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REMITTANCES

REMITTANCES. Ofelia Scanlon Lily Tso. Summary. Trends Senders and Receivers Problems with Transfer System Potential of Remittances Problems of Remittances. Remittance. A transfer of money by a foreign worker to his home country.

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REMITTANCES

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  1. REMITTANCES Ofelia Scanlon Lily Tso

  2. Summary • Trends • Senders and Receivers • Problems with Transfer System • Potential of Remittances • Problems of Remittances

  3. Remittance • 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.

  4. Types of remittances: • 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.

  5. Remittances: • Can help to reduce poverty • Help smooth household consumption • Lead to increase household expenditures

  6. Source: www.sela.org

  7. Source: www.sela.org

  8. Top 10 Recipients 2007 Source: World Bank Migration and Remittances Factbook 2008

  9. Top 10 Recipients 2006 Source: World Bank Migration and Remittances Factbook 2008

  10. Trends • 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.

  11. 2006-2008 • Florida 73% - 50% • Georgia 85% - 53% • Utah & New Mexico 57% -31% • North Carolina & Virginia 88% - 59%

  12. Remittance Flows to Developing Countries, 2002-2008 www.worldbank.org

  13. Senders 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.

  14. 2004 IDB Study • 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

  15. Receivers • Two–thirds of all recipients of foreign remittances are women. • Remittance money received is normally spent on necessities. • Remittances 50-80% of household income.

  16. Problems with Transfer System • Formal vs. Informal Channels • Cost of Transfer • Inadequate Financial Infrastructure

  17. Formal vs. Informal Channels • Formal • Banks • Money Transfer Operators • Informal • Mail • Friends • Self

  18. Cost of Transfer • 15-20% of total • MTOs charge more for smaller amounts • Other fees • Currency conversion fees • Expedite fees • Recipient fees

  19. Financial Infrastructure • Financial institutions lacking in rural areas • Smaller institutions fill market • Financial education needed

  20. More stable than capital flows Some countries use remittance flows as guarantees to obtain loans Two types: Family remittances Collective/community remittances Potential of Remittances

  21. Source: www.sela.org

  22. Government Intervention? • Governments want to harness the potential of remittances. • Can teach recipients about the potential of remittances. • Ultimately, remittances are private.

  23. Problems of Remittances • “Ghost-town” phenomenon • “Easy money” • Inequality

  24. Conclusion • 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

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