KNOMAD  > Thematic working groups >  Remittances, including access to finance and capital markets

Remittances, including access to finance and capital markets



Remittances are making an important and growing contribution to poverty reduction, growth and welfare in developing countries.  Remittance flows to developing countries are estimated to have surpassed $400 billion in 2012, three times the size of official aid.  At the household level, remittances have reduced poverty in many developing countries, and have raised expenditures on investment, health services, and schooling, while also enabling households to diversify their sources of income and reduce their vulnerability to risks such as drought, famines and natural disasters.

At the macroeconomic level, remittances can provide a relatively stable source of external finance compared to debt and portfolio equity flows (although remittance flows intended for investment can be pro-cyclical like other flows). They can help increase access to other forms of capital inflows by improving overall creditworthiness and serving as collateral for loans through securitized transactions.  Remittances can contribute to an expansion of domestic financial intermediation by encouraging more participation in the banking system and providing a stable source of finance that can serve as collateral for loans.  They can also improve productivity by increasing expenditures on health and education. 

The overall impact of remittances on growth is difficult to measure, however, since migrants often increase remittances during times of slower growth.  The exchange of information and support for research through the KNOMAD could help improve analysis of the impact of remittances at the country level and spur policymakers to improve markets for money transfer services.

Key Questions

  1. What elements of the business and regulatory environments in sending and receiving countries tend to drive changes in remittance flows and their costs?
    • What determines the cost and speed of remittance transfers?
    • What is the impact of cost on remittance flows?
    • What are the impacts of various regulations (e.g., AML/CFT) on remittance flows and their costs, safety, and efficiency?
  2. How can the marketplace for remittance transfers be improved to facilitate remittance flows in a manner that is safe, efficient, and cost-effective/reasonably priced?
    • How can the potential of mobile technology or other emerging or under-utilized payment devices and networks be realized (within the constraints of regulations and infrastructures problems) in order to facilitate reductions in the costs of making safe and sound, and efficient remittances?
  3. How can remittance transfers and related products be used to encourage and develop financial access among remittance recipients?
    • What kinds of products linked to remittances (such as micro-insurance, mortgages, and specific spending accounts) are available to migrants and may advance financial access and development goals?
  4. How do remittances patterns vary, among sender and recipient groups, and change over time? 
    • Do remittances vary by gender? Do women send more remittances?  Do they send a higher percentage of income?  Do they target their remittances to ends more closely correlated to family obligations?
    • What do remittance flows from South to North look like? Is the pattern specific to the financial crisis?
  5. What are the microeconomic impacts of remittances?
  6. What are the macroeconomic impacts of remittances (such as the real effective exchange rate and the overall competitiveness of the receiving economy, or the impact on fiscal space and public expenditure management)?
  7. How can governments contribute to facilitating remittance flows?

Planned Activities

  • Analyse the regulatory framework/barriers at the intersection of telecoms [or other emerging payment devices/networks] and banking to gain a better understanding of who regulates mobile remittances, and other emerging transfer modes.
  • Study anti–money laundering regulations and consumer protection laws, through case studies (cross-border corridors and products), CGAP reviews and other studies, and consultations with other actors.
  • Take stock of existing financial products linked to remittances and their actual use, price, and safety including reviewing the legal and legislative pre-requisites, studying the impediments to the use of new products (such as costs and information), categorizing different products (by individual use, crowd-funding/sourcing, and collective goods).
  • Analyze remittance patterns over time, by gender, and by directional change.
  • Study the uses of remittances and how it varies in different countries.
  • Review studies on the impact of remittances on financial literacy, financial education, and training, and vice versa.
  • Disseminate research findings to policy makers and other stakeholders.  Communicate knowledge and the policy options derived from emerging research.