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A paper by Uche Nworah on the Nigerian Diaspora highlights amongst other things, inefficiencies in the allocation of remittance revenues. "...the issue of foreign remittances back to Africa has become a subject of interest in the international community. According to a recent report (Migrations and Development) by the International Development Select Committee (UK), over $300 Billion was sent from developed to developing countries in 2003 by diasporas living in the developed countries. Global remittance, the report maintains is growing faster than official development assistance from the developed countries, also global remittance is the second largest source of external funding for developing countries, behind Foreign Direct Investment (FDI), and also accounts for as much as 27% of the GDP for some African countries. The report also says that global remittance accounts for 5% of GDP in Nigeria, this figure is predicted to increase in the coming years. A U.S government official recently claimed that Nigerian diasporas remit back to Nigeria the sum of $12 billion annually, while other sources claim that Nigerians send a total of $3Billion annually through the official channels of the Western Union and other financial institutions. While there appears to be different conflicting figures with regards to the exact amount of such capital outflows or global remittances back to Africa and Nigeria in particular, the fact remains that it is a phenomenon that is on the increase and also one that is good for the continent, sadly though, such remittances have not been channeled effectively by the recipients to areas that will yield long term benefits and sustainable growth..."
Via Global Politician

Co-Founder of Thamel.com Bal K. Joshi writes:

"Productized" remittances deliver greater economic impact than traditional cash remittances for several reasons. The cost to the sender for the money-transfer element of the transaction is lower, thus increasing the buying power of the remittance. The remittance sender maintains more control over the use of the remittance, thus lowering waste and misuse of the money. The productized remittance platform offers the sender more options for investment, including financial services like bank-based savings accounts, loan-based purchases, and access to capital.

via NextBillion

A recent publication of the Foundation for Development Cooperation states:

Migrant workers and their families need financial products which make it easier to send, receive and manage international money transfers, and to save and invest their income. Microfinance is well-suited for remittance-linked financial services, particularly among poor and geographically isolated populations. Because they are poor, many remittance recipients fall outside typical bank client profiles, but are well within the market segment targeted by microfinance agencies. By extending remittance-linked services to the ‘unbanked’, microfinance has the potential to promote broad-based development while vastly expanding the volume of remittance flows mediated through financial institutions.

via NextBillion

Payment News reports on a paper (PDF) which outlines the promise of card based remittances:

The robust and increasing demand for person-to-person cross-border remittance services coincides with the increasing dominance of electronic transactions and the rise of prepaid cards.These two activities, though independent of one another, share important characteristics and opportunities. Remitters are more likely to have limited financial access because of their immigrant status. Prepaid cards are increasingly seen as a tool to provide the un- and underbanked with broader access, and many providers are marketing their products specifically to immigrants...though significant gaps exist between the demand side and supply side of cardbased
remittance solutions, there is potential to capitalize on a product set that offers value for underbanked remitters given the right product design. Rather than simply putting card products to market, companies that carefully consider the entire financial picture of remittance senders can begin to develop the marketing, distribution, consumer education and pricing models needed to allow card-based transfers to compete with traditional money transfer companies and other options, such as mobile and Internet remittances.

Yasser Abdih, Ralph Chami,Jihad Dagher, and Peter Montiel in an IMF working paper(PDF):

Conclude that despite their nature as household-to-household private income transfers,remittance inflows may have adverse effects on domestic institutional quality – specifically,on the quality of domestic governance – that are similar to those of large resource flows. In our analytical model, this effect arises because when households receive remittances, the government finds it less costly to free ride on the households and their emigrant relatives and divert resources for its own purposes. In other words, because access to remittance income makes government corruption less costly for domestic households to bear, the government engages in more corruption. Remittances, by acting as a buffer between the government and its citizens, give rise to a moral hazard problem; these flows allow households to purchase the public good rather than rely solely on the government to provide that good, which reduces the household’s incentive to hold the government accountable.

via Foreign Policy

A Bombastic Element points us to Dilip Ratha's ponderings on the subject of remittances:

A standard remittance is a simple financial transaction that -- if lightly regulated and processed using modern technology -- can cost as little as one percent. If funds were transferred through banks and other financial intermediaries, migrants and their beneficiaries would be encouraged to save and invest. Intermediary banks could also use remittance inflows as collateral to borrow larger sums in international credit markets for local investments.

To best leverage these flows for development, it is time to create an international body -- an "International Remittances Institute" -- that would monitor the flows of labor and remittances and oversee policies to make them easier, cheaper, safer, and more productive. The proposed African Remittances Institute, supported by the African Union and the European Union, is a small but important step in this direction.

More here

Sharda Naidoo reports on remittances:

Remittance flows into Africa have grown exponentially over the past two years, more than $11-billion in 2005 via formal and informal channels.World Bank researchers further believe that remittances have helped reduce poverty and that they offer a lifeline to struggling economies. They have also helped to stabilise irregular incomes and build human and social capital. In Uganda, remittances have cut the share of poor people by 11% and in Ghana by 5%. In Lesotho, remittances now account for more than one-third of gross domestic product (GDP), and more than 50% in Ghana.

Sanou Mbaye writing in Project Syndicate:

He speaks on the need to liberalize the remittance channels:

The effects of banks’ hijacking of national payment systems to service only the modern economy are compounded by the exclusive agreements that banks and money-transfer companies such as Western Union have signed with most African countries. These agreements lock out non-banking entities from the highly lucrative market for migrant remittances from the African diaspora, which remain a key engine of growth

Furthermore on how key it is to nourish the informal economies:

African states must now recognize that modernizing their informal sectors by integrating them into the modern economy can be a major development tool. Yet only a few countries have started moving in that direction. Nigeria has refrained from signing any exclusive agreements with Western Union and others, and its newly consolidated banking industry is making significant inroads across the region...

Arguing for the broader inclusion of more financial actors in national payment systems

Giving micro-finance institutions access to national and regional payments systems and electronic retail facilities will go a long way toward meeting the requirements of the retail and business sector in terms of banking facilities. It will also help facilitate access by the poorest to financial services, thus helping to reduce the high proportion of the un-banked population.

All of this will invariably spur development and integration of national financial systems and intra-regional trade. This will be a welcome development, because a large proportion of intra-regional trade is carried out by informal operators and small and medium enterprises that do not have access to the banking system. Moreover, economic integration and increased intra-regional trade are the best entry point into global markets for all countries.

More here

Chukwu-Emeka Chikezie writes "...Today the authority and legitimacy of public officials in Africa must be negotiated with a rich texture of regional, communal and social associations; rapid progress in communications technology is providing Africans with new opportunities for networking and enterprise; and, perhaps above all, increasing numbers of Africans in the diaspora are reconnecting to their home countries in imaginative new ways involving creative “peer-to-peer” development strategies.All these transformations are fuelling changes in the ways Africans nurture the relationships of accountability – embodying practices of obligation, respect, responsibility and mutuality – that underpin their connection to each other...With the rise and rise of remittance flows over the last few years, Africans in the diaspora are Africa’s biggest aid donors and investors. They are, in effect, Africa’s biggest taxpayers, hit by a double whammy. First, they contribute to the overseas aid budget through their tax contributions to their new home government. Second, they make direct contributions via their individual and collective remittances(PDF). The latter far outstrip the former in terms of absolute volumes...African governments are far more accountable and responsive to their bilateral and multilateral aid donors than they are to African taxpayers at home or abroad...Africans have developed fairly sophisticated strategies for avoiding a state that seems hell-bent on obstructing their lives. Income from informal economic activity and remittances; healthcare and education provided by modern-day missionaries (as well as many new Pentecostal churches and their charismatic pastors); law provided by sharia courts and imams; protection provided by vigilante groups and their magic potions. All this and more happens with little state involvement. Africans weave together the fabric of their lives far from the state’s purview..."
Via OpenDemocracy

The UN's OSAA office reports that "...Remittances from Africans working abroad in the period 2000-2003 averaged about US$17 billion per annum virtually overtaking Foreign Direct Investment flows which averaged about $15 billion per annum during the same period...workers remittances boost disposable incomes, produce multiplier effects, and make education more affordable Private transfers are large and stable sources of foreign exchange for poor countries and are more likely to reach poor households than other capital flows. The average per capita remittance by migrants in developed countries is around US$ 200 per month. In the light of this it is becoming imperative that the cost of transmitting remittances needs to be reduced to allow African countries receive larger private capital flows..."
Via NextBillion

Chukwu-Emeka Chikezie writes "...The western aid industry is a trap that locks Africans in the chains of dependency. Africans’ initiative, symbolised by diaspora remittance flows, is the key to liberation...The increasing aid flows to Africa that this industry advocates will, at least, “make northern-NGO poverty history”. Who else, after all, will implement all the new projects that will come? This conflict of interest, in which those arguing most loudly for increased aid flows are the aid’s biggest beneficiaries is inherently corrupt and corrupting. We disallow it in other areas of public life; so we should when it comes to the aid industry. The aid industry is helplessly dependent upon seeing an Africa that is incapable, lacking in agency, in permanent need of external direction. If all the flies photographed around those emaciated babies had demanded royalties for their appearances in northern media, Africa would have the richest flies in the world...",Opendemocracy.

The Direct Expatriate Nationals Investment (DENI) initiative aims to securitize diasporan cash remittances. In a presentation at the Ministerial Conference of the Least Developed Countries on Migrant Remittances Fred Kwoba the author of DENI asserted that:

"...Back in 1990 when international community first recognized this phenomenon of remittances, they frowned on it and dismissed it as inconsequential in the development of Africa. But Africans in the Diaspora never lost faith in the remittance lifeline. We kept sending money home even if there was a civil war or no government as Somalia and even if there in no bank, we still send money home. Such is our determination to send money home. Why? Because we have a moral responsibility and duty to support our people. And now the international community has finally come round not only to recognize this phenomenon but to fully embrace it as critical in the survival of our communities...We have developed a program called DENI that was designed to bring Africans together to pool their resources for large-scale investments in their home country. This will be done country-by-country, meaning Beninese will have their own DENI Program for Benin, Ghanaians will have their own DENI Program for Ghana, Malians will have their own DENI Program for Mali, Nigerians will have their own DENI Program for Nigeria and so on down the line until we get to Zimbabweans with their own DENI Program for Zimbabwe...DENI says we take a country (such as any that I’ve mentioned above) and target (say) 100,000 nationals (both at home and abroad) and encourage them to invest $1000 a piece in this initiative for their country. That would immediately raise $100,000,000 in cash for the government – cash on the table that is not a loan and is not a grant. No strings attached. No conditionalities. DENI is designed to be totally owned by the Government and its people. For a government that has received a debt forgiveness of (say) $500,000,000, DENI suggests that that amount of forgiveness be passed on to the people through this ingenuous conversion for purposes of poverty reduction. The government gets $100mn in cash from its nationals upfront that is not a loan and is not a grant..."