Academic literature on the topic 'FINANCIAL REMITTANCE'

Research background: The choice of financial services and remittances are important as they influence the livelihood of remittance recipients, who are mostly poor and financially excluded. In literature, extensive evidence suggests a positive impact of the size of remittances on access to financial inclusion and financial development of remittance-recipient countries. However, a concern of such studies is that they might provide a biased outcome as the available data of remittances tend to be formal, whereas informal remittances are difficult to observe. Hence, their evidence might not be applicable in developing countries where remittance transfer via informal channels is very popular. Purpose of the article: The main objective of this study is to examine the effect of the remittance channel (formal and informal) on the choice of formal, informal financial services of credit and savings of remittance recipients. Methods: As our dependent variable is a financial service which is a categorical variable (formal and informal), the paper will employ a multinomial logistic regression model to estimate the impact. The data employed in this analysis is from the Finscope survey conducted in Myanmar in 2013 and 2018. Myanmar is the best context for our study, as it is one of a big migrant-sending countries and a developing country whose financial sector is significantly underdeveloped. Findings & value added: Our findings show that formal remittances promote the use of formal financial services such as credit and savings. However, there is no evidence regarding women recipients` informal channels and formal financial services. Our evidence also suggests there is a need for the government to encourage migrant workers to transform informal remittances into formal ones by removing the barriers of formal remittance channels to promote the use of formal credit and saving among remittance-recipients who are poor and financially excluded.

This paper investigates the effect of remittance inflows on financial inclusion. Using data from high remittance-receiving developing countries and applying dynamic panel data methods, we find that remittance inflow has a negative impact on financial inclusion for countries with low level of remittances. However, this relationship is positive for countries with high level of remittances. Our study found that there exists a nonlinear relationship between remittances and financial inclusion. We also show that the effect of remittances on the financial inclusion is conditional upon people’s perception about institutions.

This study examines the effect of remittances on selected recipient countries’ financial development. Using weights for bilateral remittances from 1990 to 2015, this study calculates the weighted gross national income per capita of remittance-sending countries. This study then uses the weighted gross national income as an instrument to address the endogeneity between remittance and financial development. Using the instrument variable (IV) model, this study finds that remittances from low-skilled migrant-abundant sending countries have different effects than the highly skilled labor-abundant sending countries. Assuming the Gulf Cooperation Council (GCC) countries as a source of low-skilled and the Group of Seven (G7) as the source of high-skilled labor-abundant sending countries, remittance from relatively low-skilled emigrants has a greater impact on financial inclusion in the recipient countries than their high-skilled counterparts. In contrast, remittance from high-skilled countries has a greater impact on the development of the stock market. Similar types of effects of remittance on financial development have also been observed during the COVID-19 pandemic. The results suggest that policymakers should provide better foreign employment opportunities and improved transaction and investment policies in the home financial markets.

In the current dynamic world, those with no or little access to key financial products and services suffer a great deal of disservice. This study examines the effect of remittance channels (commercial banks and alternative sources) have on financial inclusion and then check the moderating effect of money remittance regulation on the relationship between the remittance channels and financial inclusion in Kenya. It uses the World Bank and Central Bank of Kenya’s dataset on remittances and financial inclusion covering the period from 2009 to 2018. We estimate our model using the Ordinary Least Square assumptions to find the association. We find that remittances from alternative channels other than commercial banks influence financial inclusion in Kenya. We further notice that the money remittance regulations have no moderating effect on the relationship between remittance channels and financial inclusion in Kenya. Our results suggest that commercial banks are not able to appropriately sell their products and services to remittance-receiving households while fintech and other internet remitting service providers seem to roll on products and services that enhance the use of savings and credit facilities. We suggest that more avenues and policies should be enacted to foster the use of alternative sources while improving structures within commercial banks to empower financial inclusion in Kenya

The financial crisis has highlighted the need for forecasts of remittance flows in many developing countries where these flows have proved to be a lifeline to the poor people and the economy. This note describes a simple methodology for forecasting country-level remittance flows in a manner consistent with the medium-term outlook for the global economy. Remittances are assumed to depend on bilateral migration stocks and income levels in the host country and the origin country. Changes in remittance costs, shifts in remittance channels, global exchange rate movements and unpredictable immigration controls in the migrant-destination countries pose risks to the forecasts. Much remains to be done to improve the forecast methodology, data on bilateral flows, and high-frequency monitoring of migration and remittance flows.

This paper investigates the impact of remittance inflows on economic growth and poverty reduction for seven African countries using annual data from 1992-2010. By using the depth of hunger as a proxy for poverty in a Simultaneous Equation Model (SEM), we find that remittances have statistically significant growth enhancing and poverty reducing impact. Drawing on our estimates, we conclude that financial development level significantly increases the remittances inflows and strengthens poverty alleviating impact of remittances. Results of our study further show a signficant interactive imapct of remittances and finacial develpment on economic growth, suggesting the substitutability between remittance inflows and financial development. We further find that 3 percentage point increase in credit provision to the private sector (financial development) can help eliminate the severe depth of hunger in the region. Remittances, serving an alternative source of private credit, can be effective in this regard. Keywords: Remittance Inflow, Poverty Alleviation, Financial Development, Simultaneous Equation Model

This study focuses on the impact of remittances on Vietnam’s financial development. The results drawn from its quantitative approach demonstrate that although remittance flows to the country may lead to increase in bank deposits, such increase is not high. On the other hand, reduction in credit demands may be subject to remittance flows, per the financial development based on a few credit growth indicators. In other words, effects of remittance flows, as indicated by VAR model, are not noticeable despite their positive impact, as in examples of increased deposits and remittance payment services on their current growth. Based on these findings, the study suggests several implications that improve the positivity of impact on the financial development.

Previous studies on the nexus between remittances and financial system development are less informative due to their failure to investigate how remittance inflows affect different aspects of the financial sector in Africa. In the study, we re-investigate the impact of the remittances on the African financial system in twenty-seven (27) countries for 1980-2017 using the Augmented Mean Group (AGM) estimating technique. The results show that remittance does not have any significant impact on different dimensions of financial development in Africa. This finding is robust to alternative estimating techniques. This implies that remittance inflow is not a major driver of financial development in African countries. The outcomes of this study show that it is important to go beyond the use of conventional measures of financial development and focus more on multidimensional aspects of the sector such as access and efficiency of both the financial institutions and financial markets. It is also worth noting that remittance inflows in African regions are under-documented due to the high level of the shadow economy. The study suggests that the African government should formulate policies encouraging African migrants to pass through formal channels when remitting for the benefits of the financial sector and the economy in general. The policy should also encourage remittance savings and their utilisation in the African productive sector.

The motivation for this study is to assess the impact of financial innovation and remittances on bank-based financial institutions’ credit performance in Bangladesh for the period 1981–2019. The study applies augmented ARDL (AARDL) and nonlinear ARDL (NARDL) to identify both long-run and short-run effects and directional causality by performing non-granger casualty tests. AARDL confirms the presence of a long-run association between financial innovation, remittance, trade openness, FDI, and credit performance, which is measured by non-performing loans. In the long run, financial innovation and FDI volatility expose a positive link with NPLs, but remittance inflows and trade openness establish a negative association. Asymmetry shocks in financial innovation reveal a positive relationship with credit performance. In contrast, the asymmetric shock of remittance and trade openness unveil a negative tie to credit performance, especially in the long run. Furthermore, directional causality provides evidence to support a feedback hypothesis explaining causality between financial innovation and credit performance, as well as remittance inflows and credit performance. These findings suggest that credit performance is guided by future development in remittances and financial innovation; thus, closer attention from policymakers and financial experts is persistent to capitalize or mitigate the impact of the financial system.

PurposeThe purpose of this paper is to examine the impacts of international remittances on financial development in developing countries.Design/methodology/approachThe focus is on a panel of 124 developing countries for the period 1990–2015. The empirical evidence is based on the instrumental variable-fixed effect model.FindingsResults obtained in this study indicate that a 10 percent increase in the remittance to GDP ratio leads to 1.7 percent increase in domestic credit to private sector, 1.9 percent increase in bank credit, 1.2 percent increase in bank deposit, and 0.8 percent increase in liquid liabilities. The positive impact of remittances on financial development in developing countries is particularly important because financial development fosters long-run growth and reduces poverty.Originality/valueTo address the endogeneity of remittances, the study estimates bilateral remittances and use them to create weighted gross national income per capita and real interest rates of remittance-sending countries. To the best of the author’s knowledge, this is the first study to assess the endogeneity of remittances in this way.

Money Service Businesses provide people and institutions with a way to send money (remit) from one place to another. This service is most often associated with migrants, who typically wish to send money or value home. Remittances can be sent both on a domestic and on a cross-border basis. The methods used to remit money or value can be used for both legitimate and illegal purposes. The question posed by this research is whether the Money Service Businesses that operate in South Africa and provide crossborder remittance services are adequately regulated, to ensure that it is not used for the purposes of money laundering and/or terror financing. Copyright
Dissertation (MPhil)--University of Pretoria, 2010.
Accounting
unrestricted

Over the last decade, a new trend of Global Remittances has emerged within the international development community, especially a growing interest in women’s migration and remittances, and their potential for poverty reduction and economic growth. Due to the staggering amount of transnational money transfers, migrant remittances have become a central component in multilateral discussions on alternative development financing, and has been included in the Sustainable Development Goals (SDGs). The present study thus explores the multiple ways in which this gendered migration-remittance-development nexus has come to play out the recent years, seeking to understand how the “banking the unbanked” logic along with microfinance profit-making agendas serves neoliberal governmental and infrastructural discursive formations of transnational migration and its development impact. By using a decolonial approach, the study uses critical discourse analysis to scrutinize selected multilateral actors’ policy documents to explore in what ways migrant women’s “financial inclusion, independence and economic empowerment” have been included in the goals and targets within the 2030 Agenda. The main finding is that the rights-based approach towards migrants in the sustainability discourse rather tends to dismantle migrant agency into monetary practices which have come to be an important means for the financialization of migrant and non-migrant communities as well as for the transmittance of western knowledge doctrines, and in turn, are to prolong regimes of “modern slavery.”

Questo studio è sostanzialmente suddiviso in due documenti di ricerca completamente sviluppati. Il primo capitolo ha esaminato l'impatto delle rimesse sulla disuguaglianza nell'accesso ai servizi finanziari nei paesi in via di sviluppo. Il set di dati per lo studio è stato costruito da diverse fonti, tra cui Global Findex, World Development Indicators, World Bank, FMI, The Worldwide Governance Indicators e il dataset delle Nazioni Unite sulla migrazione bilaterale. Pertanto, lo studio ha combinato fonti di dati di livello micro con informazioni di livello macro nell'analisi. Sulla base della disponibilità dei dati, lo studio ha coperto 102 paesi in via di sviluppo per tre anni, vale a dire 2011, 2014 e 2017. Lo studio ha utilizzato tecniche a effetti fissi con e senza variabili strumentali e, a scopo di robustezza, sono state utilizzate nell'analisi diverse definizioni di rimesse. Uno dei risultati chiave è che, sebbene non vi siano prove che le rimesse riducano la variazione complessiva nell'inclusione finanziaria nei paesi in via di sviluppo, riducono significativamente il divario di genere nell'inclusione finanziaria. Sulla base di tali risultati, lo studio ha formulato raccomandazioni politiche appropriate. Il secondo capitolo è uno studio specifico per paese incentrato sul Ghana. Il capitolo ha esaminato l'impatto dell'inclusione finanziaria sul benessere delle famiglie in Ghana, concentrandosi in particolare su come l'inclusione finanziaria influenzi il comportamento di spesa delle famiglie. Lo studio ha utilizzato il set di dati più recente del Ghana Living Standard Survey (ovvero GLSS 7), che è stato raccolto nel 2016/2017. L'analisi è suddivisa in due parti: in primo luogo, è stato studiato l'impatto dell'inclusione finanziaria sul livello di spesa delle famiglie utilizzando la tecnica del propensity score matching (PSM). In secondo luogo, è stato esaminato anche l'impatto dell'inclusione finanziaria sulle quote di bilancio della spesa delle famiglie impiegando un approccio variabile strumentale e PSM per la robustezza. Ognuna di queste due analisi è stata ulteriormente condotta suddividendo il campione complessivo in sottocampioni, in cui è stato esaminato l'effetto dell'inclusione finanziaria sulle famiglie con capofamiglia femminile e sui loro omologhi maschili, e anche l'effetto sulle famiglie rurali e sulle loro controparti urbane. Alcuni dei principali risultati dello studio includono: (1) sia le quote di budget che le analisi del livello di spesa mostrano una relazione inversa tra l'inclusione finanziaria e il consumo alimentare delle famiglie (2) i due risultati mostrano anche che l'effetto dell'inclusione finanziaria è più forte effetti positivi sugli investimenti nell'istruzione per le famiglie con capofamiglia maschile rispetto alle controparti femminili, mentre anche le controparti femminili spendono di più per investimenti in abitazioni e beni di consumo durevoli; (3) È stato anche riscontrato che le famiglie rurali incluse finanziariamente deviano risorse dal consumo di cibo, beni di tentazione e altre categorie di beni agli investimenti in istruzione, alloggio e beni di consumo durevoli in base al risultato delle quote di bilancio. Sulla base dei risultati emersi sono state fornite adeguate raccomandazioni politiche.
This study is broadly divided into two fully developed research papers. The first chapter examined the impact of remittances on inequality in access to financial services in developing countries. The dataset for the study was built from several sources, including Global Findex, World Development Indicators, World Bank, IMF, The Worldwide Governance Indicators and United Nations dataset on bilateral migration. Thus, the study combined micro-level data sources with macro-level information in the analysis. Based on data availability, the study covered 102 developing countries for three years, namely 2011, 2014 and 2017. The study employed fixed effects techniques with and without instrumental variables, and for robustness purpose different definitions of remittances were used in the analysis. One of the key findings is that while there is no evidence that remittances reduce overall variation in financial inclusion in developing countries, they significantly reduce the gender gap in financial inclusion. Based on such findings, the study made appropriate policy recommendations. The second chapter is a country specific study focused on Ghana. The chapter examined the impact of financial inclusion on household welfare in Ghana, by specifically focusing on how financial inclusion affects household expenditure behavior. The study used the most recent Ghana Living Standard Survey dataset (i.e. GLSS 7), which was collected in 2016/2017. The analysis is divided into two parts: first, the impact of financial inclusion on the level of household expenditure was investigated using propensity score matching (PSM) technique. Second, the impact of financial inclusion on household expenditure budget shares was also examined by employing an instrumental variable approach and PSM for robustness. Each of these two analyses were further performed by dividing the overall sample into subsamples, where the effect of financial inclusion on female-headed households and their male-counterparts was examined, and the effect on rural households and their urban counterparts was also investigated. Some of the major findings from the study include: (1) both the budget shares and the level of expenditure analyses show an inverse relationship between financial inclusion and household food consumption (2) the two results also show that the effect of financial inclusion yields stronger positive effects on investment in education for male-headed households compared to their female counterparts, while their female counterparts also spend more on investment in housing and consumer durables; (3) financially included rural households were also found to divert resources away from food consumption, temptation goods and the other goods category to investment in education, housing and consumer durables according to the budget shares result. Appropriate policy recommendations were provided based on the findings that emerged.

There is a constant need to seek new catalysts for economic growth in various regions of the world, particularly within Sub-Saharan Africa. Financial development and remittances could be potential catalysts, but this has been strongly debated in empirical research. This study, therefore, analysed the financial development-remittance-growth nexus, but from the context of the Southern African Development Community from 2004 to 2014. The aim of this study was two-fold. Firstly, it analysed the short-run dynamics of interaction between various aspects of financial development and remittances on the economic growth rate (real gross domestic product). Secondly, it analysed the long-run dynamics. In this study four broad institutional channels of financial development were analysed, namely, access, depth, efficiency, and stability. The empirical model was estimated using the two-stage least-squares technique and the two-step system generalised method of moments technique. The empirical findings showed a significant relationship with the interaction between financial efficiency and remittances on the economic growth rate, but only in the short run (ceteris paribus). However, this study could not establish whether this interaction had a positive or negative effect on the economic growth rate. Nonetheless, financial access and financial stability had a significantly negative effect on the economic growth rate, both in the short and long run (ceteris paribus). Remittances and foreign direct investments generally had an insignificant effect on the economic growth rate (ceteris paribus). Further findings suggest that remittances were a-cyclical in nature. Overall, it is recommended that policy discussions analyse implications of increasing competition among financial institutions and remittance service providers to reduce intermediation costs.

Both labour migration and the associated remittances are increasing in scale and significance. As a result, they receive close attention from policy makers and international organizations. This thesis explores the issues related to the measurement of remittances, the determinants of remittances, and the impact of remittances on the financial system in the transition countries of Central and Eastern Europe and the former Soviet Union. The encompassing theme of the thesis is the empirical interplay between remittances, various economic parameters, and financial systems. The paucity of research on the role of remittances in the economies of transition countries has prevented the development of a meaningful policy response to this massive inflow of funds into the economies of these countries. This thesis contributes towards filling this gap in the research and presents four studies, which provide insights into the methodology of estimating remittances, as well as the relationships between remittances, the transaction costs associated with sending remittances, the economy, and the financial system.
Thesis (PhD Doctorate)
Doctor of Philosophy (PhD)
Griffith Busines School
Griffith Business School
Full Text

The relationship between remittances, financial development, and real growth in recent years has increasingly become a topic of interest for scholars and practitioners alike. With the ever presence of globalization, the migratory patterns have fundamentally changed. The migration of people no longer means their total isolation from their home country; but rather a new dynamic environment has emerged with the increased importance of remittances on social, economic and political transformation back in their countries of origins. In addition, the continuing development of the financial systems whether it is in the banking sector or the stock exchange has accelerated in the last few decades. It is important to point out to the accelerating trend in financial development and its impact on real growth. Equally important to highlight the extent to which the financial system influenced the remittance patterns. By looking at Egypt as the country of interest from 1977 to 2014, the thesis investigates the role and impact of financial development and remittances on GDP. Egypt is chosen as the country of interest given its status as the biggest economy in North Africa and the third largest in the continent. Additionally, it is among one of the largest recipient of remittances from its expatriate population.

Remittances (money sent home by migrants) to developing countries are estimated to have reached US$ 325 billion in 2010 (World Bank, 2011). These amounts reflect only officially recorded transfers, transferred through formal channels and calculated as the sum of three items of the Balance of Payments Statistics, namely: compensation of employees, workers’ remittances and migrants’ transfers (Salomone, 2006; Aggarwal et al. 2011). Unrecorded remittances could represent 50 to 100% of recorded flows (World Bank, 2006; Hagen-Zanker and Siegel, 2007).

Remittances are three times the size of official development assistance (ODA) and the second source of external funds after foreign direct investment (FDI) for developing countries. Given their weight in receiving countries’ economies and household livelihood in many developing countries (for instance, remittances flows represent more than 25% of Lesotho’ and Moldavia’s gross domestic product in 2008), there is increasing policy and research interest in remittances as development resource. Furthermore, unlike FDI and ODA, remittances have the particularity to be directly affected to families, even those in remote areas, where development funds don’t arrive (Shaw, 2006). The thesis addresses the relationship between microfinance and the impact remittances have on domestic investment in developing countries.

Like other sources of external finance, remittances allow the economy to invest in human and physical capital (health, education), which contribute to growth (Ziesemer, 2006; Acosta et al. 2008). However, as remittances may be either directly consumed (remittances allow households to smooth their consumption, see for instance Lucas and Stark, 1985 and Glytsos, 2005) or used to invest in physical and human capital, it appears that their impact on domestic investment is perceived to be low or limited, given the amount of money they represent each year. According to literature, this is due to the small share that is dedicated to the launch or the support of economic activities. Actually, the allocation between consumption and investment, which depends on various factors such as the level of dependence households have with remittances, the migrant gender, and the existence of a credit constraint, varies on average around 10-20% of remittances that are not directly consumed (Salomone, 2006; Sorensen, 2004; Orozco, 2004). In the thesis we focus on the share of remittances that is saved and wonder how to maximize its impact, whatever this share. We are interested in the role of microfinance institutions, as actors of the financial sector, on this issue. Actually, two recent contributions, Mundaca (2009), and Giuliano and Ruiz-Arranz (2009), stress the role of the development of the financial sector. More precisely, the thesis focuses on a set of questions or issues that may be important for the microfinance industry to consider when interested in remittances flows and the deposits they may generate.

Financial development is generally defined as “increasing efficiency of allocating financial resources and monitoring capital projects, through encouraging competition and increasing the importance of the financial system. In other words, the development is about structure, size and efficiency of a financial system” (Huang, 2006). A large line of research work provides evidence that development of a financial system is a key driver of economic growth.

King and Levine (1993) argue that greater financial development increases economic growth. Levine and Zervos (1993) shows that growth is related to stock market activity, among other variables. Levine (1999) finds a significant effect of determinants of financial intermediation on economic growth. Beck et al. (2004) find strong evidence in favor of the financial-services view which stresses that financial systems provide key financial services, crucial for firm creation, industrial expansion, and economic growth. Levine (1997), Levine et al. (2000), and Beck et al. (2000) also stress the impact of financial development on growth. There is also an empirical literature that argues that the expansion and the deepening of the financial system lead to higher investment (see for instance Rajan and Zingales, 1998; Demirgüç-Kunt and Macksimovic, 1998).

By providing financial services to people whom traditionally do not have access to financial institutions, microfinance institutions (MFIs) may contribute to increasing the size of the financial system in many developing countries. Actually, according to the CFSI’s 2011 report, the one thousand-plus MFIs that report to the Microfinance Information eXchange (MIX) have 88 million borrowers and 76 million savers. Total assets of these MFIs amount to US$ 60 billion (CFSI, 2011).

The quite recent literature on remittances, financial development and growth can be categorized under two main approaches (Brown et al. 2011). One approach explores the relationship between remittances and financial development, with a view to assessing their impact on the level of financial development in receiving countries. The underlying argument is that remittances potentially contribute to financial development through both demand- and supply- side effects: by increasing households’ demand for and use of banking services, and by increasing the availability of loanable funds to the financial sector. According to this approach which consider the direct relationship between remittances and financial development, remittances have an impact on both financial outreach and depth in receiving countries, respectively through the fostering of financial literacy among remittances receivers and through the increasing availability of funds (see for instance Gupta et al. 2009, Aggarwal et al. 2011, Brown et al. 2011).

The second approach examines the remittances – financial development relationship indirectly by investigating how the given level of financial development in a country affects the impact of remittances on growth. This growth-focused approach allows for interactions between remittances and financial development in estimating growth equations for remittances receiving countries. Within the set of studies related to this approach, two opposing positions have emerged. The first position hypothesizes that the greater availability of financial services helps channel remittances to better use, thus boosting their overall impact on growth. Remittances are seen as financial flows in search of good investment projects, and good financial institutions are needed to facilitate the channeling of remittances to such investments. In this sense, remittances and financial system are complements. This position is supported by Mundaca (2009) who find that financial intermediation increases the responsiveness of growth to remittances in Latin America and the Caribbean over the 1970-2002 period. Other few studies also argue that channeling remittances through the banking sector enhances their development impact (see for instance Hinojosa Ojeda, 2003 and Terry and Wilson, 2005).

The other position argues that remittances contribute to investment and growth by substituting for inefficiencies in credit and capital markets. Remittances provide an alternative source of funding for profitable investments by alleviating liquidity constraints. In this sense, remittances promote growth more in less financially developed countries by substituting for lack of credits from financial institutions. This hypothesis is supported by Giuliano and Ruiz-Arranz (2009) who argue that poor households use remittances to finance informal investment in poorly developed financial markets with liquidity constraints. In their study, they interact remittances with a measure of financial development in standard growth equations, for a sample of 73 countries over the 1975-2002 period. Ramirez and Sharma (2009) obtain similar results using data from 23 Latin American countries over the 1990-2005 period.

The thesis contributes to existing knowledge on this indirect, growth-focused approach. Given the two existing opposite views on remittances impact on investment and the level of financial intermediation (a high level of financial development implies a high level of financial intermediation), in the thesis we first analyze the relationship that links these variables. We then analyses questions related to microfinance institutions (MFIs), as financial intermediaries.

Our focus on microfinance is made from two different perspectives, leading to different research questions. First, from the demand or microfinance clients’ perspective, we question about the interest for them to have MFIs entering the money transfers market (through the money transfer facilities and/or financial products that may be directly linked to remittances). The underlying argument is that MFIs enter the remittances market by providing money transfer services because there is a need for such services (and for other financial services) from their (potential) clients who are remittances receivers and migrants. According to this point of view, MFIs can contribute to recycle remittances flows into the financial system by contributing to the financial inclusion of remittances receivers and migrants thanks to the supply of adapted financial products. The occurrence of this assumption can therefore be measured by considering the involvement of MFIs on the remittances market as a determinant of financial inclusion indicators. Second, from the supply or MFIs’ perspective, we question about the rationale for MFIs to enter the remittances market. Here, the underlying argument is that MFIs are interested in operating on the remittances market because working with migrants can potentially contributes to the improvement of their financial and social performances. According to this perspective, remittances market opportunities as well as MFIs’ characteristics will determine the offer of money transfer services by MFIs. This supply approach therefore leads to the consideration of money transfers activities in MFIs as depending on remittances market opportunities and institutional variables.

Therefore, our papers related to microfinance will be articulated around these two questions (interest for clients and rationale for MFIs to have MFIs operating on the money transfers industry) by focusing, as argued earlier, on the deposits resulting from remittances flows.

As a matter of facts, by studying the relationship between microfinance and remittances respectively through the demand and the supply perspective, we raise causality issues related to MFIs’ money transfer activities and their impacts on MFIs performances. Actually, MFIs’ characteristics such as the right to collect public savings, as a potential source of efficiency gains, may significantly determine the supply of a money transfer service (MFIs’ perspective), while a money transfer service may itself be the determinant of some MFIs’ performance indicators related to financial inclusion, such as the volume of deposits made by clients (demand approach). However, given currently existing data on MFIs’ involvement on the remittances market we cannot consider simultaneously both perspectives in order to implement causality treatment techniques. Actually, the indicator of MFIs’ involvement we will use in our regressions is time invariant, therefore we are not able to build instrumental variables for instance (such as lagged values of our variable of interest) to eliminate econometric issues in our regressions. Nevertheless, through these two approaches taken separately, we contribute to some extend to the knowledge by putting in perspective different issues at stake for the microfinance industry.

Before we tackle our research questions we have an introductory chapter related to remittances flows: what are their trends, determinants and characteristics? The chapter also includes the definition of money transfer activities that we will use in the thesis, as well as an overview of MFIs’ involvement on the money transfers market.

Then, our research framework is divided into 4 sub-questions. The first one, treated in Chapter 2, is about the relationship between our variables of interest. What is the impact of the financial sector development (FSD) on the remittances’ impact on investment? This chapter aims at stressing the relationship existing between financial intermediation and remittances’ impacts on investment, which motivated our focus on MFIs (as financial intermediaries between remittances and the formal economy) in the following chapters. We focus on two transaction costs that decline with FSD. The first is the “Cost of Bank Depositing”, henceforth CDEP, which measures the difficulties of savers, particularly the less well-off, of depositing their savings in the formal banking system. The second transaction cost is the “Cost of External Finance”, henceforth CEXF, which measures the marginal cost for the banking system of borrowing in global financial markets. This cost is notably associated with the robustness of the country’s financial sector. In a stylized model of the lendable funds market, we analyze how both these variables affect the marginal effect of remittances on investment. We test model’s propositions using country-level data on remittances, investment, and proxies for both CDEP and CEXF, on a sample of 100 developing countries. We perform empirical tests using both cross-section and panel-data with country fixed effects, over the period 1975-2004. The results demonstrate, theoretically and empirically, that remittances and ease of access to the banking sector act as complements to stimulate domestic investment, while remittances and external borrowing are substitutes. We find that remittances flows stimulate local investment, as a part of remittances indeed become banks’ deposits, which increases the availability of lendable funds, reduces the interest rate and stimulates investment. In terms of policy implication, results suggest that enhancing financial sector development is crucial as it allows remittances to better fuel domestic investment. This is even truer when the access to international funds is difficult or costly. Improving the financial inclusion of remittances receivers by developing domestic banks’ ability to collect their savings is then a straightforward recommendation to policymakers who want to improve remittances impact on investment.

The second question, developed in Chapter 3 is related to the demand perspective of the relationship between microfinance and remittances. We want to assess whether there is a need from remittances receivers for financial products that may be linked to remittances. We aboard this question by assessing whether the supply of MTA leads to higher volume of deposits mobilized by MFIs, meaning that MFIs actually contribute or succeed in turning remittances into deposits. Using an original database of 114 MFIs –operating in Latin America and the Caribbean (LAC), South Asia (SA), East Asia and the Pacific (EAP), and Africa–, we perform empirical tests to study whether MFIs are able to capture migrants’ savings thanks to their money transfer activity. We test the impact of money transfer activity on deposits, using the natural logarithm of deposits as explained variable. Our main result suggests that money transfer activity has a significant positive impact on savings collection. MFIs involved in the remittances market thus attract more savings than MFIs that are not involved in it, probably coming from migrants and remittances receivers who are in need of adapted financial services. This confirms the opportunity MFIs may represent as a tool or a channel to improve remittances impact on investment. In that sense, MFIs should then be encouraged to operate on the remittances market, and to design financial products dedicated to migrants and remittances receivers.

The third question, developed in Chapter 4, is related to the supply approach of the relationship between remittances and microfinance. More precisely, we try to identify factors that seem to explain the availability of such service in the scope of services provided by MFIs. In this chapter, we focus first on potential sources of efficiency gains linked to the money transfer activity as a rationale for diversification (i.e. the expansion of the offer). And second, using an original database of 435 MFIs –operating in Latin America and the Caribbean (LAC), South Asia (SA), East Asia and the Pacific (EAP), and Africa–, we perform empirical tests using cross-section over the year 2006, to identify which environmental and institutional parameters have an impact on the willingness of a MFI to provide a money transfer service. We test the impact of various variables that are related to one of the rationale for MFIs to enter the money transfer market, namely economies of scale and scope as a source of efficiency gains, on the probability to have a money transfer service provided by a given MFI. Our main result suggests that the size, as well as the fact that an MFI collects savings have a positive and significant impact on this probability, while the level of financial development negatively impact it. This confirms among other things that the ability to realize economies of scale through a potential increase of collected deposits may be a determinant of managers’ choice to diversify. Policies that contribute to reduce entry barriers in low financially developed countries should then, among other things, be encouraged to have MFIs fully playing their role of intermediaries between remittances and the (formal) economy.

The chapter 5 questions about the institutional consequences for MFIs to collect migrants’ savings. The aim of this chapter is to give an insight on the opportunity migrants’ money (including remittances) could represent for the microfinance industry as a source of stable medium- and long-term funds. It is therefore related to the supply approach and the motivation for MFIs to enter the remittances market by analyzing the impact of migrants’ deposits (which include remittances) on another potential source of efficiency gains, namely the internal capital market. Through a case study approach, this chapter is devoted to the analysis of funding risk in microfinance, comparing migrants’ and locals’ time deposits. Migrants’ time deposits are expected to be of longer term and more stable (in terms of early withdrawals) than locals’ deposits. This assumption had never been tested yet. Based on an original database of 7,828 deposit contracts issued between 2002 and 2008 by 12 village banks belonging to a major Malian rural microfinance network (PASECA-Kayes), we used the Cox proportional hazard model to identify the variables that have an impact on the probability to have early withdrawals, and the technique of re-sampling to calculate withdrawal rates and deposits at risk. Results from the Cox methodology suggest that the migration status is not a direct determinant for the probability to have an early withdrawal. However, this probability increases with the amount deposited and the term of the contract which are both higher for migrants compared to non-migrants. The re-sampling method results suggest that withdrawal rates are not the same for the two categories of depositors observed. We find higher withdrawal rate distributions for migrants than for locals. The value at risk is also higher on migrants’ deposits than on locals’ deposits. However, as migrants tend to deposit for longer term than locals, through the calculation of durations we have measured to which extend migrants’ deposits still have a positive impact on MFIs’ liabilities. It appears that migrants’ money has a marginal but positive impact on time deposits durations, either when considering early withdrawals, which impacts are very limited, except in 2007 (the worst year in terms of amount withdrawn early). As our results show that MFIs that receive migrants’ deposits are not necessarily better-off than without migrants’ money in terms of funding risk - and durations - this paper has stressed the importance of assessing more carefully the role of migrants for the microfinance industry.

Doctorat en Sciences économiques et de gestion
info:eu-repo/semantics/nonPublished

This thesis in economics includes three self-contained papers united by a common theme: the importance of economic fluctuations within and between countries for capital flows and risk sharing inside and across national borders. The first two papers study the determinants of workers’ remittances, as well as the consequences for macroeconomic volatility for the countries that receive them, using econometric methods and a general equilibrium model. The third paper studies whether two challenges to international real business cycle models, the so called ”Quantity Puzzle” and the positive relationship between financial integration and output correlations, obtain for European countries and regions. As a second step, it also investigates multilateral channels for risk sharing.
Diss. Stockholm : Handelshögskolan, 2010. Sammanfattning jämte 3 uppsatser.

AbstractRemittances connect migrants to their homelands, manifest cross-border relations, and shape the transnational social field. By doing so, they have a transformative effect on both the place of origin and the destination. Their power to change individual lives trajectories, household conditions, and community infrastructure results from structural inequality in the transnational field. Thus, while generally considered an improvement, remittances also project the global divide into personal relationships and reproduce neocolonial structures. These asymmetries are negotiated through scripts which give meaning to financial and social transactions and assign a social position to the senders and recipients. More than constituting ways of being and belonging, remittances are also ways of becoming. This chapter aims to theorize remittances by exploring the forms of social positioning that accompany remittance scripts and the making of migrant subjectivity.

The migration is one of the constitutive features of Western Balkans’ historical specificity, which significantly changed Balkan societies in the last two centuries. One crucial effect of intensive emigration is high remittances. Cross-country analyses and evidence from household surveys suggest that migration and remittances reduce poverty in the origin communities. In addition, remittances lead to increased investment in education, health, and small businesses. The diaspora can be a source of capital, investment, knowledge, and technology transfer. The inflow of remittances can contribute to the economic development of the remittance-receiving country, provided that the country can use these funds to finance investments that will enable it to produce export or investment goods to replace imports. This paper examines the impact of remittances on economic growth in the Western Balkans (North Macedonia, Serbia, Albania, Kosovo, Montenegro, and Bosnia and Herzegovina) last two decades. The relationship between economic growth, remittances, final household consumption, domestic investments, and trade is examined through a panel approach. The paper uses annual data obtained from the World Bank World Development Indicators. The results of the empirical analysis help determine the relationship between remittances and economic growth and provide a solid base for policymakers to direct remittances into productive investments. The general conclusion for the region is the need to implement policies that will strengthen the financial system to enable a more significant positive impact of remittances from migrants on economic growth.

The significance of sustainability has been increasing and also financial organizations adopted a broad view of their purposes to serve all stakeholders. It is important to respond to their social impact. The purpose to empower the digital economy can be achieved through being reliable and enhancing access to financial services to include everyone in the digital economy while cash is used less frequently. The digital transformation can have the potential for expanding access of disadvantaged or unbanked groups to financial services and reduce poverty. Financial inclusion aims at integrating economic agents into the financial system in order to improve economic development but also quality of life. Financial inclusion through digitalization enables accessible and available financial services to people and companies and hence, facilitates to implementation of Sustainable Development Goals. This paper explores the relationship between digitalization, financial inclusion, poverty and sustainability for Balkan countries. It discusses the potential of financial inclusion for economic development. The paper concludes that digitalization improves accessibility to financial services and contributes to the accomplishment of Sustainable Development Goals. In addition, Remittance inflow, globalization and compliance with the law (measured as role of law index) decreasing poverty in these countries.

This paper examines the impact of remittances on income inequality measured through Gini index, particularly, during the adverse external shocks, global financial crisis of 2008 and global pandemic crisis of Covid -19, in Western Balkan countries. Data highlight the fragile economic progress of these countries through fostering the income inequality during the long transition. However, migrants’ remittances sustained to remain a significant source of foreign income in Western Balkan countries. The empirical results demonstrated a U-shape relationship between remittances and inequality related to Western Balkan countries, thus remittances have contributed on increased inequality. Meanwhile, the linear relationship amongst remittances and inequality demonstrated the negative impact of remittances towards inequality. Additionally, we found that remittances reduced significantly the inequality during pandemic crisis of Covid-19, serving as a shock absorber during adverse shock, but the remittances demonstrated the non – significant and positive impact on inequality during recent global financial crisis. We suggest that the policy makers should adopt regarding effective income distribution to reduce income inequality

Foreign direct investment (FDI) and remittances entering an economy often play a very important role in the development and growth of economies year after year. Especially for economies with similar typolo­gies and characteristics like that of Albania, both of these elements promote economic development and serve as financial incentives. This paper aims to assess the contribution of remittances and foreign direct investment in the Albanian economy in the last three decades, through a multifactorial econometric model. The model uses three endogenous variables, the val­ue of remittances, the value of a foreign direct investment and the value of gross domestic product for the time series 1992 - 2019. As it results from the analysis of the econometric model, both remittances and foreign direct in­vestment payments have a positive impact on economic growth and the value of gross domestic product. It is also evident that remittances are the ones that affect the gross domestic product more compared to foreign di­rect investment.

Today, the inflow of foreign remittances is an important development factor associated with migration processes. At the same time, also a factor that has proven to be more resistant to global economic adversities than the inflow of foreign direct investment (FDI) or the inflow of overseas development aid (ODA). Foreign remittances in recent years have exceeded global amounts of FDI and become the prevalent basis of external financing in low- and middle-income countries. What is interesting to point out is that Croatia, as a developed country, continuously records a higher level of inflows of foreign remittances compared to the inflow of FDI. Both foreign remittances and FDI are today an important source of external financing for many countries. The fact is that Croatia is the most dependent on remittances compared to other EU member states; the share of foreign remittances in GDP at the EU level is 0.8%, while at the Croatian level it is 6.6%. In this research, the author's goal is to determine whether there is a causal relationship between FDI and foreign remittances in Croatia. The direction of causality between the two observed variables will be examined using the Granger causality test. The research will cover the time period from 2000(1) to 2022(01). Considering the significance that both observed variables have in the Croatian economy, it is expected that the research results will have important political implications.

În prezent, practic toate ţările lumii sunt implicate în procesul complex al migraţiei externe a forței de muncă, integrându-se în tabloul general al acestui circuit în funcție de rolul pe care îl dețin (ţări de destinaţie, ţări de origine, țări de tranzit). Cel mai vizibil efect al migrației dar și cel mai controversat, sunt transferurile de mijloace banesti ale migrantilor. Amploarea pe care acestea au căpătat-o de-a lungul timpului, a sporit treptat interesul asupra modului în care fluxurile financiare pot fi atrase în circuitul economic al statelor. Contextul actual al pandemiei de COVID-19 și restricțiile de circulație au adus însă un dezechilibru al fenomenului migrator: odată cu reducerea migrației noi și accentuarea migrației de reîntoarcere, numărul migranților capabili să se adapteze provocărilor economice din țările de destinație și să continue să trimită remitențe în țările de origine este și va continua să fie afectat în perioada următoare. În acest sens, se conturează necesitatea stimulării inovației în vederea facilitării tranzacțiilor financiare transfrontaliere și identificării unor noi opțiuni de transfer ce permit accesul universal la servicii sigure și ieftine.

Remittances from overseas can encourage human capital investment, but empirical studies have shown mixed evidence. This paper uses a 5-year panel dataset in the Kyrgyz Republic to examine the impact of remittances on the human capital formation of school-age children. After correcting for endogeneities with instrumental variables, the study finds that remittances have negative impacts on educational achievement. Extended hours of farm labor by children and increased expenditure on durable goods are identified among recipient households. To mitigate negative effects of remittances on children’s learning, the findings call for actions such as financial literacy education and better monitoring of farm labor hours of school-age children.

Interconnecting, compounding and protracted crises affect a growing number of countries. Globally, 1.5 billion people – one in five of the world’s population – live in fragile and conflict affected situations (FCAS), yet financing to key sectors is not keeping pace with need. Regular social protection financing and programme coverage in FCAS are far below the global average, and levels of financing to humanitarian assistance, while growing in overall terms in the past decade, have remained static when compared to levels of need. Risk and climate finance face a series of barriers to their application in FCAS, where the potential for ‘non-traditional’ financial sources – such as remittances – to connect the most vulnerable to social protection have traditionally been underexplored. The Covid-19 pandemic has again exposed these fault lines and highlighted the need both for more investment in regular social protection systems and programmes, and for more ‘shock-responsive’ forms of support that can scale flexibly when faced with a diversity of risk factors. This paper provides a summary of the main trends and issues regarding both regular and risk financing in FCAS. It considers the main lessons observed in financing social assistance in FCAS and provides reflections on further avenues of research for the Better Assistance in Crises (BASIC) Research programme. It identifies useful examples now emerging from countries developing risk-informed programmes for the most vulnerable, but argues that a lack of comparable data is hampering research and learning, requiring more detailed in-country engagement. The paper notes that answers to a range of political economy questions are needed. This is both to make risk-aware financing, policymaking and programming more effective in FCAS; and to strike a balance between financial instrument requirements on the one hand, and programmatic and institutional capacity on the other. Likewise, new forms of risk ownership and client-facing accountability are needed to reframe the financing landscape and its applicability to FCAS.

This paper examines how rural households cope with climate change related rainfall shocks by re-allocating childrens time between domestic activities and school attendance. Households affected by an unanticipated rainfall shock face an inter-temporal trade-off between current household income and future potential earnings. Financial inclusion may mitigate or exacerbate the human capital impacts of rainfall shocks depending on whether it relaxes or constrains household budgets. The data come from a three-round panel household survey in rural Colombia collected between 2010-2016. The main findings are that rainfall shocks induce households to choose immediate benefits over long-run investments in education by increasing the incidence of child labor and household chores at the expense of school attendance. Over-indebtedness through pre-existing formal loans reinforces the likelihood that a child works due to rainfall shocks, whereas asset insurance, foreign remittances, and natural disaster aid mitigate or eliminate the shock-induced shift toward domestic activities and away from schooling.

The growing scope, frequency, and complexity of forced displacement, both inside and outside of countries, has pushed donors and other development groups to rethink their approaches to humanitarian crises, particularly on refugee response. Financial inclusion is widely regarded as a particularly critical tool that development organisations can employ to mitigate the catastrophic impact of humanitarian crises on refugees. Financial inclusion would provide a wide range of financial products – such as savings, remittances, loans, and insurance – to both refugees and citizens of host countries, which are critical for disadvantaged populations seeking to mitigate shocks, acquire assets, and support local economic development. Changes in how humanitarian aid is distributed are opening the path for greater financial inclusion. Donors and humanitarian organisations are shifting away from emergency cash transfers and toward digital payments via electronic cards. This opens new opportunities to connect refugees and displaced people to a bigger pool of financial services. This rapid literature review summarises the available evidence on toolkits that assist the response by humanitarian and development agencies to financial inclusion of refugees. In addition to the documents defined explicitly as “toolkits”, it also includes reports and online articles which contain useful guidance, since there were few “toolkits” available. Generally, there is lack of resources that directly address the query, i.e., “financial inclusion” in a “refugee response” context. Although there is a growing literature and evidence on the financial inclusion theme, much of it does not directly relate to refugees. Furthermore, most guidance notes and toolkits prepared for refugee response by humanitarian/development agencies do not directly and explicitly deal with financial inclusion, but rather focus on operational and programming issues of wider relief responses. The review is presented as an annotated bibliography format and includes toolkits, guidance notes, technical reports, and online articles by humanitarian and international development agencies.

Digital financial inclusion is important to achieving the Sustainable Development Goals. Digital financial tools, such as mobile money, can, in principle, be used by anyone with a cell phone. Mobile money and services surrounding mobile money can help reduce poverty by helping increase remittances from labour migrants, helping households to weather negative shocks to income, and encouraging investments such as in farms or in self-employment activities. An extension of this logic is that, in refugee hosting areas, digital financial inclusion through mobile money can potentially play a role in improving the economic inclusion of refugees. This evidence brief shares findings from a project developing a mobile money system in the Somali region of Ethiopia and discusses ways that policies can help catalyse the use of mobile money in such regions.

This rapid review synthesises the literature from academic sources, knowledge institutions, non-governmental organisations (NGOs), and trusted independent media outlets on the challenges small island development states (SIDS) face when they lose correspondent banking relationships (CBRs). The rapid review concludes that, although the loss of CBRs is a global phenomenon, regions with SIDS, such as the Pacific and Caribbean, have seen the highest rates of withdrawals. During the last decade, local and regional banks in SIDS have lost and continue to lose bank accounts at large global banks to a critical level, sometimes having only one or none CBRs with banks in major economies, such as the Unites States, the United Kingdom, the European Union or Australia. This means that local banks have reduced access to financial services related to cross-border financial transactions, impacting on remittances and trade finance.

In Colombia, as well as in the rest of the world, the Covid-19 pandemic has seriously damaged the health and well-being of the people. In order to limit the damage, local and national authorities have had to order large sectors of the population to be confined at their homes for long periods of time. An inevitable consequence of isolation has been the collapse of economic activity, expenditure, and employment, a phenomenon that has hit many countries of the world affected by the disease. It is an unprecedented crisis in modern times, not so much for its intensity (which is undoubtedly immense), but because its origin is not economic. That is what makes it so unpredictable and difficult to manage. Naturally, its economic consequences are enormous. Governments and central banks from all over the world are struggling to mitigate them, but the final solution is not in the hands of the economic authorities. Only science can provide a way out. In the meantime, the economic indicators in Colombia and in the rest of the world cause concern. The output falls, the massive loss of jobs, and the closure of businesses of all sizes have become daily news. Added to this, there is the deterioration in global financial conditions and the increase in the risk indicators. Financial volatility has increased and stock indexes have fallen. In the face of the lower global demand, export prices of raw materials have fallen, affecting the terms of trade for producing countries. Workers’ remittances have declined due to the increase of unemployment in developed countries. This crisis has also generated a strong reduction of global trade of goods and services, and effects on the global value chains. Central banks around the world have reacted decisively and quickly with strong liquidity injections and significant cuts to their interest rates. By mid-July, such determined response had succeeded to revert much of the initial deterioration in global financial conditions. The stock exchanges stopped their fall, and showed significant recovery in several countries. Risk premia, which at the beginning of the crisis took an unusual leap, recorded substantial corrections. Something similar happened with the volatility indexes of global financial markets, which exhibited significant improvement. Flexibilization of confinement measures in some economies, broad global liquidity, and fiscal policy measures have also contributed to improve global external financial conditions, albeit with indicators that still do not return to their pre-Covid levels.

This dataset constitutes a panel follow-up to the 2016/2017 Suriname Survey of Living Conditions. It measures welfare related variables before and after the onset of the COVID-19 pandemic including labor market outcomes, financial literacy, and food security. The survey was executed in August 2020. The Suriname COVID-19 Survey is a project of the Inter-American Development Bank (IDB). It collected data on critical socioeconomic topics in the context of the COVID-19 pandemic to support policymaking and help mitigate the crisis impacts on the populations welfare. The survey recontacted households interviewed in 2016/2017 by the Suriname Survey of Living Conditions (SSLC) and was conducted by phone due to the mobility restrictions and social distancing measures in place. It interviewed 1,016 households during August 2020 and gathered information about disease transmission, household finances, labor, income, remittances, spending, and social protection programs. Data and documentation of the 2016/2017 Suriname Survey of Living Conditions can be found at: https://publications.iadb.org/en/suriname-survey-living-conditions-2016-2017 The survey was designed and implemented by Sistemas Integrales. This publication describes the main methodological aspects, such as sample design, estimation procedures, topics covered by the questionnaire, field organization and quality control. It also presents the structure and codebook for the two resulting publicly available datasets.

The Covid-19 crisis led multilateral and bilateral donors to revise their funding strategies to respond to the crisis and to adapt existing programming to the new context it created. This resulted in changes to overall allocations, with some countries increasing aid commitments and institutions like the World Bank scaling up lending to low- and middle-income countries while others have cut aid budgets due to low economic growth and demands on domestic resources at home. Changes in aid volumes and disbursal mechanisms are anticipated to have significant impacts on low- and middle-income countries’ abilities to cope with the crisis in the short term, and the targeting of these investments are likely to have a lingering effect on recoveries for years to come. Although aid makes up a small proportion of countries’ available finance to tackle the Covid-19 crisis, “other financing options such as foreign direct investment, workers’ remittances, and taxes – have fallen and are slow to recover” (Prizzon, 2021). Aid finance will therefore be critical to many countries’ short-term responses to Covid-19 and capacities to abate longer-term negative impacts on social and economic outcomes as countries begin to recover. This report gives a broad overview of trends in bilateral, multilateral, and private foundations’ funding strategies over the course of the pandemic to highlight observable shifts in practice. The review is based on a rapid search of funding announcements from a selection of bilateral donors, a selection of multilateral institutions, and overall trends reported by foundations. The report also includes evidence reported by secondary literature on finance for development over the course of the Covid-19 crisis.