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remittance prices

5x5 = US$16 billion in the pockets of migrants sending money home

Marco Nicoli's picture

Should you ever need a haircut in South London, you would have the option to choose from a wide array of African hair stylists. There you can get your hair colored, cut, or braided, while chatting up the latest gossip in town, and... you can send money back to Nigeria.

Many stores in South London allow you to send money abroad. It looks just like a fruit market, where the sellers have to compete among each other. Aside from trying to lure customers in with the best looking apples and pears, they also keep their prices exposed.

But the world is not... ("...enough" you are thinking, if you are a James Bond fan) ...the world is not South London and remittance services are not crispy apples nor they are juicy pears. The price for sending money might include a fee, taxes, a margin on the exchange rate applied, and a commission to the receiver. And each service is different in terms of speed and extensiveness of the network where money can be picked up by the receiver. In other words, it is not as easy to compare as the price of apples.

What Drives the Price of Remittances?: New Evidence Using the Remittance Prices Worldwide Database

Maria Soledad Martinez Peria's picture

Remittances to developing countries reached U.S. $338 billion in 2008, more than twice the amount of official aid and over half of foreign direct investment flows.1 Numerous studies have shown that remittances can have a positive and significant impact on many aspects of countries’ economic development. Hence, monitoring the market for remittance transactions has become critical for understanding the development process in many low-income countries.

Remittance transactions are known to be expensive. The Remittance Prices Worldwide database collected by the World Bank Payment Systems Group shows that, as of the first quarter of 2009, the cost of remittances averaged close to 10 percent of the amount sent.2 At the same time, the data also reveal a wide dispersion in the price of remittances across corridors, ranging from 2.5 percent to 26 percent of the amount sent (see Figure 1 below the jump).