World Bank calls for payments deregulation to boost remittance flows

World Bank calls for payments deregulation to boost remittance flows

Remittance flows to the developing world are expected to total $406 billion this year, says the World Bank, but the promise of mobile remittances has yet to be fulfilled.

The growth in remittance flows exceeds earlier estimates, says the World Bank, rising by 6.5% over the previous year.

Further growth is expected in the coming year, with remittances to developing countries projected to rise by 7.9% in 2013, 10.1% in 2014 and 10.7% in 2015 to reach $534 billion in 2015.

The World Bank brief also notes that the promise of mobile remittances has yet to be fulfilled, despite the skyrocketing use of mobile telephones throughout the developing world.

Mobile remittances fall in the regulatory void between financial and telecom regulations, says the World Bank, with many central banks prohibiting non-bank entities to conduct financial services.

"Central banks and telecommunication authorities, thus, need to come together to craft rules relating to mobile remittances," states the report.

The top recipients of officially recorded remittances for 2012 are India ($70 billion), China ($66 billion), the Philippines and Mexico ($24 billion each), and Nigeria ($21 billion). Other large recipients include Egypt, Pakistan, Bangladesh, Vietnam, and Lebanon.

Dilip Ratha, manager of the World Bank's migration and remittances unit, comments: "The global community has made progress in three out of four areas of the global remittances agenda - data, remittance costs, and leveraging remittances for capital market access for countries. Progress, however, has been slow in the area of linking remittances to financial access for the poor. There is great potential for developing remittance-linked micro-saving and micro-insurance schemes and for small and medium enterprise (SME) financing."

Comments: (2)

Christopher Williams
Christopher Williams - RTpay - Winchester Uk 25 November, 2012, 14:45Be the first to give this comment the thumbs up 0 likes

Clearly there is enormous scope for mobile remittances, but with the opportunity comes risk. My belief is that central banks can best ensure this market is developed securely by having all such payments made through a central clearing structure, where real time fraud analysis takes place. This is also a good point to control the FX rate margin and all fees, to avoid rip-offs.

A Finextra member
A Finextra member 26 November, 2012, 13:48Be the first to give this comment the thumbs up 0 likes

It is important that these payments be subject to full anti-money laundering and anti-terrorist financing checks as a sine qua non. But the interests of the sender country do not stop there. Just like EU governments are looking askance at the business structures of the Googles and Starbucks of this world and why they pay little tax, so is it also legitimate for these same sender countries to examine Remittance payments and determine that the right amount of income tax and social contributions have been deducted at source, before the remitting individual is allowed to send  money out of the country.

US$406 billion compares, for example, to the UK's public sector borrowing of £120 billion. Remitting individuals rarely bring capital in with them, and yet they are entitled to access to public services, and their ability to earn at all is predicated on the existence of a public infrastructure to which they have made no contribution.

It is grossly unfair to resident taxpayers whose money stays in the country (often to be taxed over and over again) if remitting individuals are permitted to send money away without adequate checks that they have made their obligatory contribution to the public services and infrastructure of the country in which the remittance has been earned.

Solution: the EU should introduce exchange control for payments that are leg-out, whilst abolishing central bank reporting for all leg-in ones. A remitting individual should produce an employer's payslip at the bank to show they have had the statutory deductions made.