International Conference on Migrant Remittances – London, United Kingdom, October 9-10, 2003

REPORT AND CONCLUSIONS

October 9 and 10, 2003

London, United Kingdom

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International Conference on Migrant Remittances – London, United Kingdom, October 9-10, 2003

TABLE OF CONTENTS

Executive Summary......

IIntroduction......

IIContent and Structure......

1.Trends and Determinants......

2.Maximizing Development Benefits of Migrant Remittances: Country Experiences......

3.Measuring Development Impact of Remittances......

4.Remittance Infrastructure: Financial Services and Products......

5.Remittance Infrastructure: Regulatory and Supervisory Policies......

6.Policy Implications......

IIIConclusions......

IVWorking Group Sessions......

VRemittance Initiatives Co-ordination Meeting......

VIAnnexes......

A.Agenda......

B.List of Participants......

C.Prepared Opening & Closing Statements......

1.Opening Statement Mr. Gareth Thomas, Parliamentary Under-Secretary of State......

2.Opening Statement by Cesare Calari, Vice President, Financial Sector, World Bank.....

3.Closing Statement by Dr. Mamphela Ramphele, Managing Director, World Bank......

4.Closing Statement by David Stanton, Chief Enterprise Development Adviser, DFID......

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International Conference on Migrant Remittances – London, United Kingdom, October 9-10, 2003

Executive Summary

On 9-10 October 2003, in London, UK, DFID, The World Bank, and the International Migration Policy Programme (IMP) hosted a two-day conference, The International Conference on Migrant Remittances: Development Impact, Opportunities for the Financial Sector and Future Prospects, that brought together over 100 participants from 42 countries. The purpose of the conference was threefold: 1) to bring together concerned stakeholders to share experiences on remittances; 2) to identify best practices based on regional, country and agency initiatives, and 3) to identify and establish collaborative strategies between interested stakeholders to strengthen the developmental impact of remittances.

Global remittance flows are estimated at US$88 billion for 2002 and continue to grow at a rapid pace in tandem with increasing migration. Remittances are projected to exceed US$90 billion in 2003 based on trends in the first half of this year. Whilst FDI, portfolio investments and other capital flows to developing countries rise and fall cyclically, remittances show remarkable stability over time and even increase in response to economic crises.

The conference noted the emerging empirical evidence of a strong correlation between remittances and poverty reduction. Many governments have recognized this, and have encouraged remittance flows through pro-active legislative and regulatory policies. The way remittances are invested by households however varies considerably according to culture, the local climate for investment, and gender. Various stakeholder initiatives and incentive schemes were discussed.

A pre-requisite for making the best use of remittances is to establish sound macro-economic policies, political stability and improvements in the investment climate in receiving countries. It was also suggested that improving migrants’ access to the formal financial sector constitutes a priority because the formalization of transfers is central to enhancing their long-term development impact. New remittances services, products and outreach strategies involving private sector and other stakeholders were discussed in this context.

Delegates also recognized the important role of informal remittance systems. While these systems generally offer less expensive and very efficient services, they also pose legitimate regulatory concerns. The need to strike a balance between appropriate levels of regulation minimizing financial abuse, on the one hand, and promoting cost efficient and accessible services on the other, was stressed. Various regulatory approaches and competing stakeholder interests were highlighted as was the centrality migrants’ voice in this process.

Delegates agreed that improving the quality of data on remittances flows and migration patterns is a priority for improving our understanding of remittance impacts and elaborating more effective policy action. Certain regions are particularly affected by an absence of data. Approaches to migration and remittances data development, collection and dissemination were discussed.

On 11 October, a group of 15 donors and other concerned agencies followed up the conference with a half-day meeting to discuss next steps. The World Bank agreed to consider establishing a Task Force together with DFID and IMP for co-ordination of future activities, based on three Core Themes, 1) development of core principles to guide future remittance work, 2) assessment of the feasibility and demand for a dedicated web site to serve as a knowledge management tool for all activities planned, and 3) co-ordination of international efforts to improve quality of data collection and reporting on migration and remittances.

IIntroduction

The Department for International Development (DFID) and the World Bank in collaboration with the International Migration Policy Programme (IMP) organized an International Conference on Migrant Remittances: Development Impact, Opportunities for the Financial Sector and Future Prospects, on 9-10 October 2003, in London, United Kingdom. The conference was opened by Gareth Thomas, Parliamentary Under-Secretary of State for International Development and Cesare Calari, Vice President, Financial Sector, World Bank. Closing Statements were made by Dr. Mamphela Ramphele, Managing Director, World Bank and David Stanton, Chief Enterprise Development Advisor, DFID.

It was the first global meeting of its type on this topic and attracted over 100 participants from 42 countries. They included representatives of central banks, private banks, regional development banks and non-bank financial institutions, government policy makers, multilateral and bilateral donors, United Nations and other international agencies, non-governmental organizations, academics and consultants.[1]

IIContent and Structure

The purpose of the conference was firstly, to bring together donors, government officials, banks, NGOs and other agencies to share experiences and achieve a better understanding of the key issues and challenges relating to remittances; secondly, to identify best practice from regional and country initiatives that have lead to improvements in the regulatory and institutional framework for remittances, improved financial infrastructure and technology and cost efficiency of banks, and facilitated access for recipients to other, complementary financial services; and thirdly, to establish collaborative strategies between agencies and interested stakeholders to enhance transparency and accountability and to strengthen the effectiveness and developmental impact of remittances.

Reflecting these goals the conference proceedings were structured around six key plenary session themes:

1)Trends and Determinants;

2)Maximising Development Impacts of Migrant Remittances: Country Experiences;

3)Measuring Development Impact of Remittances;

4)Remittance Infrastructures: Financial Services and Products;

5)Remittance Infrastructure: Regulatory and Supervisory Policies;

6)Policy Implications

Presentations and panel discussions featuring international experts were held under each theme followed by discussions in plenary. Delegates also participated in four smaller working group discussion sessions on select topics guided by working group questions which were prepared and distributed to participants in advance of the conference. A designated chair moderated working group sessions and rapporteurs presented working group outcomes to plenary.

A select group of 15 donors and concerned agencies followed up the conference with the Remittances Initiatives Coordination Meeting on Saturday October 11, 2003. The purpose of the half-day session was to identify and agree on specific collaborative strategies between agencies aimed at enhancing the effectiveness and development impact of remittances in light of the conference discussions, observations and conclusions.[2]

1.Trends and Determinants

Presentations were made by Dilip Ratha, World Bank, on the Analytical Perspective; Manuel Orozco, Inter-American Dialogue, on Where can Donors and Other Stakeholders Add Value; and Judith van Doorn, ILO, on Characteristics and Development Dimensions(conceptual and practical). The session was moderated by Dr. R.K. Jenny, International Migration Policy Programme (IMP).

In this first session, experts reaffirmed the importance of migrant remittances as a key source of global development finance pointing out principal characteristics which make remittance flows such an important factor in development growth. They discussed important macro-economic and poverty impacts of remittance flows and described principal factors influencing such flows including financial infrastructures, macro-economic environments and migrants’ access to financial institutions.

New estimates show that documented remittance flows continue to increase at a rapid rate, putting global annual flows at US$88 billion for 2002 (revised up from the estimates of US$80 billion reported in the 2003 World Bank Global Development Report[3]) and a projected $90 billion for 2003, based on trends in the first half of the year. Actual figures may be much higher. This means that remittance flows constitute the largest source of financial flows to developing countries after Foreign Direct Investment (FDI), and indeed in many countries exceed FDI flows, and are more stable than other capital flows such as FDI, ODA and capital market flows. Although the top recipients of remittances are large countries, smaller countries receive more remittances as a share of GDP.

Presenters pointed out that remittances are first and foremost person-to-person transfers. Unlike many other kinds of financial flows, they do not create liabilities and are by their very nature targeted to groups that need them most, i.e. the poorer sections of society in developing countries. Furthermore, evidence suggests that they are counter-cyclical, flowing most strongly in times of crisis.

Remittances are expected to show a stable increase well into the foreseeable future as globalisation fuels migration. In particular, persistent income inequalities between source and destination countries and the increase in temporary and circular migration trends as well as increasing South-South migration, assisted by the low cost of travel, are factors contributing to increasing global migration[4].

Complementing the link between migration flows and remittance flows is the relationship between remittances and poverty. It was noted that emerging empirical findings presented by the World Bank and others indicate a positive correlation between migration and poverty reduction. This contention was further supported by ILO case studies showing for instance that remittances in Bangladesh account for more than half of household income of families who receive them, and in Senegal the figure is as high as 90%.

A key question raised in light of these findings related to how interested stakeholders, including government policy makers, donors, private sector actors and migrants themselves, can enhance poverty impacts of remittances and thus improve long-term benefits to migrants’ families. It was suggested that there is a fundamental need to improve migrants’ access to the formal financial sector –or “banking the unbanked” – including, through improved information sharing, efforts to overcome migrants’ cultural barriers to formal institutions, increasing cost efficiency and transparency of transfers, strengthening of financial infrastructures and outreach to underserved communities. Significantly, a recurrent recommendation highlighted throughout the conference was the need for sound macro-economic policies, political stability and improvements in the investment climate in many developing countries.

Some concerns relating to remittances were also voiced. Principally, it was noted that the flight of skilled human capital, or “brain drain” constitutes a major problem for developing countries because it hampers economic and social development. This was balanced with the view that while there might be a “drain” of human capital in the short term, in the long term these human capital skills can be enhanced through migration and knowledge exchange and contribute in a positive manner to the development process when migrants return to their home communities. In this connection it was noted that policies to resource migrant diasporas and leverage remittances should in part be geared to develop opportunities for qualified nationals to remain in, or return to, their countries of origin.

Other concerns included the potential for remittances to create inequalities, finance “unproductive” spending and cause currency appreciation. With respect to consumer oriented spending it was pointed out that distinctions between consumption and investment spending are sometimes difficult to make. For instance, research suggests that migrants’ families tend to spend remittances on education, housing, and healthcare, as well as on consumer items. The former may have investment type effects in the longer term which are difficult to measure. Moreover, it was pointed out that consumer spending has multiplier effects on the economy, although these might be less than an investment multiplier. Gender differences in spending patterns are increasingly evident in ongoing remittance research and deserving of further exploration.

2.Maximizing Development Benefits of Migrant Remittances: Country Experiences

Presentations under this theme were made by Cerstin Sander, Bannock Consulting, on A Regional Perspective: the Experience of Africa; Narendra Jadhav, Reserve Bank of India, on The Experience of India; and I.F. Bagasao, Economic Resource Center for Overseas Filipinos (ERCOF) on The Experience of the Philippines. This session was moderated by Donald Terry, Inter-American Development Bank.

Under this theme, experts discussed the country experiences of India and the Philippines and regional experiences from Africa. They pointed out the central importance that remittances have for the economies of their country and region, described some of the initiatives that have been taken to foster remittances and some of the challenges facing governments and other stakeholders in the area of maximizing remittances and their development impacts.

With respect to Africa, it was noted that flows are significant, constitute an important source of foreign exchange, contribute to the balance of payments and provide a vital source of income for millions of families across the continent. For recipients, remittances translate into investments in human and social capital through spending on education, health and food. However, of particular concern in Africa and especially sub-Saharan Africa is the absence of reliable data on both remittance flows and migration patterns. Weak financial infrastructures and restrictive regulations in many African countries have the effect of encouraging the use of informal channels making remittance flows even more difficult to quantify and lessening their development impact. It was therefore pointed out that specific challenges include improving financial infrastructures in terms of reliability and outreach, adjusting existing regulations to reduce obstacles to formal remittances and improving the quality of data on migration and remittances.

In the case of the Philippines and India, the expert presenters noted the rapid increase in volume of remittances over the past few decades and the fact that remittances have remained less volatile, impervious to economic slowdowns, and will most likely increase in the foreseeable future in tandem with continuing emigration from these countries. In the case of the Philippines, remittances in 1974 amounted to US$103 million annually. Today, the Philippines receives US$7 billion annually. Moreover, over 800,000 Filipinos continue to migrate annually creating the potential for further significant growth in remittance flows to the country. In India, 74% of the trade deficit is financed through remittances receipts. Both India and the Philippines have engaged in proactive strategies to attract remittances and foster the use of formal channels and enhance development impacts. For instance, over the past 20 years the Government of the Philippines has promulgated legislation granting incentives and privileges for remitters in terms of investment options, purchases of land, tax breaks, etc.

Further, immigration and citizenship laws have been reformed allowing overseas Filipino workers dual citizenship. Similar initiatives have been taken in India through the issuance of the Persons of Indian Origin (POI) Cards. Although the success of these incentive schemes is difficult to measure, it was pointed out that remittances constitute an economic life-line for almost one million Filipino families. With respect to India, it was also noted that a slowdown in the oil producing economies of the Middle East where many Indian migrants work was compensated through increased remittances from migrants in North America.

The issue of formalized versus informal transfers, how to define “informal” transfer systems, and what policies should be adopted in this area were raised. Beyond the methodological question of how to define an informal money transfer system (and in view of the plethora of existing semi-formalized systems) it was pointed out that informal transfer systems are not inherently “bad” and, indeed, that from the perspective of the migrant they offer inexpensive and reliable alternatives to formal transfers where these are lacking or inadequate. However, from the point of view of transparency and accountability, regulated systems are preferable and the challenge is therefore to devise regulatory regimes which are flexible and inclusive enough to encompass both informal and formal sector approaches.
Formalization is also a desired outcome because formalized transfers have greater development potential and macro-economic benefits for developing countries, and beyond the money transfer itself have the effect of plugging remitters into a host of other financial services such as savings, credit, investment and insurance options with significant long-term economic benefits to migrants. In this context it was pointed out that many informal money transfer service providers (Hawaladars) cannot become formalized under the existing policy and regulatory regimes because of the overly restrictive nature of those regulations and because the environment in which they operate may lack the basic financial infrastructure for a formal financial institution. The latter is particularly true in conflict afflicted countries and some developing countries with weak financial systems. In line with this observation, the suggestion was made to include informal money transfer agents in the regulation-making process.
It was also noted that protecting migrants’ human rights and ensuring that labor standards are respected in host countries is important in light of the increasing incidence of exploitation of migrant labor, and migrant trafficking and smuggling. To be sure, migrant workers are more likely to fully realize their potential as remitters in environments where, at a minimum, internationally recognized labor standards are respected and domestic minimum wage laws are enforced.

3.Measuring Development Impact of Remittances

Expert presentations included a joint presentation by Richard Adams and John Page, World Bank, on The Impact of International Migration and Remittances on Poverty; Jennifer Piesse, King’s College London and Wise Development Ltd., on the Social and Economic Impact of Remittances on Poverty; and Eduardo Stein, IOM Guatemala, on the Development Role of Remittances, Case of Central American Migrants in the US. This session was moderated by Louis Kasekende, World Bank.