How can remittances keep flowing globally?

October 7, 2021
Money Remittance

In 2019, remittances surpassed foreign direct investment (FDI) flows to low- and middle-income nations, reaching a new high of $554 billion (LMICs). Remittances in India, oil exports in Mexico, and tourism in Egypt, Nepal, and Tunisia have all been greater and more steady than FDI. However, the economic crisis brought on by the COVID-19 pandemic in 2020 is predicted to result in a 20% drop in migrant remittances to LMICs. 

Poorer countries, as well as unstable and conflict-affected countries, would see a greater drop in remittance flows.

According to the World Bank, LMICs might see a drop in remittance flows of over $100 billion, on top of a forecast drop in FDI flows of $200 billion (37 percent) in 2020. The overall reduction in external funding, particularly the considerable drop in portfolio investment, may make it difficult for countries to manage their external payment demands, such as vital imports and foreign debt payments. 

The likelihood of households reverting to poverty and food insecurity has increased, with the World Bank estimating that 40 million to 60 million people might be driven into extreme poverty.

Several countries and organizations include Switzerland and the United Kingdom, as well as Ecuador, Egypt, El Salvador, Jamaica, Jordan, Mexico, Nigeria, Pakistan, Sierra Leone, Yemen, and Zimbabwe as well as the Africa-Europe Diaspora Development Platform (ADEPT). 

The International Association of Money Transfer Networks, the International Chamber of Commerce, the International Organization for Migration, and the Migrant Forum have participated. They have urged authorities to designate remittance services vital and to make digital remittance routes more accessible.

In Asian Remittance Country


When it comes to remittances, the Philippines has a relatively open regulatory framework. Non-banks can simply obtain a wallet license by registering as a firm engaged in the electronic money sector. Mobile wallets are also authorized to perform international transfers by non-banks.


Non-banks are permitted to provide remittances and mobile money services. For remittance licensing, a minimum paid-up capital of MYR 2,000,000 is required (approximately USD 500,000).


International money transfer restrictions in the country are extensive and transparent. By establishing as a local corporation, non-banks can readily enter the remittance market. Remittances via mobile wallets are also permitted.


International remittances and mobile money transactions are only possible through banks. For remittance disbursement, non-banks can only work with banks. Banks, on the other hand, have the ability to choose network agents, and no special license is required to function as a bank agent.


Non-banks in the Kingdom of Saudi Arabia (KSA) can apply for a remittance license with a minimum paid-up capital of SAR 500,000. (Approximately USD 134,000). Only banks are permitted to provide e-money services in the country, according to the country’s international money transfer legislation.


Remittance is a bank-driven sector in China. Non-banks can only function as overseas principals; for remittance disbursements, they must partner with a bank. Non-banks, on the other hand, can obtain an e-money license to conduct person-to-person payments (P2P transfers) using mobile phones.

Regulations on remittance

The international transmission of money, like any other industry, is governed by a set of rules. When it comes to operations and innovation in the global remittance sector, remittance rules are extremely important. Remittance restrictions are the backbone of international money transfers in more ways than one.

Money transfer companies must conform their operations to the regulations of the locations in which they operate. Expansion or opening a new business in a new country is frequently regarded as a difficult endeavor, as each country has its own set of international money transfer restrictions.

Following are a few actionable strategies to keep remittances and development financing flowing, based on our previous work:

  1. A tax credit equal to the reduction in fees paid by remittance senders and recipients could be granted to remittance service providers. Pakistan’s Remittance Initiative, which was established in 2009 in response to the global financial crisis, has achieved this. Taxes on remittances, on the other hand, should be avoided by both source and destination countries.
  1. Increase the remittances industry’s market competition. Exclusive partnerships exist in many nations around the world, stifling market competition and imposing a de facto tax on remittance senders and recipients. National post offices, banks, and money transfer companies must form partnerships. Interoperability of remittance technologies should also be encouraged in order to enhance scale and lower costs.
  1. Make use of digital technologies and enhance risk-based know-your-client (KYC) requirements. This could alleviate correspondent banks’ “de-risking” methods (designed to avoid rather than manage risks), which continue to limit access to bank accounts for money transfer companies operating in smaller and less developed remittance corridors.
  1. During this period of acute risk aversion, even investment-grade-rated firms in emerging markets are having difficulty accessing international capital markets, borrowers require innovation and credit enhancement. Institutional investors have a more favorable opinion of country risk than diasporas from many developing countries. 

The issuing of diaspora bonds can be used to mobilize the funds of such diaspora individuals, particularly those held in low-interest bank accounts. Several countries have used diaspora bonds to raise billions of dollars in funding. Nigeria recently raised $300 million using a diaspora bond.

  1. Using future flows as collateral, such as remittance inflows, can help with bond issuance during a financial crisis. Brazil generated almost $4 billion in 2002 by issuing bonds backed by varied payment rights, following a steep spike in borrowing costs. According to the World Bank, these bonds had a lower borrowing cost than Brazil’s sovereign bonds, saving more than 700 basis points.
  1. A medium-term aim is to establish a systematic, international effort to improve remittance data. Data on remittances has improved dramatically after the issuance of the IMF guidelines on remittance statistics in 2009. Many source countries, on the other hand, do not report data on outbound remittances. There is a shortage of information on bilateral remittance flows between nations, as well as flows through various channels (such as banks, money service businesses, and informal channels) and instruments (such as cash-based or online transactions).

Financial Institution Framework

Piecemeal, ad hoc, and disorganized implementation of these regulations, on the other hand, would have no substantial impact on the flow of remittances and finances. 

Working within an effective, consistent legislative and institutional framework would be excellent for executing these practical actions and the broader calls to action described above. The framework should be created with the goal of lowering remittance costs while also increasing the volume of remittance flows (both are included among the indicators for the Sustainable Development Goals).

It should also support the broader international remittances agenda, such as global remittances market innovation and using remittances to improve consumer and business lending, micro-savings and micro-insurance, country risk ratings, and access to international capital markets through securitization and diaspora bond issuance.