The Remittance Fund, pt. 1

Thanks to my upcoming move to Uganda, and this unfortunate habit I developed of checking to see if anyone else had already thought of MY ideas, I haven’t posted anything recently.  I was going to blog about my idea for a goat rental lawn service, but thanks to aforementioned habit, I discovered that that one’s already taken.

I’ve finally concocted another idea that is both so crazy that it hasn’t already been proposed (at least not on teh interwebz), and so crazy IT MIGHT WORK!


Yes, right.  Remittances, for those of you who are unfamiliar, are financial transfers from migrants working abroad to family and acquaintances back in their home country.  For countries that lack economic opportunities at home, remittances sent from abroad are a huge source of income.  In Lesotho last year, remittances were estimated to be 26% of GDP. In Tajikistan, they were 35% of GDP!

Remittances are significant both in the countries in which they are received, and in the countries from which they are sent. As you can see from the table at right, immigrants in the US send more money to developing countries than the US Government, and all forms of philanthropists COMBINED!  In fact, immigrants in this country, who make up only 12.5% of the population (and not the richest 12.5% either) manage to spend 3 times as much on ‘foreign aid’ as the US government, which represents all of us.

Remittances have several advantages over the other types of capital flows noted.  They are thusly:

1. Because the motivations of the suppliers of remittances are social, cultural, and indeed moral, the supply of remittances is relatively inelastic.  Put another way, in an economic downturn, a migrant worker is more likely to keep sending money to his/her home country than either fickle investors or governments loth to spend too much money in faraway places with no votes.

2. There is a high level of trust between the remitter and recipient.  Taxpayers in some rich countries can be squeamish about foreign assistance because they don’t know for sure where the money is going and don’t even understand the need in the first place.  This is not true of the immigrants sending remittances to family and friends back home.  They know exactly to whom the money is going, and probably have a good idea of how it will be spent.

For all their advantages, however, remittances have one major disadvantage:

Because they are usually sent to individuals or households, their contribution to broader economic or social development is limited.  Think of it this way: Remittances can pay for school fees for a younger sibling, but they can’t do much to improve the quality of the school to which that sibling goes.

The irony is that the defining advantage of remittances over other forms of financial aid  — that they are diffuse and interpersonal — is also their greatest weakness.  If only there was a way to circumvent that weakness while still preserving the benefits of remittances…




Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s