Remittance
A remittance is a non-commercial transfer of money by a foreign worker, a member of a diaspora community, or a citizen with familial ties abroad, for household income in their home country or homeland.
[2][3] A substantial share of remittance ends up in the hands of banks and money-transfer companies due to fees imposed on money transfers.
[1] Remittance has been defined by the World Bank as the part of the earnings which a migrant worker sends back to family members in the country of origin.
Since the advent of fintech, many digital remittances have emerged on the scene, leading to the rise of comparison platforms or aggregators such as FXcompared and Monito in Europe and in Southeast Asia.
[13][14] Blockchain-based remittances companies are also starting to be used and offer such advantages as fast transfer time and relatively low transaction costs.
[42] In Latin America and the Caribbean, remittances play an important role in the economy of the region, totaling over US$66.5 billion in 2007, with about 75% originating in the United States.
[44] The Inter American Development Bank's Multilateral Investment Fund (IDB-MIF) has been the leading agency on regional remittance research.
[citation needed] A 2004 study found 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.
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.
This trend is a result of many factors including the recession itself, more economic opportunity in Latin American countries, and rising fees charged by coyotes to smuggle immigrants across the border.
Immigrants from Africa today number approximately 20 to 30 million adults, who send around US$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).
[48] However, there are a number of new players aiming to disrupt this established MTO model, such as Xoom and Willstream, which leverage increasing mobile phone penetration in the region and provide different rate structures to diaspora customers.
[49][50] Additionally, global initiative like the United Nations Sustainable Development Goal 10 has a target of reducing the transaction costs of migrant remittances to less than 3 percent by 2030.
As a share of Gross Domestic Product, the top recipients in 2009 were: Lesotho (25%), Togo (10%), Cape Verde (9%), Guinea-Bissau (9%), Senegal (9%), Gambia (8%), Liberia (6%), Sudan (6%), Nigeria (6%), and Kenya (5%).
An August 2016 Nigerian Central Bank (NCB) decision to suspend the operations of all MTOs in the country, except those of Western Union, MoneyGram and Rio,[55] was met with a strong backlash.
[56] It was argued that the decision was not appropriately justified, while also standing in contrast to the NCB's previous move to ban all exclusivity agreements with Western Union.
In order to ensure that these funds go to their intended recipients rather than Al-Shabaab and other militant groups, the governments of the United States, Australia, and a number of other Western countries tightened their banking requirements or stopped processing altogether the remittances.
The multi-agency initiative is mandated with facilitating the Federal Government of Somalia's new national policy pertaining to the money transfer industry.
Its main priority is centered on establishing a comprehensive strategy and a consultative implementation plan for the formalization of the local financial sector.
It is also empowered to coordinate and speed up the endorsement of financial governance instruments and transparency associated legislation, such as the laws on Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT).
In accordance with the Financial Action Task Force (FATF)'s recommendations, the STFR is in turn slated to oversee the Somali federal government's campaign to ratify various international treaties.
The Task Forces' membership is scheduled to be announced shortly, and will be drawn from government institutions, the remittance industry, banks, and other key private sector stakeholders.
[65] 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.
[67] At the 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.
[68] At the G20 2011 Summit in Cannes, Bill Gates stated that, "If the transaction costs on remittances worldwide were cut from where they are today at around 10% to an average of 5% it would unlock $15bn a year in poor countries.
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.
As in some corridors a sizable amount of remittances is sent through informal channels (family connections, traveling friends, local money lenders, etc.).
[80] Meanwhile, critical migration scholars have expressed concern about the ability of remittances to address the structural causes of economic underdevelopment[81][82] and see an increasing policy emphasis on finance as symptomatic of a paradigmatic shift towards a 'self-help development' that burdens the poor.
The stability of remittance flows amidst financial crises and economic downturns make them a reliable source of foreign exchange earnings for developing countries.
