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Facilitating the flow of remittances

Remittances are multidirectional, voluntary, and private international monetary transfers from migrants to their families and contacts in their countries of origin. In the Monterrey Consensus, reference was made to reducing the costs associated with transferring remittances, the issue was elaborated further in the Doha Declaration. In 2009, the G20 committed to reduce the cost of remittances by 5 percentage points in 5 years. The Addis Ababa Action Agenda and 2030 Agenda have taken this a step further in committing to reduce the average transaction cost of migrant remittances by 2030 to less than 3 per cent of the amount transferred and to ensure that no remittance corridor charges higher than 5 per cent by 2030, mindful of the need to maintain adequate service coverage. The Addis Agenda also emphasizes the role inclusive finance can play in intermediating remittances, thus enhancing their impact on the local economy, and commits to remove obstacles for non-bank remittance providers, exploit new technologies and improve data collection.

Volume of remittances

The World Bank estimates that remittance flows to developing countries are projected to reach $596 billion in 2017, up from $573.6 billion in 2016, following a decline in 2015 and 2016 generally following global growth trend. The level of official international remittances has grown sharply since 2000 when it totalled around $127 billion. In some cases, earnings remitted by international migrants constitute a significant portion of a country’s GDP - e.g. 37.1 per cent for Kyrgyz Republic, 31.2 per cent for Haiti, 28 per cent for Tajikistan, 27.2 per cent for Nepal and 25.9 per cent for Liberia (2017 World Bank estimates). Middle-income countries receive, by a large margin, the lion’s share of all remittances. As shown in the figure, although personal remittances received in middle-income countries and LDCs showed upward trends overall, the amount middle-income countries received decreased to $387 billion in 2016, a 4.6 per cent decline compared to the previous year, while the amount LDCs received dropped 2.6 per cent to $37 billion.

The top recipient of migrant remittances in 2017 is expected to be India ($65.4 billion), increased of 4.3 per cent over $62.7 billion in 2016.


Cost of remittances

There has been a sustained downward trend in the average cost of sending remittances since 2011. The global average cost of sending the equivalent of $200 – as monitored by the World Bank through Remittance Prices Worldwide (RPW) – was 7.09 per cent in the end of 2017, decreased from 7.4 per cent in 2016. Over the last four quarters the average cost has fluctuated between 7.45 and 7.09, having fallen below 8 per cent for the first time in 2014.

De-risking and correspondent banking

De-risking is the phenomenon of financial institutions terminating or restricting business relationships with clients or categories of clients to avoid, rather than manage, risk. There has been an increase in de-risking, in part due to anti-money laundering (AML) and counter-terrorist financing (CFT) measures, which has affected correspondent banking services and impacted the flow of remittances. According to the World Bank, 28 per cent money transfer operators (MTOs) principal and 45 per cent of agents can no longer access banking services, though it hits individual countries, regions and financial services in varying degrees. See Report on the G20 Survey on De-risking Activities in the Remittance Market for more information.

Correspondent banking, through which one financial institution provides services on behalf of another financial institution, facilitates cross-border flow of goods and services, and connects banks and their customers around the world. However, regulations and policies to address money laundering and financing of terrorism, have led to some banks choosing to “de-risk” their business by exiting correspondent banking in certain markets, which has led to a decline financial services, with significant implications for financial inclusion and the transfer of remittances.

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In November 2015 the FSB announced a four-point action plan to address the decline in correspondent banking relationships, coordinating with the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the Financial Action Task Force on Money Laundering (FATF), IMF, World Bank, FSB member authorities and FSB Regional Consultative Groups, including: (i) further examining the dimensions of the decline in correspondent banking and implications for financial inclusion and financial stability; (ii) clarifying regulatory expectations, including through more guidance by the FATF; (iii) supporting domestic capacity-building in jurisdictions that are home to affected respondent banks; and (iv) strengthening tools for due diligence by correspondent banks (see FDB report for more information).

In September 2016, the Financial Stability Board (FSB), as part of its coordinated action plan to assess and address the decline in correspondent banking, initiated a survey of over 300 banks to assess the scale of withdrawal from correspondent banking, and its causes and effects. The survey includes a question on whether banks have terminated correspondent banking services with a money transfer operator or other remittance company or payment service provider (among other categories of bank customers) and the reason for such termination. A progress report on the work of the CBCG was published in advance of the G20 Leaders’ Summit in Hamburg in July 2017. The FSB and SWIFT set out a process for ongoing monitoring of trends in correspondent banking.