Financial literacy is key for optimising the development potential of remittances

12.2017 / Katrin Rosenberg, Senior Advisor Migration and Development, HELVETAS, Bern

In 2016, migrants sent 429 Billion USD in remittances back to their home countries – a figure three times the size of ODA. The Agenda 2030 recognises the positive impact and potential of better leveraging remittances for development. Remittances are a fairly resilient contribution to sustaining livelihoods of millions of people across the world. However, their impact on sustainable long-term enhancement of household income is not self-evident. In fact, remittances are often considered the most tangible and least controversial link between migration and development, but require facilitating factors to contribute to real positive change.


The paper examines these contributing factors at household level. Based on empirical data from labour migration projects implemented by HELVETAS in Sri Lanka and Nepal, the authors show that financial literacy is key for a more sustainable use of remittances. The paper discusses approaches to promote it, as well as success factors and challenges of such interventions along the migration cycle. The paper will make recommendations for policy makers and civil society organisations to improve migrants' financial literacy.


Recent studies conducted in Sri Lanka and Nepal demonstrate that remittances are mainly used for consumer products, but also invested in healthcare and education of children. In this way remittances reduce poverty, but also create a dependency on income from overseas.


Building up alternative income sources during a migrant worker's in-service period is a promising way to allow a long-term return and successful economic reintegration at a later stage. In both countries, however, field observations challenge the assumption that a project intervention focusing on supporting migrants and their families to invest their remittances more productively i.e. by establishing a small business, would suffice. The missing link is often that migrants lack the basic financial literacy skills to manage even small amounts of money. Hence, financial literacy and corresponding sound financial decisions are essential at different stages in the migration cycle, including at the pre-departure, in-service, and return and reintegration stage. These decisions pave the way for sustainable enhancement of household income. In the authors' experience, the family members left behind and the worker abroad should make these decisions together. This joint financial planning should consider the specific goals of migration, an expenditure plan and a corresponding budget based on income (both from migration and in the home country), tracking expenses and establishing a basic saving culture. Projects have demonstrated that such an approach ensures short-term livelihood security, but also adds a longer-term perspective for more productive and sustainable remittances investment. 

Government authorities in both sending and receiving countries, banks and micro-finance institutes, and civil society are increasingly aware of the importance of financial literacy as a key factor for beneficial migration. Sound and sustainable remittances management can help break the dependency on migration and provide the basis for more productive investment of remittances which eventually interrupt the cycle of remigration. If favourable conditions for the development of the private sector are in place, (re-)migration finally becomes a choice, instead of a necessity out of lack of opportunities.