D-8 should initiate a Working Group on Migrant Workers, Remittances and Microfinance Industry as a Part of Program on Reducing Poverty: Secretary General

Istanbul, Turkey | November 08, 2007 by D-8 Secretariat

Remittances, the portion of migrant workers’ earnings sent back home to their families, have been a critical means of financial support for generations. This once seemingly small sum of money from migrant workers have historically been “hidden in plain view”, often uncounted and even ignored. But all that is now changing - as the scale of migration increases, the corresponding growth in remittances is gaining widespread attention.

Today, the impact of remittances is recognized in all developing regions of the world, constituting an important flow of foreign currency to most countries and directly reaching millions of households, totaling approximately 10 per cent of the world’s population. The importance of remittances to poverty alleviation is obvious, but the potential multiplier effect on economic growth and investment is also significant.

Last year (2006), migrants around the globe sent more than $300 billion to their home countries, a “staggering” sum that surpassed foreign development aid and foreign direct investment and carries major development potential for poor nations if properly channeled, a recent report by the International Fund For Agricultural Development (IFAD) says.

The report, compiled in collaboration with the Inter-American Development Bank (IDB), based its findings on official data from governments, banks and money transfer operators.

In the first estimate of formal and informal money transfers worldwide, researchers found that 150 million migrants dispatching a few hundred dollars each sustained millions of families in 162 developing nations. But little of the bounty has fueled economic growth in those nations, because most of it is used for small-scale consumer purchases, says the report by the International Fund for Agricultural Development and the Inter-American Development Bank.

“The reason why we can’t get leverage out of it is because it still is in the realm of cash-to-cash transactions,” said Donald F. Terry, manager of the IDB’s Multilateral Investment Fund. “We’ve got to figure out how to move that into the financial system.”

Terry pointed out that migrant remittances also surpassed foreign direct investment in developing countries, which last year totaled around $167 billion, according to the Institute of International Finance.

Donor nations provided almost $US104 billion in aid to developing countries last year, according to the Organisation for Economic Co-operation and Development. Remittances are generated by some 150 million migrants who send money home regularly, typically between US$100 and US$300 at a time, and mostly from industrialized nations in North America, Europe and Asia.

According to the study, in 2006 Asia was the top destination of remittances, receiving more than US$114 billion, followed by Latin America and the Caribbean (US$68 billion), Eastern Europe (US$51 billion), Africa (US$39 billion) and the Near East (US$29 billion).

Taking nations individually, India received the most (US$24.5 billion), followed by Mexico (US$24.2 billion), China (US$21 billion), the Philippines (US$14.6 billion) and Russia (US$13.7 billion).

Of the countries covered in the report, 59 receive more than US$1 billion a year in remittances and 45 receive more than 10 percent of their GDP from their expatriates.

The IFAD study, which was carried out in collaboration with the IDB, based its figures on official data from governments, banks and money transfer operators, as well as on estimates of informal flows, such as money carried home.

“For IFAD the most important thing to look at is how to channel this money so that it contributes to prosperity in rural areas,” said Kevin Cleaver, IFAD’s assistant president. “One of our priorities is to improve poor people’s options by findingways to cut transaction costs and link remittances to other financial services such as savings, investments and loans.”

While remittances are mostly used for basic necessities such as food, clothing and medicines, between 10 percent and 20 percent is saved. However, too often these savings are hidden in homes, stuffed under mattresses or in cooking pots, rather than put to work in financial institutions, constituting a major missed opportunity for local economic development.

Realising the significance of this opportunity, D-8 Organisation through its secretariat since early this year has been working on a concentrated initiative to set up a D-8 working group on this issue to help member countries to better route this potential remittance for the development of the D-8 member countries. “Due to their large number of populations, our member countries are among the big supplier of migrant worker until now, and it is our utmost interest to seek the best mechanism to channel this resources to the systematised efforts to reduce and eliminate poverty, such as agricultural-aid programs, small-micro investment funds, institutionalisation of the micro-financial system in remote villages, and the improvement of remittances services for poor people,” said D-8 Secretary General, Dr. Dipo Alam.

Dr. Dipo Alam has had some further meetings to discuss this issue with numerous international organisation such as the Roma-based International Fund for Agricultural Development (IFAD), and Inter-American Development, Islamic Development Bank, as well as attended International Meeting on Migrant Workers in Brussels, Belgium, and the Internation Forum for Remittances in Washington DC, on 18-19 October 2007.

“We will later submit a report regarding this initiative to the 24th session of the D-8 commission meeting, on November 22nd, 2007 in Yogyakarta, Indonesia,” he said in his office on Wednesday.

1) Bangladesh
2) Egypt
3) Iran
4) Malaysia
5) Nigeria
6) Pakistan
7) Indonesia
8) Turkey

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