The hidden force in global economics: sending money home

In 2013, international migrants sent $413 billion home to families and friends — three times more than the total of global foreign aid (about $135 billion). This money, known as remittances, makes a significant difference on the lives of those receiving it and plays a major role in the economies of many countries. Economist Dilip Ratha describes the promise of these “dollars wrapped with love” and analyzes how they are stifled by practical and regulatory obstacles.

I live in Washington, D.C.,

but I grew up in Sindhekela, a village in Orissa,
in India.

My father was a government worker.

My mother could not read or write, but she

would say to me, "A king is
worshipped only in his

own kingdom. A poet is respected everywhere."

So I wanted to be a poet when I grew up.

But I almost didn't go to college

until an aunt offered financial help.

I went to study in Sambalpur,

the largest town in the region,

where, already in college, I saw a
television for the first time.

I had dreams of going to the United States

for higher studies.

When the opportunity came,

I crossed two oceans, with borrowed money

for airfare and only a $20 bill in my pocket.

In the U.S., I worked in a research center,

part-time, while taking graduate classes in economics.

And with the little I earned, I would

finance myself and then I would send

money home to my brother and my father.

My story is not unique.

There are millions of people who migrate each year.

With the help of the family, they cross oceans,

they cross deserts, they cross
rivers, they cross mountains.

They risk their lives to realize a dream,

and that dream is as simple as having a

decent job somewhere so they can send money home

and help the family,

which has helped them before.

There are 232 million international
migrants in the world.

These are people who live in a country

other than their country of birth.

If there was a country made up of

only international migrants,

that would be larger, in population,

than Brazil.

That would be larger, in its size

of the economy, than France.

Some 180 million of them, from poor countries,

send money home regularly.

Those sums of money are called remittances.

Here is a fact that might surprise you:

413 billion dollars, 413 billion dollars

was the amount of remittances sent last year

by migrants to developing countries.

Migrants from developing countries,

money sent to developing countries —

413 billion dollars.

That's a remarkable number because

that is three times the size of

the total of development aid money.

And yet, you and I,

my colleagues in Washington,

we endlessly debate and

discuss about development aid,

while we ignore remittances as small change.

True, people send 200 dollars per month,

on average. But, repeated month after month,

by millions of people,

these sums of money add up to rivers
of foreign currency.

So India, last year, received 72
billion dollars, larger than

its IT exports.

In Egypt remittances are three times

the size of revenues from the Suez Canal.

In Tajikistan, remittances are 42 percent of GDP.

And in poorer countries, smaller
countries, fragile countries,

conflict-afflicted countries, remittances are a lifeline,

as in Somalia or in Haiti.

No wonder these flows have huge

impacts on economies and on poor people.

Remittances, unlike private investment money,

they don't flow back at the first

sign of trouble in the country.

They actually act like an insurance.

When the family is in trouble,

facing hardship, facing hard times,

remittances increase, they act like an insurance.

Migrants send more money then.

Unlike development aid money,

that must go through official agencies,

through governments, remittances

directly reach the poor,

reach the family,

and often with business advice.

So in Nepal, the share of poor

people was 42 percent in 1995,

the share of poor people in the population.

By 2005, a decade later, at a

time of political crisis, economic crisis,

the share of poor people went down to 31 percent.

That decline in poverty, most of it,

about half of it, is believed to be

because of remittances from India,

another poor country.

In El Salvador, the school dropout

rate among children is lower

in families that receive remittances.

In Mexico and Sri Lanka,

the birth weight of children is higher

among families that receive remittances.

Remittances are dollars wrapped with care.

Migrants send money home for food,

for buying necessities, for building houses,

for funding education, for funding

healthcare for the elderly, for business

investments for friends and family.

Migrants send even more money home

for special occasions like a surgery

or a wedding. And migrants also send

money, perhaps far too many times,

for unexpected funerals that

they cannot attend.

Much as these flows do all that good,

there are barriers to these

flows of remittances, these

400 billion dollars of remittances.

Foremost among them is

the exorbitant cost of sending money home.

Money transfer companies structure

their fees to milk the poor.

They will say, "Up to 500 dollars

if you want to send, we will charge you

30 dollars fixed."

If you are poor and if you have
only 200 dollars to send,

you have to pay that $30 fee.

The global average cost of sending

money is eight percent.

That means you send 100 dollars,

the family on the other side receives only

92 dollars.

To send money to Africa,

the cost is even higher:

12 percent.

To send money within Africa,

the cost is even higher:

over 20 percent.

For example, sending money from Benin
to Nigeria.

And then there is the case of Venezuela, where,

because of exchange controls,

you send 100 dollars and you

are lucky if the family on the other side

receives even 10 dollars.

Of course, nobody sends money to Venezuela

through the official channel.

It all goes in suitcases.

Whereever costs are high,

money goes underground.

And what is worse,

many developing countries actually

have a blanket ban on sending money

out of the country.

Many rich nations also have a

blanket ban on sending money
to specific countries.

So, is it that there are no options,

no better options, cheaper options, to send money?

There are.

M-Pesa in Kenya enables people to send money

and receive money at a fixed cost of only

60 cents per transaction.

U.S. Fed started a program with Mexico

to enable money service businesses

to send money to Mexico

for a fixed cost of only 67 cents per transaction.

And yet, these faster, cheaper, better options

can't be applied internationally

because of the fear of money laundering,

even though there is little data

to support any connection, any significant

connection between money laundering

and these small remittance transactions.

Many international banks now

are wary of hosting bank accounts

of money service businesses, especially

those serving Somalia.

Somalia, a country where the

per capita income is only 250 dollars per year.

Monthly remittances, on average, to Somalia

is larger than that amount.

Remittances are the lifeblood of Somalia.

And yet, this is an example of

the right hand giving a lot of aid,

while the left hand is cutting the lifeblood

to that economy, through regulations.

Then there is the case of poor people
from villages, like me.

In the villages, the only place where you can

get money is through the post office.

Most of the governments in the world

have allowed their post offices to have

exclusive partnerships with money transfer companies.

So, if I have to send money to my

father in the village, I must send money

through that particular money transfer company,

even if the cost is high.

I cannot go to a cheaper option.

This has to go.

So, what can international organizations and

social entrepreneurs do to reduce the cost

of sending money home?

First, relax regulations on small remittances
under 1,000 dollars.

Governments should recognize that

small remittances are not money laundering.

Second, governments should abolish exclusive partnerships

between their post office and the money
transfer company.

For that matter, between the post office

and any national banking system that

has a large network that serves the poor.

In fact, they should promote competition,

open up the partnership so that

we will bring down costs like we did,

like they did, in the telecommunications industry.

You have seen what has happened there.

Third, large nonprofit philanthropic organizations

should create a remittance platform

on a nonprofit basis.

They should create a nonprofit

remittance platform to serve the money transfer

companies so that they can send money at a low cost,

while complying with all the complex

regulations all over the world.

The development community should

set a goal of reducing remittance costs

to one percent from the current eight percent.

If we reduce costs to one percent,

that would release a saving of
30 billion dollars per year.

Thirty billion dollars, that's
larger than the entire

bilateral aid budget going to Africa per year.

That is larger than, or almost similar to,

the total aid budget of the United States government,

the largest donor on the planet.

Actually, the savings would be larger

than that 30 billion because remittance channels

are also used for aid, trade and investment purposes.

Another major impediment to the

flow of remittances reaching the family

is the large and exorbitant

and illegal cost of recruitment,

fees that migrants pay, migrant workers

pay to laborers who found them the job.

I was in Dubai a few years ago.

I visited a camp for workers.

It was 8 in the evening, dark, hot, humid.

Workers were coming back from

their grueling day of work,

and I struck a conversation

with a Bangladeshi construction worker.

He was preoccupied that he is sending

money home, he has been

sending money home for a few months now,

and the money is mostly going

to the recruitment agent, to the labor agent

who found him that job.

And in my mind, I could picture

the wife waiting for

the monthly remittance.

The remittance arrives.

She takes the money and hands

it over to the recruitment agent,

while the children are looking on.

This has to stop.

It is not only construction
workers from Bangladesh,

it is all the workers. There are millions of migrant

workers who suffer from this problem.

A construction worker from Bangladesh,

on an average, pays about 4,000
dollars in recruitment fees

for a job that gives him only 2,000
dollars per year in income.

That means that for the two years or three years

of his life, he is basically sending money

to pay for the recruitment fees.

The family doesn't get to see any of it.

It is not only Dubai, it is the dark

underbelly of every major city in the world.

It is not only Bangladeshi construction workers,

it is workers from all over the world.

It is not only men.

Women are especially vulnerable to

recruitment malpractices.

One of the most exciting and newest

thing happening in the area of remittances

is how to mobilize, through innovation,

diaspora saving and diaspora giving.

Migrants send money home,

but they also save a large amount of

money where they live.

Annually, migrant savings are estimated

to be 500 billion dollars.

Most of that money is parked in

bank deposits that give you zero percent interest rate.

If a country were to come
and offer a three percent

or four percent interest rate, and then say

that the money would be used for building schools,

roads, airports, train systems

in the country of origin, a lot

of migrants would be interested in

parting with their money because

it's not only financial gains that

give them an opportunity

to stay engaged with their country's development.

Remittance channels can be used

to sell these bonds to migrants

because when they come

on a monthly basis to send remittances,

that's when you can actually sell
it to them.

You can also do the same

for mobilizing diaspora giving.

I would love to invest in a

bullet train system in India

and I would love to contribute to efforts

to fight malaria in my village.

Remittances are a great way of

sharing prosperity between places

in a targeted way that benefits

those who need them most.

Remittances empower people.

We must do all we can to make remittances

and recruitment

safer and cheaper.

And it can be done.

As for myself, I have been

away from India for two decades now.

My wife is a Venezuelan.

My children are Americans.

Increasingly, I feel like a global citizen.

And yet, I am growing nostalgic

about my country of birth.

I want to be in India and in the U.S. at the same time.

My parents are not there anymore.

My brothers and sisters have moved on.

There is no real urgency for me to send money home.

And yet, from time to time,

I send money home to friends,

to relatives, to the village,

to be there, to stay engaged —

that's part of my identity.

And, I'm still striving to be a poet

for the hardworking migrants

and their struggle to break free

of the cycle of poverty.

Thank you.

(Applause)