The African Development Bank has assigned a high priority to the promotion of remittance flows as a development tool and a link to the private sector. The overall objective of AfDB’s Initiative on Migration and Development is to maximize the development impact of remittances by increasing their canalization into productive investments and promoting business opportunities and job creation at the grassroots level. AfDB aims to support the development of financial services for migrant workers and create incentives to channel funds into productive uses in the country of origin.
Importance of remittances
According to an AfDB study conducted in 2007 in four countries (Comoros, Mali, Morocco and Senegal), remittances represent between 9 and 24% of GDP and between 80 and 750% of official development assistance.
The study confirmed that transfer costs were high, hampering remittances impacts on development.
The transfer costs were equally high in many other regions of the world, and particularly Latin America, where, thanks to the role played by the Inter-American Development Bank and its local partners, the fees of money transfer companies were reduced by over 10 points in a couple of years.
Assuming a 5-point reduction in transfer fees and considering only formal transfer mechanisms, it is estimated that Africa will experience a USD 2.5 billion increase in savings for both senders and receivers. Such amount could at least in part contribute to boosting local development efforts and limiting the potential effects of the current financial crisis on concerned African countries, migrants and end-beneficiaries.
Remittances may constitute another channel to help countries strengthen their financial systems, create an enabling environment for private sector development, and strengthen the effectiveness of programs aiming at promoting the development of micro, small and medium enterprises, thanks to the greater proportion of funds channeled to productive uses.
Under its Migration and Development initiative, launched in 2009 with a view to coordinating all the institution’s migration related activities within a common framework, AfDB is focusing on promoting strategic alliances and networking, developing new financial products, channeling funds to productive uses, and building capacity at the association and institutional levels.
AfDB has five main operational objectives related to remittances:
- Better mobilize remittances as a flow of resources: From the macro level, by promoting savings mobilization and directing funds through official channels, more resources will be available for credit to individuals and private sector entities;
- Increase the flow of resources to the end beneficiaries while allowing better control on the amounts transferred by the migrants: achieved through reducing transaction costs and by supporting the design, test and introduction of new tools and products;
- Empower local communities and households: by promoting more effective uses of funds for social consumption (by supporting mutual schemes and public private partnership in the areas of education and health) and supporting the productive use of available resources through the involvement of local entrepreneurs;
- Contribute to strengthening financial systems in receiving countries, in particular by empowering local agents, such as micro finance institutions, as players;
- Contribute to combat money-laundering: through the absorption of the informal sector and better offers from the formal bank and non-bank sectors, the remittance-related activities will also contribute to the reduction in the risk of remittances flows being used for money-laundering purposes.
Tools and activities
AfDB’s Migration and Development initiative includes a wide series of publications, reports, knowledge dissemination workshops published or undertaken by various departments. Read more
The latest report published under the initiative, “Reducing the costs of migrants’ remittances and optimising their impact on development: Financial products and tools for North Africa and the franc zone” (February 2012), recommends to explore five avenues in order to optimise the impact of migrants’ remittances on development and suggests a series of concrete suitable financial and regulatory innovations. Its financial arm is the Migration and Development Trust Fund.