Financial Frontiers: Migration and Remittances

In an increasingly globalized and shrinking world, migration of human beings is becoming more and more common. Whether in pursuit of education, economic opportunity, or greater freedom, migrants are the modern adaptation of nomads. Of all the links created due to this phenomenon, migrants sending remittances home particularly has a large potential impact on the development of the origin country.

A NYTimes article follows Dilip Ratha, a World Banker who is credited for putting remittances on the policy map, as he returns to his village in India. Remittances involve a transfer of money, which is often much larger than amounts received through foreign aid, so these transfers obviously may have an impact on the involved economy. Nowhere is this seen more than in India, the country that receives the highest amount of remittances ($27 billion) from its 20 million migrants.

Most of the money is spent on consumption — food, clothing or a birthday bash — which leads some economists to discount its impact on development. But Mr. Ratha argues migrants would invest more if they had better options. And he regards higher consumption among the poor as a very good thing.

Now that the issue is taken seriously by economists, policy wonks, and governments alike, Mr. Ratha has future goals in mind:

Mulling a leap from thinker to doer, he has drafted plans for an “International Remittances Institute,” to provide cheaper ways to send money — fees often exceed 10 percent — and more options for investing it. Easier access to banks, for example, might improve migrants’ savings rates and expand local lending pools.

The financial services industry may have new frontiers to push with this issue…