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Leaving Transferred Money on the Table: Will Remittance-Linked Financial Products Add Value to Development Financing?

Mar 06, 2017

Lead Author: Ziyi Huang
Contributing Authors: Aron Betru and Jackson Mueller

Publisher: Milken Institute

For centuries migrant workers who send money home to their families have been a major source of inflows for developing countries. However, it is only in the past few decades that we have been able to put a number to these remittances. In some extreme cases, nearly a third of a country’s GDP comes from remittances. As a result, much has been written about the potential of harnessing these remittance flows for development purposes. Many economists have focused on lowering remittance transfer prices with the hope that this can lead to increased net money inflows for developing economies. However, basic consumption remains the primary use of such funds, often by necessity, and so remittances are not directed into long-term investments that could contribute to greater development impact. As a result, efforts are underway to leverage inflows from migrant remittances to provide their recipients with greater access to an array of financial products that could have greater development impact. Improving financial inclusion can promote economic growth as well as diversify and mitigate users’ overall risk.