Getting more for your (remittance) money

This page in:

When you withdraw your money from an ATM outside of your bank network, you often get stuck with an unwelcome fee. At least with an ATM, though, it’s usually obvious how much the fee is. The same cannot be said about remittances, where a combination of opaque exchange rates and multiple fees make it difficult to calculate how much you’re paying to send money.


That’s a shame because there is now very good evidence that remittances can have substantial positive effects on development outcomes. Among the best recent research on the topic is a paper called International Migration, Remittances, and Household Investment. The authors take advantage of the sharp depreciation of the Philippine peso during the 1997 Asian financial to examine just what remittances are spent on. As it turns out, child schooling went up, child labor went down, and entrepreneurship increased in recipient households. So it would be nice to figure out how migrants can get even more for their remittance money. A recently released World Bank database – the Remittance Prices Database – aims to do just that.

As Massimo Cirasino and Gregory Watson explain in the September edition of the AccessFinance newsletter, remittances are big business. World Bank estimates found that remittance flows in 2007 totaled $337 billion, of which $251 billion went to developing countries. And migrants aren’t necessarily getting a very good deal – the transfer of money can cost up to 40 percent of the amount being sent! (That is how much it will cost you to send $200 from German to China via Frankfurter Sparkasse.) The hope is that this new database will help improve transparency in this market, resulting in more money in the pockets of migrants. As Cirasino and Watson argue, transparency is key:

[T]he single most important factor leading to high remittance prices is a lack of transparency in the market. It is difficult for consumers to compare prices because there are several variables that make up remittance prices. Prices for remittances frequently consist of a fee charged for sending a certain amount, a margin taken on the exchange rate when remittances are paid and received in different currencies, and, at times, a fee charged to the recipient of the funds.

For more blog fun on this topic, check out People Move.

Update: For the official press release, click here.


Ryan Hahn

Operations Officer

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000