Migrant remittances: untapped potential and the need for regulation - Ideas 4 Development

Source: Bilateral Remittances Matrix, World Bank

The migrant remittances sent from France amount to over USD 20bn every year. Martin Fleury, Said Bourjij et Bamadi Sanokho, experts on this issue, shares their reflections with ID4D about the potential that these remittances hold for development if it is organized. Migrant remittances support entire communities in Africa.

They act as a social buffer by contributing resources to urban and rural areas which benefit less from the spillovers of growth. They also provide a monetary balance with the inflow of foreign currency into the balance of payments of States. Yet their cost often continues to be a deterrent and encourages an increasingly sophisticated informal sector, which escapes all regulation.

FinTechs and mobile phone operators could bring about a significant reduction in costs, but have to deal with strong and necessary regulatory requirements. Finally, legislative and technical solutions to encourage these funds to finance the productive economy are not widely known or are underexploited.

Huge stakes for ever-increasing remittance amounts

Remittances by diasporas to their countries of origin are central to public policy issues for budgetary reasons (impact on the balance of payments), regulatory reasons (traceability of financial flows) and migratory reasons (limitation of economic immigration). They are a major issue for Africa’s development. Remittances made from France to the rest of the world are constantly increasing and reached some EUR 21bn in 2017 (against some EUR 19bn in 2011).   Source: Bilateral Remittances Matrix, World Bank.

In recipient countries, the amounts of these remittances are very often higher than Official Development Assistance and foreign direct investments. For example, in Senegal, they are equivalent to double these two amounts put together and reach USD 5.5m a day.   Sources: World Bank and UNCTAD.

Low level of media coverage despite far-reaching and rapid changes in the remittance sector In recent years, major commitments have been made by G20 countries to increase the potential of migrant remittances. The 20 powers have particularly committed to limit the fees to 3% of the amounts sent on average by 2020. This measure should free up some USD 16bn a year for recipient countries. However, despite this political will, prices have only fallen slightly and still stand at an average of 7.6% of the amounts sent. The France-Africa corridor continues to be the most expensive, with fees reaching 9.61%, without any real downward trend being seen since 2015.  

Despite the stakes and the far-reaching changes taking place in the sector, the subject is no longer at the top of the international agenda. It is African telecommunications companies and FinTechs which are revolutionizing the sector. In remote rural areas in Africa, financial transactions by mobile phone are now rooted in uses and their costs stand at about 3%. These actors are shaking up both practices and banking regulations.   Source: Remittance Prices Worldwide 2017, World Bank.

This wind of change will, in turn, sooner or later take hold in the North and will have a major impact on remittance prices. For the time being, these solutions are only authorized between African countries. Indeed, the use of these technologies for international remittances comes up against complex regulatory and macroeconomic issues.

For example, the fight against terrorist financing and money laundering requires respecting standards and procedures which not all of these new operators have integrated into their system. Consequently, international electronic remittances such as Orange Money are today blocked by the Central Bank of West African States (BCEAO). The inevitable digitalization of remittances is also a cause of concern for authorities in terms of the impact on the balance of payments. Indeed, they fear that this liberalization may facilitate capital flight in the event of an economic or political crisis.

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