TEDGlobal 2014

Dilip Ratha: The hidden force in global economics: sending money home

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In 2013, international migrants sent $413 billion home to families and friends — three times more than the total of global foreign aid (about $135 billion). This money, known as remittances, makes a significant difference in the lives of those receiving it and plays a major role in the economies of many countries. Economist Dilip Ratha describes the promise of these “dollars wrapped with love” and analyzes how they are stifled by practical and regulatory obstacles.

- Remittances expert
Economist Dilip Ratha was the first to analyze the global significance of remittances -- money sent from foreign workers to their families back home. Full bio

I live in Washington, D.C.,
00:12
but I grew up in Sindhekela, a village in Orissa,
in India.
00:17
My father was a government worker.
00:24
My mother could not read or write, but she
00:28
would say to me, "A king is
worshipped only in his
00:32
own kingdom. A poet is respected everywhere."
00:38
So I wanted to be a poet when I grew up.
00:44
But I almost didn't go to college
00:47
until an aunt offered financial help.
00:52
I went to study in Sambalpur,
00:56
the largest town in the region,
00:58
where, already in college, I saw a
television for the first time.
01:02
I had dreams of going to the United States
01:09
for higher studies.
01:12
When the opportunity came,
01:14
I crossed two oceans, with borrowed money
01:16
for airfare and only a $20 bill in my pocket.
01:19
In the U.S., I worked in a research center,
01:25
part-time, while taking graduate classes in economics.
01:30
And with the little I earned, I would
01:34
finance myself and then I would send
01:40
money home to my brother and my father.
01:42
My story is not unique.
01:46
There are millions of people who migrate each year.
01:50
With the help of the family, they cross oceans,
01:54
they cross deserts, they cross
rivers, they cross mountains.
01:58
They risk their lives to realize a dream,
02:05
and that dream is as simple as having a
02:09
decent job somewhere so they can send money home
02:12
and help the family,
02:15
which has helped them before.
02:17
There are 232 million international
migrants in the world.
02:21
These are people who live in a country
02:27
other than their country of birth.
02:28
If there was a country made up of
02:31
only international migrants,
02:32
that would be larger, in population,
02:34
than Brazil.
02:36
That would be larger, in its size
02:37
of the economy, than France.
02:39
Some 180 million of them, from poor countries,
02:43
send money home regularly.
02:47
Those sums of money are called remittances.
02:50
Here is a fact that might surprise you:
02:55
413 billion dollars, 413 billion dollars
02:59
was the amount of remittances sent last year
03:04
by migrants to developing countries.
03:07
Migrants from developing countries,
03:10
money sent to developing countries —
03:11
413 billion dollars.
03:13
That's a remarkable number because
03:16
that is three times the size of
03:18
the total of development aid money.
03:19
And yet, you and I,
03:23
my colleagues in Washington,
03:27
we endlessly debate and
03:28
discuss about development aid,
03:30
while we ignore remittances as small change.
03:33
True, people send 200 dollars per month,
03:37
on average. But, repeated month after month,
03:40
by millions of people,
03:44
these sums of money add up to rivers
of foreign currency.
03:46
So India, last year, received 72
billion dollars, larger than
03:50
its IT exports.
03:55
In Egypt remittances are three times
03:58
the size of revenues from the Suez Canal.
04:01
In Tajikistan, remittances are 42 percent of GDP.
04:04
And in poorer countries, smaller
countries, fragile countries,
04:08
conflict-afflicted countries, remittances are a lifeline,
04:11
as in Somalia or in Haiti.
04:16
No wonder these flows have huge
04:20
impacts on economies and on poor people.
04:22
Remittances, unlike private investment money,
04:26
they don't flow back at the first
04:30
sign of trouble in the country.
04:33
They actually act like an insurance.
04:35
When the family is in trouble,
04:38
facing hardship, facing hard times,
04:40
remittances increase, they act like an insurance.
04:43
Migrants send more money then.
04:45
Unlike development aid money,
04:48
that must go through official agencies,
04:49
through governments, remittances
04:52
directly reach the poor,
04:55
reach the family,
04:56
and often with business advice.
04:58
So in Nepal, the share of poor
05:00
people was 42 percent in 1995,
05:04
the share of poor people in the population.
05:06
By 2005, a decade later, at a
05:09
time of political crisis, economic crisis,
05:12
the share of poor people went down to 31 percent.
05:15
That decline in poverty, most of it,
05:19
about half of it, is believed to be
05:23
because of remittances from India,
05:25
another poor country.
05:27
In El Salvador, the school dropout
05:29
rate among children is lower
05:34
in families that receive remittances.
05:37
In Mexico and Sri Lanka,
05:39
the birth weight of children is higher
05:41
among families that receive remittances.
05:45
Remittances are dollars wrapped with care.
05:50
Migrants send money home for food,
05:54
for buying necessities, for building houses,
05:57
for funding education, for funding
05:59
healthcare for the elderly, for business
06:01
investments for friends and family.
06:04
Migrants send even more money home
06:06
for special occasions like a surgery
06:09
or a wedding. And migrants also send
06:12
money, perhaps far too many times,
06:15
for unexpected funerals that
06:18
they cannot attend.
06:21
Much as these flows do all that good,
06:25
there are barriers to these
06:27
flows of remittances, these
06:29
400 billion dollars of remittances.
06:30
Foremost among them is
06:33
the exorbitant cost of sending money home.
06:35
Money transfer companies structure
06:39
their fees to milk the poor.
06:41
They will say, "Up to 500 dollars
06:45
if you want to send, we will charge you
06:48
30 dollars fixed."
06:50
If you are poor and if you have
only 200 dollars to send,
06:52
you have to pay that $30 fee.
06:55
The global average cost of sending
06:58
money is eight percent.
07:00
That means you send 100 dollars,
07:03
the family on the other side receives only
07:04
92 dollars.
07:06
To send money to Africa,
07:08
the cost is even higher:
07:10
12 percent.
07:11
To send money within Africa,
07:12
the cost is even higher:
07:14
over 20 percent.
07:16
For example, sending money from Benin
to Nigeria.
07:17
And then there is the case of Venezuela, where,
07:21
because of exchange controls,
07:25
you send 100 dollars and you
07:27
are lucky if the family on the other side
07:29
receives even 10 dollars.
07:31
Of course, nobody sends money to Venezuela
07:34
through the official channel.
07:37
It all goes in suitcases.
07:39
Whereever costs are high,
07:41
money goes underground.
07:43
And what is worse,
07:45
many developing countries actually
07:47
have a blanket ban on sending money
07:50
out of the country.
07:52
Many rich nations also have a
07:54
blanket ban on sending money
to specific countries.
07:56
So, is it that there are no options,
08:01
no better options, cheaper options, to send money?
08:03
There are.
08:06
M-Pesa in Kenya enables people to send money
08:07
and receive money at a fixed cost of only
08:10
60 cents per transaction.
08:13
U.S. Fed started a program with Mexico
08:16
to enable money service businesses
08:19
to send money to Mexico
08:21
for a fixed cost of only 67 cents per transaction.
08:22
And yet, these faster, cheaper, better options
08:27
can't be applied internationally
08:30
because of the fear of money laundering,
08:33
even though there is little data
08:36
to support any connection, any significant
08:39
connection between money laundering
08:42
and these small remittance transactions.
08:43
Many international banks now
08:49
are wary of hosting bank accounts
08:50
of money service businesses, especially
08:53
those serving Somalia.
08:56
Somalia, a country where the
08:59
per capita income is only 250 dollars per year.
09:02
Monthly remittances, on average, to Somalia
09:09
is larger than that amount.
09:11
Remittances are the lifeblood of Somalia.
09:14
And yet, this is an example of
09:16
the right hand giving a lot of aid,
09:20
while the left hand is cutting the lifeblood
09:22
to that economy, through regulations.
09:26
Then there is the case of poor people
from villages, like me.
09:32
In the villages, the only place where you can
09:36
get money is through the post office.
09:38
Most of the governments in the world
09:41
have allowed their post offices to have
09:43
exclusive partnerships with money transfer companies.
09:46
So, if I have to send money to my
09:49
father in the village, I must send money
09:52
through that particular money transfer company,
09:55
even if the cost is high.
09:57
I cannot go to a cheaper option.
09:59
This has to go.
10:03
So, what can international organizations and
10:05
social entrepreneurs do to reduce the cost
10:07
of sending money home?
10:09
First, relax regulations on small remittances
under 1,000 dollars.
10:11
Governments should recognize that
10:17
small remittances are not money laundering.
10:19
Second, governments should abolish exclusive partnerships
10:24
between their post office and the money
transfer company.
10:28
For that matter, between the post office
10:31
and any national banking system that
10:33
has a large network that serves the poor.
10:35
In fact, they should promote competition,
10:38
open up the partnership so that
10:41
we will bring down costs like we did,
10:44
like they did, in the telecommunications industry.
10:47
You have seen what has happened there.
10:51
Third, large nonprofit philanthropic organizations
10:54
should create a remittance platform
10:59
on a nonprofit basis.
11:01
They should create a nonprofit
11:02
remittance platform to serve the money transfer
11:03
companies so that they can send money at a low cost,
11:06
while complying with all the complex
11:09
regulations all over the world.
11:12
The development community should
11:16
set a goal of reducing remittance costs
11:18
to one percent from the current eight percent.
11:20
If we reduce costs to one percent,
11:23
that would release a saving of
30 billion dollars per year.
11:25
Thirty billion dollars, that's
larger than the entire
11:30
bilateral aid budget going to Africa per year.
11:34
That is larger than, or almost similar to,
11:37
the total aid budget of the United States government,
11:40
the largest donor on the planet.
11:43
Actually, the savings would be larger
11:46
than that 30 billion because remittance channels
11:48
are also used for aid, trade and investment purposes.
11:50
Another major impediment to the
11:55
flow of remittances reaching the family
11:58
is the large and exorbitant
12:00
and illegal cost of recruitment,
12:03
fees that migrants pay, migrant workers
12:06
pay to laborers who found them the job.
12:09
I was in Dubai a few years ago.
12:12
I visited a camp for workers.
12:16
It was 8 in the evening, dark, hot, humid.
12:18
Workers were coming back from
12:23
their grueling day of work,
12:25
and I struck a conversation
12:27
with a Bangladeshi construction worker.
12:29
He was preoccupied that he is sending
12:32
money home, he has been
12:35
sending money home for a few months now,
12:36
and the money is mostly going
12:39
to the recruitment agent, to the labor agent
12:41
who found him that job.
12:44
And in my mind, I could picture
12:45
the wife waiting for
12:49
the monthly remittance.
12:50
The remittance arrives.
12:52
She takes the money and hands
12:54
it over to the recruitment agent,
12:55
while the children are looking on.
12:59
This has to stop.
13:02
It is not only construction
workers from Bangladesh,
13:05
it is all the workers. There are millions of migrant
13:10
workers who suffer from this problem.
13:12
A construction worker from Bangladesh,
13:15
on an average, pays about 4,000
dollars in recruitment fees
13:16
for a job that gives him only 2,000
dollars per year in income.
13:20
That means that for the two years or three years
13:26
of his life, he is basically sending money
13:28
to pay for the recruitment fees.
13:32
The family doesn't get to see any of it.
13:33
It is not only Dubai, it is the dark
13:37
underbelly of every major city in the world.
13:40
It is not only Bangladeshi construction workers,
13:43
it is workers from all over the world.
13:45
It is not only men.
13:48
Women are especially vulnerable to
13:49
recruitment malpractices.
13:51
One of the most exciting and newest
13:55
thing happening in the area of remittances
14:00
is how to mobilize, through innovation,
14:02
diaspora saving and diaspora giving.
14:05
Migrants send money home,
14:08
but they also save a large amount of
14:10
money where they live.
14:12
Annually, migrant savings are estimated
14:14
to be 500 billion dollars.
14:17
Most of that money is parked in
14:21
bank deposits that give you zero percent interest rate.
14:23
If a country were to come
and offer a three percent
14:27
or four percent interest rate, and then say
14:30
that the money would be used for building schools,
14:32
roads, airports, train systems
14:35
in the country of origin, a lot
14:38
of migrants would be interested in
14:40
parting with their money because
14:42
it's not only financial gains that
14:44
give them an opportunity
14:46
to stay engaged with their country's development.
14:48
Remittance channels can be used
14:53
to sell these bonds to migrants
14:55
because when they come
15:00
on a monthly basis to send remittances,
15:01
that's when you can actually sell
it to them.
15:02
You can also do the same
15:05
for mobilizing diaspora giving.
15:06
I would love to invest in a
15:09
bullet train system in India
15:12
and I would love to contribute to efforts
15:14
to fight malaria in my village.
15:17
Remittances are a great way of
15:21
sharing prosperity between places
15:25
in a targeted way that benefits
15:29
those who need them most.
15:31
Remittances empower people.
15:34
We must do all we can to make remittances
15:37
and recruitment
15:40
safer and cheaper.
15:41
And it can be done.
15:43
As for myself, I have been
15:46
away from India for two decades now.
15:48
My wife is a Venezuelan.
15:52
My children are Americans.
15:55
Increasingly, I feel like a global citizen.
15:58
And yet, I am growing nostalgic
16:02
about my country of birth.
16:05
I want to be in India and in the U.S. at the same time.
16:08
My parents are not there anymore.
16:13
My brothers and sisters have moved on.
16:15
There is no real urgency for me to send money home.
16:19
And yet, from time to time,
16:21
I send money home to friends,
16:24
to relatives, to the village,
16:27
to be there, to stay engaged —
16:29
that's part of my identity.
16:32
And, I'm still striving to be a poet
16:34
for the hardworking migrants
16:37
and their struggle to break free
16:39
of the cycle of poverty.
16:41
Thank you.
16:42
(Applause)
16:44

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About the Speaker:

Dilip Ratha - Remittances expert
Economist Dilip Ratha was the first to analyze the global significance of remittances -- money sent from foreign workers to their families back home.

Why you should listen

At over US$400 billion per year, and growing, remittances -- money sent home by migrants -- are three times bigger than the total of international aid budgets, and represent some of the largest financial inflows to poor countries. Economist Dilip Ratha was the first to point out the global and national significance of remittances and their social and economic impact.

He is the manager of the Migration and Remittances team at the World Bank and the head of the Global knowledge partnership on migration and development (KNOMAD). He also co-coordinates the G8/G20 Global Remittances Working Group, and is involved in a number of other organizations focusing on remittances. Besides migration, he has done pioneering work on innovative financing including diaspora bonds and South-South foreign direct investment.

More profile about the speaker
Dilip Ratha | Speaker | TED.com