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Leveraging Nigeria's Growing Remittances

Forex	1437 VIEWS
Forex
1437 VIEWS

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.

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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.