ASSESSMENT
AND GOOD
PRACTICE ON
REMITTANCES
by Antero Vahapassi
ASIAN DEVELOPMENT BANK
Second Labour Migration Ministerial Consultation for
Countries of Origin in Asia
22-24 September 2004, Manila, Philippines
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ADB and Remittances
• Remittances have become a major source of
external development finance
• Remittances can accelerate private sector
development
• Remittances are believed to reduce poverty,
as it is the poor who migrate and send back
remittances
• Migration is an informal risk reduction and
coping strategy in social protection
2
ADB interventions in Migration
• PHI - Enhancing efficiency of overseas
workers remittances (TA No. 37590),
approved in 2003, finished
• REG - Southeast Asia workers remittance
study (TA No. 38233), exp. approval 10/2004
• PHI - Remittance and migration (TA No.
38283), expected approval 2005
• REG - Promoting safe migration for women
and prevention of trafficking of girls and
women in the GMS (TA No. 37667), expected
approval 2004
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Focus of this presentation
THIS PRESENTATION DRAWS ITS DATA
MAINLY FROM THREE SOURCES:
1. Philippines TA study (No. 37590)
2. ADB study in India by U.K. Varma and S.K.
Sasikumar (V.V. Giri National Labour
Institute), 2004
3. ADB study in Bangladesh by Prof. T. Siddiqui
(University of Dhaka), 2004
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Remittances are a major source of
external development finance
Source: Dilip Ratha, Senior Economist, World Bank
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Objectives of the Study on Flows of
Remittances
•
•
•
To possibly increase remittance volumes
Facilitate shift from informal to formal or
regulated channels
Encourage the use of remittances for
sustainable poverty reduction
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Stocks of Overseas Filipinos
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Characteristics of Flows from Philippines
•
•
•
•
•
•
Outflows are 2,700 daily/almost 1 million
annually
Overseas Filipinos are in the range of 7.6
million in 2003
197 Destination Economies– Mostly in ME,
South-Asia and US
Land-based and Sea-based Workers
Professionals and Service Workers
65 to 70% of contract based are female
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Characteristics of Flows from
Bangladesh
• On an average, 250,000 people annually migrate
(1995-2003)
• Total number of Bangladeshis working abroad is
more than 3 million
• Flow of remittance is more than US$ 3 billion in
2002-03, half of that from Saudi Arabia
• Most migrants are men (women are less than 1 %)
• Remittances have been around 35% of export
earnings (more important than garments sector)
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Characteristics of Flows from
India
•
•
People with technical skills and professional
expertise migrated to the countries such as
USA, Canada, UK and Australia as
permanent migrants, since the early 1950s
Unskilled and semi-skilled workers migrate to
the oil exporting countries of the Middle East
on temporary contracts, especially following
the dramatic oil price increases of 1973-74
and 1979
10
Characteristics of Flows from
India (cont.)
• Around 1.25 million Indians emigrated to the US,
Canada, UK and Australia between 1950-2000
• Today, some 3 million Indian migrants live in Gulf
countries
• Most migrants come from Kerala, Tamil Nadu,
Andhra Pradesh and Punjab
• However, internal migration is much larger: in
1991 census, 27.4%, i.e. 232 million, had
migrated
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Characteristics of Flows from
India (cont.)
• Currently, India is the world’s largest
remittance recipient country; in 2002-03 the
remittance flows amounted to US$ 15.2
billion
Amount in US $ million
Workers' Rem ittances to India
16000
14000
12000
10000
15174
12073
10341
8000
6000
4000
2000
0
12192
12290
11875
2083
116
2692
1970-71 1980-81 1990-91 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03
Year
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Remittance Characteristics
•
•
Formal Flows through banks, exchange houses,
and money transfer agencies
Unregulated Flows consist of:

Sent through unregulated ethnic stores,
mail, cargo boxes

Sent through friends

Cash brought home

Goods sent home
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Remittance Trends in Philippines
•
•
•
Vibrant Competition due to long history of
Philippine overseas deployment
Convergence of services through partnerships,
alliances and revenue sharing
New Players and technology or card based
remittance products

Mobile Phones

Internet based services

Card Products

Postal Office

Entry of non-traditional players (credit
unions, coops, microfinance institutions)

OFW E-cards
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Remittance Behavior in Philippines
•
80% are remitting through banking or regulated
channels
•
•
•
•
70% maintain bank accounts in the Philippines
•
Majority are interested to help contribute to
community development
•
From 41 to 49% incur debt to migrate
90% save
Average amount of remittance sent is US$340
Use of remittances dominantly for food, utilities,
personal care and dwelling related expenses
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Remittance Behavior in Bangladesh
(based on a study in 2003)
• 46% of the total volumes of remittance have
been channeled through official sources
• Around 40% through hundi
• 4.6% moved through friends and relatives
• About 8% were hand-carried by the migrant
workers themselves
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Remittance Behavior in Bangladesh:
Why hundi?
• the demand for foreign exchange from racketeers
who wish to finance smuggling of various items
including gold;
• the demand from importers’ for foreign exchange
from other sources in order to benefit from the
existing tax regime by under-invoicing imports;
• an unholy alliance among officials of financial
institutions, business and hundi operators;
• financing recruitment charges of the recruiters;
• difference between official and unofficial exchange
rates; and
• quality and speed of service, and ability to reach
clients both in destination countries and in the source
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countries.
Barriers to Remittance Flows
(Philippines)
•
•
•
•
•
Anti-money laundering (AML) compliance
First Mile Issues–Licensing costs/restrictive
laws in certain countries
The ‘Unbanked’ on both first and last mile
Uneven Application of AML compliance
Funding problems to upgrade infrastructure
affects local and international
interconnectivity
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Barriers to Remittance Flows:
High cost of sending money!
Average: 13%
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The Extra Mile–What can government, the
private sector and civil society do to
enhance formal remittance flows?
•
•
•
•
•
Financial Literacy and Information
Programs
Identify and support Best Practices on
Remittance Leveraging of NGOs and LGUs
Strengthen rural based financial and
economic organizations by improving
interconnectivity
Organize and support initiatives of
Associations of Overseas Workers
Study and institute proper incentives
system
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Some recommendations
• The governments should commit adequate resources
to migration sector.
• A large segment of informal remittance (padala-,
hundi-, hawala-system) could be channeled to
finance smuggling: review taxation policies, and tariff
and duty structures (remove the red-tape).
• Governments may give migrant workers the right to
import goods that can be considered as remittance in
kind. Such remittance in kind may be exempted from
custom duties.
• Banking systems and arrangements needs to be
reviewed and revised, if necessary.
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CLOSING
• Good economic policy begins at home, not in sending
workers abroad, no matter how green the proverbial
grass may be at the other side.
• Although remittances received from abroad have been
seen as the next best alternative to countries that are
permanently looking for foreign aid, research has
shown that once a country is "addicted" to remittances,
it is difficult to wean off of them.
• However, before economic situation and labor markets
allow migrant workers to work at home, the
governments, civil society, and international agencies
should find ways to improve the migrant workers’
economic, social and political status abroad, and help
their families at home.
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END
For More Information
E-mail
socialprotection@adb.org
ADB Web Site
http://www.adb.org
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