Remittances from migrant workers are important sources of family income and a key factor for growth in developing economies, representing a large portion of the GDP of many receiving countries. Given the current economic crisis, the smooth flow of remittances could become even more critical.
As a step toward helping reduce the cost of remittances, IFC and the World Bank have launched the first global database of remittance prices that is expected to benefit low-income migrant workers and households in developing countries.
What was the rationale for developing the database?
The database, which provides information on 120 remittance corridors, will make pricing more transparent and put competitive pressure on providers to improve services and reduce prices.
In 2007, recorded remittance flows worldwide were $337 billion, of which $251 billion went to developing countries. For many of the 190 million migrant workers that remitted money last year, the cost of these transactions is high relative to their low incomes, the amounts sent, and the incomes of the recipients.
Any reduction in remittance transfer prices will allow money to remain in the pockets of migrants and their families. If the sending cost could be reduced by 5 percentage points relative to the value sent, recipients in developing countries could receive $12 billion more each year.
What does the database tell us about remittance prices worldwide?
There are some interesting trends. For example, generally, it is more costly to remit through banks than nonbank money transfer operators.
Also, the cost of sending money home varies from country to country. Remittances from Russia, Saudi Arabia, Singapore, Spain, the United Kingdom, and the United States tend to cost less, while Germany, Japan, and the Netherlands are among the most costly. Fees can be as high as 40 percent of the total value sent and as low as 0.2 percent.
The average remittance cost is 10.5 percent for $200 transfers and 6.5 percent for $500. Remittances to Latin America and the Caribbean, South Asia, and countries of the Commonwealth of Independent States are less costly than average, while those to Africa are more costly.
What do we want to accomplish by publishing prices?
Making this data available should help lower prices in the longer term, benefiting remittance users and their families by helping them save money and make informed decisions.
This should also put more competitive pressures on remittance service providers. For example, publishing prices in corridors where they are high can bring government and public pressure to bear on companies to reduce their fees and other charges.
This has already worked in Latin America, where publishing remittance prices helped reduce fees from an average of 15 percent in 2000 to 5.6 percent in 2006.
Many low-income migrant workers may not have Internet access. How will this information reach them?
The World Bank Group is working with a number of institutions to ensure that the information reaches as many migrants, market players, and policymakers as possible.
Our outreach plan includes working with NGOs, regional bankers' associations, and migrant organizations to tap their communication channels with migrants. We are also aiming to launch more databases nationally, which can be tailored more directly to the needs of local communities.
The database is available at http://remittanceprices.worldbank.org.
For more information contact:
Published October 10, 2008
