry now employs more than 3 million workers, 90 per cent of whom are women. A large part of the country’s foreign currency earnings comes from the remittances sent by all expatriates living in other countries in the world.

Vietnam: Rank 10

Historically, Vietnam has been an agricultural civilization based on wet rice cultivating. The Vietnam War destroyed much of the country’s economy. However, as a result of several land reform measures; Vietnam is now the largest producer of cashew nuts with a one-third global share and second largest rice exporter in the world after Thailand.

Vietnam has the highest percentage of land use for permanent crops. Besides rice, key exports are coffee, tea, rubber, and fishery products. Agriculture’s share of economic output has declined, falling as a share of GDP from 42 per cent in 1989 to 20 per cent in 2006, as production in other sectors of the economy has risen.

Figure: Top 10 remittance countries

A study was released by International Forum on Remittances which reported that global foreign remittances in 2006 totaled three times all aid provided by donor nations to developing countries (as reported by OECD). Global remittances totaled more than $300B while donor aid was $104B. Remittances even topped foreign direct investment in developing countries which totaled $167B (reported by the Institute of International Finance).Remittances are the money transfers that foreign workers in developing countries send home to their family and relatives. Most of the transfers are between $100 and $300 at a time.

Remittances to India topped the list at $24.5B, followed by Mexico at $24.2B; China, $21B and the Philippines and Russia, $13.7B each. Even if foreign does rise, it is likely to become an increasingly smaller contributor to capital transfer to developing countries and can never match the growing impact that migrant workers are having on the shifts in global capital. How about we encourage easier, more secure and better priced options for people to send money back to their home countries? For many people, an ATM or PayPal or a mobile money transfer option would be a welcome solution.

The concept of microfinance is not new. Savings and credit groups that have operated for centuries include the “susus” of Ghana, “chit funds” in India, “tandas” in Mexico, “arisan” in Indonesia, “cheetu” in Sri Lanka, “tontines” in West Africa, and “pasanaku” in Bolivia, as well as