Wednesday, October 02, 2019 / 11:28AM / CSL
Research / Header Image Credit: Saharareporters
The increase in the volume of
international migration over recent decades has led to a surge in remittances
to labour-exporting countries. Money sent from migrants to households have
become a significant source of external financing for developing countries like
Nigeria as foreign remittances have demonstrated recession resistance. The
peer-to-peer nature of remittances means that they serve the purpose of being a
backstop against poverty and financial hardship better than grants/aids which
are institutional cashflows that often fall into corrupt hands.
However,
the transaction costs for processing remittances through banks and transfer
operators is high, hence many migrants resort to informal channels such as
sending through friends, relatives or even brought home by the migrant
himself/herself. In addition, the rising populist sentiment and anti-immigrant
policies being pursued by some advanced nations not only pose a threat to the
global diaspora population but is also likely to squeeze remittance flows. This
is because limiting the influx of migrants- whose hard labour, productivity and
intellectual capital power the goods and services of the advanced economies-
can strain remittance flows in the long-run. This could result in increased
incidence of poverty in low and middle income countries as their income and/or
consumption decreases.
From
a policy perspective, it is important to reduce money transfer costs in order
to increase the amount of remittances returning through formal channels.
Remittances sent through official banking channels can facilitate financial
sector development in developing countries. On one hand, banks will be able to
book more loans with bank deposits from remittances thereby reducing credit
constraints and promoting economic growth. On the other hand, remittance
receivers who use banks can gain access to other financial products and
services thereby deepening financial inclusion. Thus, when migrant workers help
their families, they are also improving the economy of the country. Therefore,
it is imperative to offer them better options for sending money.
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