Remittances as private capital for sustainable development

​​​Remittances as private capital for sustainable development


Pietro Mona, Deputy Head of the Global Program on Migration and Development, SDC Bern

Switzerland has been very active in the past years promoting the inclusion of migration in the new global sustainable development agenda. We are therefore particularly pleased that the document ap-proved by the Open Working Group on Sustainable Development in summer 2014, which represents the main basis for the remaining part of the process, has different references to migration. Currently, the intergovernmental negotiations are ongoing in New York and while nothing is yet carved in stone, we can be confident that the Summit of Heads of States in September will adopt a document integrat-ing migration in the UN Sustainable Development Goals. In the past few months we have also turned our attention to the ongoing debate on Financing for Development. Knowing that the implementation of the SDGs will require important resources, both public and private, this is an integral part of the complex debate on how to fund the SDGs. In this context we have undertaken different steps to promote comprehensive and forward-looking policy recommendations related to remittances as private capital for sustainable development.

Remittances to people living in developing countries have seen a rapid increase over the past decade and have remained more stable during the recent economic crises than other categories of private capital flows. Evidence from all parts of the world demonstrates the positive impact of remittances on all three dimensions of sustainable development: Remittances have increased girls’ school attendance rates and improved children’s health, particularly in low income families; they have boosted entrepreneurial activities or have contributed to the reduction in headcount poverty rate. Households receiving remittances are less involved in deforestation and are more resilient against natural disasters. In 2013, private money transfers made by international migrants amounted to an estimated $550 billion, whereof $404 billion were sent to people living in developing countries (World Bank WB ). This amount is three times the total sum spent on Official Development Assistance (ODA). It is estimated that the total sum of remittances is at least 50% larger, if remittances transferred through informal channels are included. 

The key policy messages in view of the third Financing for Development Conference, which will take place in July in Addis Ababa are:

1. Acknowledge the private nature of remittances and thereby the fact that they are not a substitute for Official Development Assistance
These transfers are private economic transactions by individuals and conceptually quite different from other private or blended sources discussed in the context of the Financing for Development process. Nonetheless, they do have an evidence-based impact on all three components of sustainable devel-opment, and yet they should not be considered as a substitute for Official Development Assistance.

2. Reduce the transfer costs of migrant remittances to less than 3% and eliminate corridors with transfer costs higher than 5%
Reducing the transfer costs of migrant remittances remains one of the principal objectives. With every percentage point reduction of the transfer costs, between 4-5 billion dollars remain in the hands of migrants and their families. Notably disruptive market innovation, access to mobile technologies of transfer as well as market competition and transparency are key factors reducing the costs. Govern-ments should also review existing legal and policy frameworks to eliminate unnecessary and costly barriers. Finally, it can be assumed that low transfer costs would increase migrants’ use of formal transfer channels, which in turn relates to the role of remittances in enhancing financial inclusion.

3. Facilitate the role of remittances as a driver of financial inclusion by generating demand for tailor-made financial services
Financial inclusion contributes to poverty reduction, economic and social development and financial stability. By expanding the physical, economic, regulatory and cultural accessibility of financial ser-vices, we can reduce the number of un- or underbanked people, notably women, youth and the rural population and increase the sustainable development impact of financial inclusion. New technology and innovative business models can be linked to the transfer of remittances, thereby generating syn-ergies. Migrants should get tailor-made offers to transfer their remittances into deposit or savings accounts, to pay for mortgages, insurance products or other services.

4. Ensure access to targeted gender-sensitive financial literacy training for migrants and their families
Migrant families often do not have the necessary financial literacy skills to best harness the opportunities of the usually quite steady inflow of remittances. Women in particular find themselves lacking knowledge of and access to financial services. Financial literacy training and consumer empowerment should therefore form an integral part of policy recommendations related to remittances.

5. Improve quality and accessibility of remittances data
Progress has been made in past years to improve the quality of remittances data. However, more can be done to further enhance the available data to support evidence-based policies.