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How to channel migrant remittances to deliver growth

How to channel migrant remittances to deliver growth

Over the past decade, many developing countries have made substantial progress toward reducing poverty, and remittances sent by migrant workers have hugely contributed to this progress.

In ADB’s developing member countries, remittances nearly tripled from $92 billion in 2005 to $246 billion in 2013. This huge flow of remittances helped reduced poverty levels, mostly through increased spending on food and other essential items, housing, and education. It is estimated that remittances helped reduce the poverty level by 1.5% in Bangladesh, 5% in Indonesia, and 2% in Viet Nam from 2000 to 2005.

The remittances growth is a reflection of high worker migration from developing countries to wealthier economies such as those in the Middle East. Migration and remittances have grown rapidly, however, with little or no support from the public sector or from donor agencies which have few projects to directly support migrant workers and remittances.

Moreover, we in fact know little about remittances beyond the headline numbers. How are they transmitted? How exactly do migrant worker households spend that money? How can we better channel remittances to reduce poverty? Have remittances really contributed to inclusive, sustainable economic growth in receiving countries? And above all, how can governments make use of remittances to create more domestic job opportunities, and thus reduce the need for so many workers to leave?

ADB recently hosted the Forum on Promoting Remittances for Development Finance to find answers to those questions. The discussions covered issues like impact on economic growth, household investments, access to finance and technology innovations, and investments. Here are a few takeaways:

So what is the way forward? The forum identified three potential areas for support:

  1. Improving financial education.
  2. Expanding digital finance.
  3. Promoting remittance-linked capital market instruments.

Both the public and the private sector, including donors, must think about concerted assistance in these areas. For example, governments can promote financial education for migrant workers before they go abroad. Donors can support developing financial sector infrastructure IT systems such as core banking system, e-payment and networks to promote digital finance. They can also help develop enabling legal and regulatory frameworks for remittance securitization and diaspora bonds. More essentially, governments and donors must have a vision to leverage remittances to develop viable local industries to generate local employment opportunities, so in the long run workers can find good jobs at home rather than migrate out of necessity.

This article was first published by ADB Development Blog [1].