Trends Senders and Receivers Problems with Transfer SystemPotential of RemittancesProblems of Remittances

A transfer of money by a foreign worker to his home country.

Money sent home by migrants constitutes the second largest financial inflow to many developing countries.

Family remittances - This is money sent by individual immigrants to family and friends back home.

Community remittances - This is money sent by individual immigrants and by hometown associations to communities in their home country.

Can help to reduce poverty Help smooth household consumption Lead to increase household expenditures

Source: www.sela.org

Source: www.sela.org

Country $ billion

Mexico 25.0

Colombia 4.6

Brazil 4.5

Guatemala 4.1

El Salvador 3.6

Dominican Republic 3.2

Ecuador 3.2

Honduras 2.6

Jamaica 2.0

Peru 2.0Source: World Bank Migration and Remittances Factbook 2008

Country % of GDP

Honduras 25.6

Guyana 24.3

Haiti 21.6

Jamaica 18.5

El Salvador 18.2

Nicaragua 12.2

Guatemala 10.3

Dominican Republic 10.0

Ecuador 7.2

Bolivia 5.5

Source: World Bank Migration and Remittances Factbook 2008

Remittances began to slow down in the third quarter of 2008.

This slowdown is expected to deepen further in 2009 in response to the global financial crisis.

Florida 73% - 50% Georgia

85% - 53% Utah & New Mexico

57% -31% North Carolina &

Virginia 88% - 59%

www.worldbank.org

According to the Pew Hispanic Center: 60% of U.S remittance senders are male. 47% of all Hispanics born outside the U.S regularly

send money to their country of origin. About 64% of remittance senders have less

expectations of permanently staying in the foreign country.

60% of 16.5 million sent estimated $30 billion during 2004

Sent approximately 10% of household income

“Traditional sending” states:◦ New York, California, Texas, Florida, Illinois, New Jersey

Two–thirds of all recipients of foreign remittances are women.

Remittance money received is normally spent on necessities.

Remittances 50-80% of household income.

Formal vs. Informal Channels

Cost of Transfer

Inadequate Financial Infrastructure

Formal◦ Banks◦ Money Transfer Operators

Informal◦ Mail◦ Friends◦ Self

15-20% of total

MTOs charge more for smaller amounts

Other fees◦ Currency conversion fees◦ Expedite fees◦ Recipient fees

Financial institutions lacking in rural areas

Smaller institutions fill market

Financial education needed

More stable than capital flows

Some countries use remittance flows as guarantees to obtain loans

Two types:◦ Family remittances◦ Collective/community remittances

Source: www.sela.org

Type of remittance

Sender Receiver Uses

Family remittances

Individual migrants

Relatives in the country of origin

Coverage of basic needs of the families

Relatives, partners or the same migrant

Investment in small businesses and enterprises

Collective or community remittances

Migrants’ groups

Organizations or leaders in communities of origin. Local governments

Social projects:Small-scale infrastructure projects.

Partners/investors

Productive investments in small- and medium-size enterprises.

Governments want to harness the potential of remittances.

Can teach recipients about the potential of remittances.

Ultimately, remittances are private.

“Ghost-town” phenomenon

“Easy money”

Inequality

Long-run effects of remittances inconclusive

Short-term effects vary from country to country

Remittance flows might decrease as migrants return to country of origin