32598 Remittances Public Disclosure Authorized DEVELOPMENT IMPACT AND FUTURE PROSPECTS EDITED BY SAMUEL MUNZELE MAIMBO AND DILIP RATHA Public Disclosure Authorized Public Disclosure Authorized THE WORLD BANK Public Disclosure Authorized Remittances Development Impact and Future Prospects Editors Samuel Munzele Maimbo and Dilip Ratha © 2005 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org E-mail: [email protected] All rights reserved 1 2 3 4 08 07 06 05 The findings, interpretations, and conclusions expressed herein are those of the author(s) and do not necessarily reflect the views of the Executive Directors of the International Bank for Reconstruction and Development / The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522- 2422; e-mail: [email protected]. ISBN 0-8213-5794-8 EAN-ISBN 978-0-8213-5794-1 e-ISBN 0-8213-5795-6 Library of Congress Cataloging-in-Publication Data Remittances : development impact and future prospects / editors, Samuel Munzele Maimbo, Dilip Ratha. p. cm. Proceedings of a 2003 conference organized by the Department for International Development, IMF, and World Bank. Includes bibliographical references and index. ISBN 0-8213-5794-8 (pbk.) 1. Emigrant remittances—Developing countries—Congresses. 2. Transfer Payments—Developing countries—Congresses. 3. Developing countries—Economic conditions—Congresses. 4. Finance—Government policy—Developing countries. 5. Developing countries—Emigration and immigration—Economic aspects—Congresses. I. Maimbo, Samuel Munzele. II. Ratha, Dilip. HG3877.R46 2005 338.9’009172’4—dc22 2005045771 Cover photo: Corbis. Table of Contents Foreword ix Acknowledgments xi Contributors xiii Remittances: An Overview 1 Samuel Munzele Maimbo and Dilip Ratha Part I Remittance Trends and Determinants 17 Chapter 1 Workers’ Remittances: An Important and Stable Source of External Development Finance 19 Dilip Ratha Chapter 2 Migrant Remittances in Africa: A Regional Perspective 53 Cerstin Sander and Samuel Munzele Maimbo Part II Maximizing the Development Impact of Remittances 81 Chapter 3 The Socioeconomic Impact of Remittances on Poverty Reduction 83 Admos O. Chimhowu, Jenifer Piesse, and Caroline Pinder Chapter 4 Remittances and Economic Development in India and Pakistan 103 Roger Ballard Chapter 5 Migrant Workers’ Remittances: A Source of Finance for Micro-Enterprise Development in Bangladesh? 119 Abul Kalam Azad Chapter 6 Migration and Development: The Philippine Experience 133 I. F. Bagasao iv Table of Contents Chapter 7 Remittances from Canada to Central America and the Caribbean 143 Barnabé Ndarishikanye Part III Strengthening the Formal Financial Infrastructure for Remittances 157 Chapter 8Exploring the Credit Union Experience with Remittances in the Latin American Market 159 David C. Grace Chapter 9 Remittances and Pyramid Investment Schemes in Albania 175 James P. Korovilas Chapter 10 International Remittances: Delivering Fair Value 193 Norbert Bielefeld and Antonique Koning Part IV Increasing Transparency in the Informal Financial Infrastructure for Remittances 209 Chapter 11 The Regulation and Supervision of Informal Funds Transfer Systems 211 Samuel Munzele Maimbo and Nikos Passas Chapter 12 Regulation and Supervision in a Vacuum: The Story of the Somali Remittance Sector 227 Abdusalam Omer and Gina El Koury Chapter 13 A Proposed Framework to Analyze Informal Funds Transfer Systems 243 Raul Hernandez-Coss Part V Migration, Development, and Remittances 275 Chapter 14 The Impact of International Migration and Remittances on Poverty 277 Richard H. Adams Jr. and John Page Chapter 15 Transnationalism and Development: Trends and Opportunities in Latin America 307 Manuel Orozco Chapter 16 Remittances: The New Development Mantra? 331 Devesh Kapur Index 361 Table of Contents v Boxes 1.1 Securitizing Future Flows of Workers’ Remittances 27 1.2 Mexican Matrículas Consulares Boost Remittances 36 1.3 Financial Fairs Promote Good Banking Habits 37 2.1 The Effects of Regulation on Remittances 69 13.1 FATF’s Special Recommendations on Terrorist Financing 248 13.2 FedACH’s International Model 252 13.3 Preliminary Obstacles to Estimating IFT 262 16.1 The Limitations of Remittance Data: A Serious Caveat 335 Figures 1.1 Workers’ Remittances and Other Inflows 23 1.2 Remittances Are Higher in Lower-Income Countries, 2003 23 1.3 Remittances Are Higher in Lower-Income Countries, 2003 24 1.4 Top 20 Developing-Country Recipients of Remittances, 2003 24 1.5 Top 20 Developing-Country Recipients of Remittances, 2003 25 1.6 Top Sources of Outward Remittances, 2003 25 1.7 Outward Remittances from the United States and Saudi Arabia 26 1.8Volatility of Remittances Compared to Private Flows in the Philippines 28 1.9 Volatility of Remittances Compared to Private Flows in Turkey 28 1.10 Volatility of Remittances, by Country Group, 1980s and 1990s 29 1.11 India’s Remittance Receipts 31 1.12 Average Transfer Fee and Exchange Rate Commission for Sending US$200, February 2002 34 2.1 Remittances to Developing Countries, 1970 to 2001 57 2.2 Total Remittances to Africa, 1990 to 2001 58 2.3 Remittances by Region, 1990 to 2001 58 2.4 Regional Distribution of Remittances to Africa, 2001 59 2.5 Top 15 Remittance Recipient Countries in Sub-Saharan Africa, 1990 to 2001 60 5.1 Migrants’ Remittances to Bangladesh, 1990–2003 125 5.2 Comparative Position of Migrant Remittances in Bangladesh, 1990–2003 126 vi Table of Contents 7.1 Remittances as a Percentage of Exports in Selected Central American and Caribbean Countries, 1990–2001 145 7.2 Remittances to Selected Central American and Caribbean Countries, 1990–2002 146 7.3 Remittances as a Percentage of GDP in Selected Central American and Caribbean Countries, 1990–2001 147 12.1 Official Development Assistance and Remittances to Somalia, 2001–2002 229 12.2 Major Income Sources in Somalia 230 13.1 Diagramming the Framework 258 13.2 Illustrating the Framework 267 15.1 Growth of Mexican Clubs (HTAs) in Chicago 322 16.1 Remittance Inflows to Developing Countries 336 16.2 Unweighted Average of Remittances as a Share of Private Consumption, Unbalanced 344 16.3 Unweighted Average of Remittances as a Share of Private Consumption 344 16.4 Population (Age 25 and Older) at Home and Overseas with Tertiary Education 346 Tables 1.1 Workers’ Remittances 21 1.2 Remittances Received by Developing Countries, 2003 22 1.3 Investment Climate and Workers’ Remittance Receipts in Developing Countries 30 1.4 Remittances as a Percentage of GDP, 1996–2000 30 1.5 Income from External Remittances in Pakistan by Income Group, 1986–87 and 1990–91 33 1.6 Payments to Traffickers for Selected Migration Routes 41 1A.1 Workers’ Remittance Inflows to Pakistan, 1999–2002 43 3.1 Remittances Received and Sent by Developing Countries 85 3.2 Remittances Received by Developing Countries, by Region, 1999–2002 86 3.3 Remittance Motivation and Use 90 3.4 Key Impacts of Remittances on Poverty at Different Levels 95 3.5 Pro-Poor Market Development: Examples of Monitoring Indicators to Be Used in Assessing Remittance-Related Interventions 97 Table of Contents vii 7.1 Seasonal Agricultural Workers from Mexico and the Caribbean, 2000–2002 145 7.2 Amounts Transferred to Haiti by Surveyed Companies, July 2003 148 7.3 Amounts Transferred to Jamaica by Surveyed Companies, July 2003 149 7.4 The Cost of Sending Money, July 2003 151 8.1 Cost of Sending US$300 to Mexico from California, Friday, May 17, 2002 167 8.2 Cost Comparison between Credit Unions and Market Leaders 168 9.1 Economic Recovery in Eastern Europe, 1994–2002 177 9.2 Albania’s Main Economic Indicators, 1996–2000 184 9.3 Inflation and Nominal and Real Interest Rates 187 10.1 Officially Recorded Migration from Outside the European Union to Spain, 2002 201 10.2 Profiling Remittance Senders and Beneficiaries in Spain and Colombia 202 10.3 Cooperation Agreements between La Caixa and Its Partner Banks 205 13.1 Formal Cross-Border Transfers, 2001 261 14.1 Elasticity of Poverty, Estimated Using International Migration Data 285 14.2 Elasticity of Poverty, Estimated Using International Remittance Data 286 14.3 Regional Summary of Mean Values for Poverty, Inequality, Migration, and Remittances 289 14.4 Elasticity of Poverty by Region, Estimated Using International Migration and Remittance Data 290 14A.1 Summary of Data