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Risk Averse Banks Are Affecting Migrants’ Money Transfers – But Innovation Brings Hope

By Frances Coppola

According to the World Bank, over 250 million people worldwide live outside their country of birth - about 3.4 percent of the world’s population. Of these, around 15 million are refugees, and the rest are economic migrants, who have left their countries of origin in search of a better life.1 Many migrants regularly transfer money back to their families. Remittances – as these international payments are called – can make a considerable difference to the standard of living of the families left behind: the World Bank says that “remittances contribute to sustaining the welfare of about 700 million people globally, and they often represent the only source of income to provide food, healthcare, housing, and education to migrants’ families.”2 And remittances also form a significant part of the gross domestic product (GDP) of many developing nations: in 2014, remittances amounted to 43 percent of GDP in Tajikistan, 30 percent in Kyrgyz Republic and 29 percent in Nepal.3

In the last quarter-century, international money transfers from migrants have soared in dollar terms, rising from less than $50 billion per annum in 1990 to $432 billion in 2015.4 But recently, the pace of growth has slowed. Although migration flows are larger than ever,5 remittances in 2015 were only 0.4 percent higher than in 2014.6 What is causing this?


Key factors driving slower remittance growth


The World Bank identifies several key factors. Firstly, currency exchange rates. The Russian ruble and the Euro have both depreciated considerably versus the US dollar, reducing the growth rate in US dollars of remittances to sub-Saharan Africa (SSA), Eastern and Central Europe (ECA), and the Middle East and North Africa (MENA). Exchange controls in some developing countries discourage international money transfers, while in others, substantial differences between official and black market currency exchange rates encourage use of informal rather than formal money transfer channels, which are not picked up in payment statistics.


Secondly, the price of oil. Migrants working in Russia are a very large source of remittances, particularly to ECA. But the Russian economy, which is dependent upon oil exports, has been in recession since 2014 because of the sharply falling the oil price.7 The World Bank says that the dollar value of migrants’ money transfers from Russia fell by 40 percent in 2015, paralleling the fall in the oil price. Further falls in the oil price would be likely to reduce them even more.8


But there is a third factor – and that is the rising cost and difficulty of making international money transfers to many developing countries.


Innovation brings hope for lower fees in future


Globally speaking, fees for money transfers are falling. The average cost of sending $200 has fallen from 9 percent in 2014 to less than 8 percent in 2016.9 There is still a long way to go to meet the United Nations’ Sustainable Development Goal (SDG) target of 3 percent by 2030, but developments in the international payments industry give hope that it can be achieved.10


Innovations such as mobile money can significantly cut costs as well as giving people in remote and rural areas access to money transfer facilities: for example, in East Africa, collaboration between payment service providers and telecoms operators is likely to make cross-border transfers easier and cheaper.11 In Latin America, the World Bank notes that online money transfer services are growing, though are hampered by out-of-date technology and restrictive regulation. However, there are encouraging signs of new initiatives and cooperation: at a recent conference hosted by the Banco Central in Cuba, participants discussed a range of technological and service enhancements to make money transfers easier and cheaper for migrants.12



Money transfers from migrants to their families are an important part of the global economy. They contribute more to the economy of developing countries than overseas development aid, and are more stable than foreign direct investment (FDI) flows. Currently, remittance flows are being squeezed as bank pull back from the small-value international payments space. But new providers are likely to bring in innovative products and technologies that should ensure that the volume and value of money transfers to developing countries will continue to grow in the future.

Frances Coppola - The Author

The Author

Frances Coppola

With 17 years experience in the financial industry, Frances is a highly regarded writer and speaker on banking, finance and economics. She writes regularly for the Financial Times, Forbes and a range of financial industry publications. Her writing has featured in The Economist, the New York Times and the Wall Street Journal. She is a frequent commentator on TV, radio and online news media including the BBC and RT TV.

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