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A comprehensive analysis of remittances Sri Lanka Copyright © International Labour Organization 2020 First published 2020 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to ILO Publications (Rights and Licensing), International Labour Office, CH- 1211 Geneva 22, Switzerland, or by email: [email protected]. The International Labour Office welcomes such applications. Libraries, institutions and other users registered with a reproduction rights organization may make copies in accordance with the licences issued to them for this purpose. Visit www.ifrro.org to find the reproduction rights organization in your country. 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Information on ILO publications and digital products can be found at: www.ilo.org/publns. Printed in Sri Lanka A comprehensive analysis of remittances Sri Lanka Forward III Forward Remittances play an important role in the Sri study provides valuable insights for the financial Lankan economy. In 2018, the contribution sector in informing policy decisions, most of remittances through formal channels to notably on reducing the cost of remittances to Sri Lanka exceeded US Dollars 7.01 billion 3 percent of the remittance amount - a Target accounting for nearly 8 percent of the Gross under the Sustainable Development Goals that Domestic Product (GDP). Apart from this, one Sri Lanka is committed to meet by 2030. in every fourteen households in Sri Lanka are in receipt of foreign remittances playing a The ILO Country Office for Sri Lanka and significant role in lifting them from poverty. the Maldives wishes to thank the Ministry of However, research on remittances is limited. Telecommunications, Foreign Employment and This report attempts to address the gap in Sports for helping to coordinate data gathering remittance information by providing a body of from the migrant community in Sri Lanka; evidence on the many facets of remittances – the Centre for Human Rights and Community accessibility, use, cost, regulatory environment Development (CHRCD) in Kurunegala for and international best practices. facilitating Focus Groups Discussion in Kurunegala; and all respondents and key The Institute of Policy Studies (IPS), was informants who supported data gathering commissioned by the ILO Country Office in Colombo, Batticaloa and Kurunegala. for Sri Lanka to conduct this study with the The ILO Country Office also thanks the IPS aim of contributing to an evidence base on research team led by Dr. Bilesha Weeraratne remittances in Sri Lanka particularly focusing for conducting the research so ably. Finally, on remittances from labour migrants. The study thanks to Madushika Lansakkara of SDC, and was funded by the National Labour Migration ILO colleagues Swairee Rupasinghe, Namrata Policy Project (Phase III) which is supported by Raju and Nayana Godamunne for their valuable the Swiss Development Cooperation (SDC). inputs in finalizing the report. The findings of the study are most relevant for stakeholders in the foreign employment sector that includes the Ministry of Telecommunications, Foreign Employment Simrin Singh and Sports, the Sri Lanka Bureau of Foreign Director, Employment and civil society organizations ILO Country Office for Sri Lanka and the working on labour migration. Additionally, this Maldives A comprehensive analysis of remittances Sri Lanka IV Forward Contents 1 Background 13 2 Literature review 15 2.1 Accessibility of remittances 15 2.2 Remittance cost 16 2.3 Merits and demerits of formal vs. informal remittance channels 16 3 Context on remittances in Sri Lanka 19 3.1 Trends 19 3.2 Regulatory environment 21 4 Data and methodology 25 5 Findings 29 5.1 Profile of remitters 29 5.2 Remittances 32 5.3 Transfer cost 34 Box 1: Remittance cost–secondary data analysis 36 5.4 Remittance channels 37 5.4.1 Banking 39 5.4.2 MTO 40 5.4.3 Mobile money 41 Box 2: Banks, MTOs and mobile money: secondary data analysis 42 5.4.4 Informal channels 44 5.5 Beneficiary households 47 6 International good practices on reducing remittance cost 55 7 Concluding remarks 59 7.1 Main findings 59 7.2 Recommendations 60 References 64 Annexure 67 A comprehensive analysis of remittances Sri Lanka VI List of tables and List of figures List of tables Table 1 Workers remittances by regional corridors (%) 21 Table 2 Sample details 25 Table 3 Average monthly remittances sent (from current migration cycle) by district 34 Table 4 Cost of remitting to Sri Lanka 37 Table 5 Top priorities in choice of remittance service provider 38 Table 6 Remittances handled by commercial banks in Sri Lanka 2017 42 Table 7 Cost of remitting US Dollars 200 to Sri Lanka (as percent of amount sent) 44 Matrix of advantages and disadvantages in formal and informal remittance Table 8 45 systems in Sri Lanka Table 9 Frequency of remittance receipts 49 Table 10 Understanding, dependency, awareness & control of remittance spending 50 Table 11 Household income spending decision (values in percent) 51 List of figures Figure 1 Remittances to Sri Lanka 19 Departures from Sri Lanka for foreign employment by gender and occupational Figure 2 20 group Figure 3 Demographic characteristics of migrant workers 29 Figure 4 Top 10 occupations of migrant workers (percent of total in sample) 31 Figure 5 Number of years worked overseas (percent of total in sample) 31 Figure 6 Country of destination (percent of total in sample) 31 Figure 7 Salary from main occupation and remittance from counry of desiination 32 Figure 8 Proportion of main salary remitted per month (%) 32 Figure 9 Monthly remittance and proportion of salary remitted, by gender 33 Figure 10 Absolute transfer cost of remittances 35 Figure 11 Relative transfer cost of remittances 35 Figure 12 Transfer cost incurred for remitting average monthly amount by district (in LKR) 35 Figure 13 Sending remittances from counry of desiination to Sri Lanka 38 Figure 14 Introduction to remittance channel 39 Figure 15 Banks used for collecting remittances 40 Figure 16 Remittances and household income 48 Figure 17 Self-reported impact of remittances on welfare (values in percentage) 52 A comprehensive analysis of remittances Sri Lanka Executive summary VII Executive summary The overall goal of this study was to develop an average cost of sending remittances to Sri evidence base on remittances to Sri Lanka for Lanka is 5.9 percent, while in the banking and the foreign employment and financial sectors. Money Transfer Organization (MTO) channels It is intended that this body of evidence it is 5.4 percent and 3.7 percent, respectively. would contribute to policy development on In the case of mobile money, the remittance reducing the cost of remittances in line with cost is 2.9 percent. These findings indicate that the Sustainable Development Goal (SDG) 10.c Sri Lanka’s average cost of remittances is close to reduce the cost of remittances to 3 percent to the existing estimates for South Asia (5.2 of the amount remitted. To this effect, the percent) and lower than the global estimate specific objectives of the study are to better (7 percent). Similarly, the estimates from this understand remittances in the areas of study for banking, MTO and mobile money accessibility, use, and cost of remittances. In channels are lower than the corresponding addition, it hopes to contribute to improving global estimates of 10.5 percent, 6 percent, the regulatory environment on remittance and 3.3 percent, respectively. receipts in Sri Lanka. The study further explores the merits and demerits of formal For banks, factors that contribute to increasing and informal channels, and regional initiatives cost of remittances over MTOs are; the lack of and good practices on remittances sending transparency in determining the formula for and receiving. remittance charges imposed on banks, and MTOs compelling banks to maintain parallel The study uses a mixed methods approach operating systems and exerting a degree of consisting of both qualitative and quantitative unfair balance of power over banks. In the primary data supplemented by secondary case of mobile money, regulator restrictions information. Quantitative data was collected on capping the maximum remittance at LKR, via a sample survey of 602 migrant households 25,000 per transaction, and the low level of from three purposively selected districts in trust associated with mobile money inhibits Sri Lanka, namely Colombo, Kurunegala and its growth potential and ability to capitalize on Batticaloa. In addition, the study also collected its advantage as a low-cost channel. qualitative data via different approaches. In terms of Key Informant Interviews (KIIs), The impact of remittances on education and the study involves 28 KIIs in Sri Lanka with employment outcomes for family members stakeholders involved in the migration and/ left behind has mixed results. This is possibly or remittances sectors. Two Focus Group due to the higher value that these families Discussions (FGDs) were also conducted in Sri place on leisure compared to time spent Lanka with migrant workers and Civil Society on employment or on activities related to Organizations (CSOs).