Remittances, a lifeline for 10% of the world’s population

At the micro level, remittances may not seem like much. The average migrant struggles to send $200 a month back home – often irregularly – to support family and friends. However, although this flow may seem relatively small, a macro perspective reveals that remittances are both highly significant and essential.

At the country level, the money received from workers who are toiling abroad can represent a significant source of income. India receives remittances that are almost three times as large as the inward investments made by foreign firms. In Tajikistan, migrant workers send home the equivalent of 47% of the country’s GDP, and it accounts for almost a quarter of Nepal’s. Similarly, an estimated 40% of Somalia’s population depend on remittances and need the cash to buy food and medicine.

At the world level, remittances are an essential source of external funds for developing countries. The World Bank estimates the global amount of remittances to have reached $582 billion in 2014, three times the amount of Official Development Assistance (ODA) and a significantly larger flow than the total Foreign Direct Investment (FDI) to developing countries, excluding China. Moreover, remittance flows are steadier than both private debt and portfolio equity flows.

$200 may not be that much on its own, but taken together it is clear that remittances are a lifeline for a large part of our world’s population. In fact, currently more than 700 million people around the world depend on the money received from their wives, husbands, children or parents that is sent by their families working abroad. With these 700 million people – 10% of the world’s population – depending on these financial flows, it is clear that migrant remittances are the most tangible and perhaps the least controversial link between migration and development, as Dilip Ratha – a lead economist on the topic of remittances and migration at the World Bank – affirms.

Despite the evident importance of remittances, sending money home costs migrants about USD 45 billion every year in fees to payment service providers. The World Bank estimates that in 2014 migrants paid an average of 7.9% in fees, meaning that out of the $200 that a migrant sends home, as much as $15 will be lost. These costs could be reduced by $28 billion if migrants used cheaper services.