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Remittances as a means of post-2015 financing

Martina Schlapbach's picture

In 2013, private money transfers made by international migrants ($404 billion to developing countries) exceeded the official development assistance (ODA) by more than three times. Remittances therefore appear as a constant subject in the present debate on the post-2015 financing framework. A realistic assessment of how remittances (can) financially contribute to the achievement of sustainable development goals is now required. To do so, the post-2015 financing debate should integrate five key principles.

Evidence based impact on sustainable development

Scientific evidence from around the globe shows that remittances positively affect health, schooling and gender equality, investment, economic growth and environmental protection. Remittances have contributed to the achievement of the Millennium Development Goals (MDGs) and should therefore be integrated into the debate on development financing. However, we should remain realistic: Remittances are far from being the panacea to resolve global poverty. In addition, they also entail a number of risks, such as economic dependency.
 
The voluntary principle

Second, remittances are private money which impact development on a voluntary basis. This implies that remittances are no substitute for ODA nor domestic resources, but a complementary financial source for sustainable development. Acknowledging the private nature of remittances should not exclude identifying mechanisms enhancing the impact that remittances have for sustainable development.
 
Reduced transfer costs

Third, lowering the transaction fees by means of public-private partnerships and the usage of modern technologies from the current global average of 9% to 5% would generate additional USD 16 billion to migrant families in developing countries. The reduction of transfer costs has thus been at the core of the debate on development finance over the last years. The Outcome Document of the Open Working Group on Sustainable Development Goals proposes ‘to reduce by 2030 to less than 3% the transaction cost of migrant remittances and eliminate remittance corridors with costs higher than 5%’. The World Bank suggests setting an even more aggressive target of 1% by 2030.
 
Create an enabling environment

Fourth, the positive impact of remittances can further be maximized by establishing an enabling environment for the use of remittances. Diaspora bonds, microfinance, crowd-funding, matching-funds and start-up models are considered as some of the instruments to be considered. However, these instruments have been ignored in the debate on development finance to date.
 
Remittances as a means to financial inclusion
Finally, remittances transactions are for many people the only interaction with the formal financial sector. Remittances should therefore be seen as an approach for increasing financial inclusion and literacy. An EBRD project co-funded by Switzerland aims to put this approach into practice by supporting financial education of remittance receivers in Armenia and other transition countries.

Integrating remittances into the debate

In conclusion, today’s evidence makes it imperative to consider migrant remittances as a means of financing for sustainable development. However, migrants’ engagement for development remains a voluntary, individual decision and thus remittances a private source that cannot be considered as substitute for ODA, but a complementary financial source of sustainable development. The debate should be oriented towards innovative measures enhancing the sustainable development potential of remittances, by reducing the transfer costs, enabling the effective use of remittances and enhancing financial inclusion. 

This blog post is a slightly revised version of a blog published on www.post2015.ch on September 15th, 2014.
 

Comments

Submitted by Victor Sawyerr on

This is an interesting perspective. The reality of remittances is that in the majority, these are small monies sent to very financially challenged family members to meet their very basic needs. In majority of the cases these monies are not even spent on developing any micro-businesses but on basic feeding.

There are indeed a top, maybe 5 % whose remittances are big enough to initiate family projects like home building, small local trading business but these are so few (voluntary development) i doubt whether they would add substantially to enhancing any sustainable form of development especially in Africa where I live.

Inspite of my view I believe, as you advocate, there should be systematic but gradual inclusion into the formal financial sector but webhope this would not encourage third world governments to want to further tax these remittances.

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