Remittances as a means of post-2015 financing

Afrikaner vor einem Schild «Global Money Transfer» neben einer wenig befahrenen Strasse, die sich offenbar in einer armen Wohngegend in Afrika befindet.
In 2013, private money transfers made by international migrants exceeded the total sum spent on official development assistance by more than three times. Photograph: © Panos / Sven Torfinn

Martina Schlapbach
Global Programme Migration and Development, SDC

15 September 2014 - In the post-2015 context, migrant remittances are increasingly considered as a means of financing for sustainable development. In order to constructively integrate remittances in the post-2015 financing debate, five key principles have to be considered.

In 2013, private money transfers made by international migrants ($434 billion to developing countries) exceeded the total sum spent on official development assistance (ODA) by more than three times. This figure is one reason that remittances appear as a constant subject in the present debate on the post-2015 financing framework. A realistic assessment of how remittances (can) financially contribute to the achievement of sustainable development goals is now required. To do so, the post-2015 financing debate should integrate five key principles.

Evidence based impact on sustainable development
First and foremost, scientific evidence from around the globe shows that remittances are directed towards poverty reduction and sustainable development by positively affecting health, schooling and gender equality, investment, economic growth and environmental protection. Remittances have contributed to the achievement of the Millennium Development Goals (MDGs) and should therefore be integrated into the debate on development financing. However, we should remain realistic: Remittances are far from being the panacea to resolve global poverty. In addition, they also entail a number of risks, such as economic dependency.

The voluntary principle
Second, remittances are private money which impact development on a voluntary basis. This implies that remittances are no substitute for ODA nor domestic resources, but a complementary financial source for sustainable development. Acknowledging the private nature of remittances should not exclude investigation into mechanisms which help enhance (for example through incentives) the actual and potential impact that remittances have for social, economic and ecological development.

Reduced transfer costs
Third, lower and more transparent transfer costs have the potential to increase remittance inflows and, in turn, to impact development positively. It is estimated that lowering the transaction fees by means of global public-private partnerships and the usage of modern technologies from the current global average of 9% to 5% would generate additional USD 16 billion to developing countries. Such estimates have helped place the reduction of transfer costs at the core of the debate on development finance over the last years. The outcome document of the Open Working Group on Sustainable Development Goals proposes “to reduce by 2030 to less than 3% the transaction cost of migrant remittances and eliminate remittance corridors with costs higher than 5%”.

Outcome Document of the Open Working Group on SDGs (PDF, Anzahl Seiten 21, 467.2 kB, Englisch)

Create favourable framework conditions
Fourth, the positive impact of remittances can further be maximised by establishing an enabling environment for the use of remittances. Diaspora bonds, microfinance, crowd-funding, matching-funds and start-up models are considered as some of the instruments to enhance the development potential of remittances. However, these instruments that help create favourable framework conditions have been little present in the debate on development finance to date.

Remittances as a means to increase financial inclusion
Fifth and finally, both the mechanisms of establishing reduced transfer costs and favourable framework conditions require also that we consider the aspects of financial inclusion and literacy – the access to and knowledge of people to use financial services. Collecting remittances sent from abroad is for many people the only interaction with the formal financial sector. Remittances should therefore be seen as an approach for increasing financial inclusion and literacy. An EBRD project co-funded by Switzerland aims to put this approach into practice by supporting financial education of remittance receivers in Armenia and other transition countries.

Integrating remittances into the debate
In conclusion, the evidence based impact of remittances on development makes it imperative to consider migrant remittances as a means of financing for sustainable development. At the same time, the private nature of remittances and the fact that migrants’ engagement for development based on a voluntary, individual decision should be highlighted. It equally needs to be stressed that remittances are no substitute for ODA, but a complementary financial source of sustainable development. Finally, the debate on sustainable development financing should be oriented towards innovative measures that help further enhance the sustainable development potential of remittances, in particular by creating a cost-efficient and more transparent transfer system and by establishing an enabling environment for the access to and the use of remittances.