Asian migrants send $260 bln home but high fees, poor services reduce impact - report

Monday, 20 May 2013 13:55 GMT

Applicants look at job offers displayed on a glass window of a recruitment agency in Manila, the Philippines, in this 2010 file photo. An average of more than 3,000 workers leave the country daily to work as professionals, nurses, doctors, domestic helpers, seafarers and labourers overseas. REUTERS/Cheryl Ravelo/Files

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Billions of dollars in remittances could improve food security and rural development but services are expensive and have limited reach, according to a report by the International Fund for Agricultural Development (IFAD) and the World Bank

BANGKOK (Thomson Reuters Foundation) – Asian migrants sent $260 billion home to their families in 2012 but high fees and a lack of services outside urban areas mean the impact of the money on millions of rural poor is limited, said a new report.

Remittances act as a safety net in times of disasters, contribute to economic growth and could improve food security in the world’s most populous region at a time when donor funding is being squeezed, but the cash is being poorly channeled and too much is lost in fees, said the report by the International Fund for Agricultural Development (IFAD) and the World Bank.

"The magnitude of these flows is so large that if only a small fraction were used to invest in agro-industry, it could conceivably have a bigger impact on growth and poverty reduction in Asian countries than all of the aid put together,” said Kevin Cleaver, associate vice-president of IFAD at the report’s launch on Monday.

Even if only 5 percent of the remittance flows – $13 billion – were invested in agriculture, this would still be more than all of the official development assistance for agriculture in 2012, which was $8.5 billion, he told journalists in Bangkok. 

Yet the average cost of sending money home to Asia – 8.35 percent of the value of the remittance – is shrinking the amount of money that could be spent on reducing poverty and boosting prosperity for the migrants' families, said the report. 

In addition, remittance services are concentrated in urban centres even though the majority of the region’s population lives in rural areas. Rural recipients end up traveling long distances and incur extra costs to collect the money, it said.  

The cost of transactions to the rural poor is an estimated $16 billion annually or about US$30 per transaction. 

“It is both expensive and inconvenient to be poor,” the report added. 

REMITTANCES FOR FOOD SECURITY  

Asia is the source of nearly 60 million migrant workers and their remittances represent 63 percent of global flows to developing countries. 

An estimated 70 million Asian households, or one in 10, benefit from these flows, which are more than five times official development assistance.

Lowering the fees and improving the reach and diversity of remittance services would allow migrants to send their money home more rapidly and at a lower cost to them and to their recipients. This would reduce poverty and improve food security in Asia, where there are pockets of people with inadequate access to food, said Cleaver. 

“Farmers can do a lot to solve this problem by producing better quality food and more food but they need to invest in order to do that,” he said. 

"Donors provide some (resources) but frankly, the donor business is declining. The amount of aid coming from OECD (Organisation for Economic Cooperation and Development) countries is declining,” he added.

“So where is this investable resource going to come from for poor people? A lot of it is going to have to come from remittances being converted into investment in agriculture, in particular for food,” said Cleaver. 

WANTED: CHEAPER AND BROADER SERVICES

There are a plethora of service providers that help people send money home but banks dominate the remittance sector in Asia, handling three out of four transactions, despite being the most expensive, said the report. 

Postal services and microfinance institutions (MFIs) have more presence in rural areas than banks but regulations and a lack of capacity prevent them from expanding their services further.

Postal services account for only 5 percent of all transactions while MFIs play an even smaller role, handling less than 2 percent, partly because some countries do not allow them to perform foreign currency transfers.  

Such services should be modernised and regulatory barriers scrapped so customers can have choices but this doesn’t mean banks should be ignored, said Massimo Cirasino, manager for Financial Infrastructure and Remittances at the World Bank. 

"For a continent like Asia that has a high penetration of banks, it would be myopic to move out and say, ‘Banks are bad and we need to move to something else,’” he said at the report launch. “It's better to put pressure on banks to provide more efficient services.” 

The World Bank is providing countries with policy advice and technical assistance for the G20’s 5x5 Initiative. This aims to reduce the global average remittance price to 5 per cent, which would put an additional $8.7 billion per year in the pockets of migrants and their families in Asia. 

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