HomeKiva News • Article

Making the Most of Migrant Money

May 25, 2011

written by Anne-Marie Robles, Review and Translation Program Intern

Photo provided by MLO Humo

In April of this year I attended a USAID webinar on migrant-backed loans in Guatemala and it got me thinking about the role of remittances in local economies, as well as their effect, if any, on microfinance activities in countries with high remittance rates.

Each year millions of migrant workers leave families behind to seek better paying jobs elsewhere, whether in another part of their home country or abroad. Much of the money these workers earn while away is sent back home to help support their family. Called remittance receipts or simply remittances, these funds have become an increasingly large source of income for citizens of countries that also receive foreign aid. In 2005, remittances sent to family or friends in developing countries surpassed the total amount of all foreign aid funds pledged by more developed countries like the U.S. The World Bank estimates that in 2009 migrant workers from developing countries sent home about US$317 billion. Foreign aid funds to developing countries in 2009 were roughly US$151 billion, or less than half the amount sent by migrant workers. Remittances are important as added income for the families in the home country, who statistically spend the money on basic necessities, and for increased financial stability against currency fluctuation in the home country.


Money can be sent home using various methods. The most inefficient and costly of these methods is physically transporting the money home, usually involving long travel times and unsecured money transport, as well as time off from a job or the added expense of paying someone trustworthy enough to travel with the money. Slightly more secure, though still expensive, is to send a money order or check that must be cashed or deposited before the money can be used. Western Union has been a popular method of wiring money but is not without its own short-falls, with accessibility of a cash-out location being the most troublesome. As banks have become more aware of the role they could play and the necessity of these money-transferring activities, they have opened more banking branches in order to facilitate electronic money transfers for greater accessibility. However, the issue remains that banks cannot offer branches everywhere for everyone. One of the more cost- and time-efficient ways to transfer money is via mobile phone. For instance, using the M-Pesa program in rural Kenya, people can send money to their relatives and it is immediately available for putting into savings or using to pay bills or purchase local services.

Microfinance institutions are catching on to how they could play a role in remittance transfers. For example, ACREDICOM in Guatemala and MLO Humo in Tajikistan have begun to offer migrant-backed loans to families receiving remittance money using a portion of the funds sent home as collateral against a loan. These migrant-backed loans have enabled family members to pay for school fees or utility bills, be qualified for microloans themselves to open small businesses, and start savings accounts—all activities that may not have been feasible without the outside flow of cash.

While it is still too early to know the long-term role of remittances in microfinance, there is already evidence that these programs help foster local business growth in the home country and could help reduce the need for remittances, eventually allowing migrant workers to come home.

For further reading:
Microlinks After-Hours Seminars, with links to past presentations and supporting materials
Migrant Remittances Newsletter, published by USAID
World Bank data page on Migration and Remittances