Entry of MFIs into the Remittance Market: Opportunities and Challenges

In 2005, migrant worker remittances – the portion of migrants’ earnings returned to their country of origin – totaled approximately US$232 billion globally – three times official development aide of US$78.6 billion dollars. In fact, formal remittances constitute the second largest source of external funding for developing countries behind Foreign Direct Investment. The $46 billion in remittances sent to Latin America and the Caribbean last year by 30 million migrants was nearly equal to all foreign investment in private companies! Moreover, migration and remittance experts argue that unofficial transfers could be almost as large as, if not larger than, the formal flows.3 The importance of the flow of remittances for developing countries cannot be underestimated. Remittances account for more than 10 percent of the gross domestic products (GDP) of 15 developing countries studied by the International Monetary Fund (IMF). This is true for some islands in the Caribbean and Pacific and for several labor-exporting countries such as Albania, El Salvador, Jordan, and the Philippines. Remittances account for over 29 percent of Nicaragua’s GDP.4 In Jamaica, remittances generate more revenues than foreign trade. In Haiti, in every year since 1996, remittances have been consistently greater than the total amount of revenue generated 3 Manuel Orozco, “Sending Money Home: Can Remittances Reduce Poverty?” id21 insights, #60, January 2006, p. 1. 4 Michelle Wucker, “Remittances: the Perpetual Migration Machine,” World Policy Journal, Summer 2004, p. 37. 4 by merchandise exports each year. In 2003, they represented more than 233% of merchandise exports.

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