Global Forum on Remittances
Bangkok, Thailand, May 20, 2013

Thank you very much for joining us here today. Let me welcome you, on behalf of the World Bank Group, to this important and timely Global Forum on Remittances.

I’d also like to extend my thanks to our colleagues at IFAD, our co-hosts for this event.

Moreover, since I’m also “wearing another hat” here today: I’d like to welcome you, as well, in my role as the chair of the Global Remittances Working Group.

It’s encouraging to see that an increasing recognition exists among leading policymakers, that the global flow of remittances – and, more recently, remittance-cost reduction – are top items on the global economic agenda.

The continuing efforts by the G8, the G20, various regional fora and many individual countries show strong leadership on improving markets for remittances and on implementing the CPSS-World Bank General Principles for International Remittances – the international standards for remittances.

The General Principles call for high-level policy interventions on transparency and consumer protection, financial infrastructure, regulatory frameworks, market conditions and governance – issues that we will be discussing throughout this Forum.

The General Principles call for action by both the public sector and the private sector. This Forum is an ideal occasion to advance the agenda together, to help facilitate international remittances.

One of the priority goals of the continuing global effort is the so-called “5×5 Objective,” which aims to reduce the cost of sending remittances – by five percentage points within five years.

The 5×5 objective is the first quantitative target for the global community to address challenges in facilitating international remittances. Achieving “5X5” would produce dramatic results: Globally, it could deliver more than $15 billion each year in cost savings for migrants and their families.

In addition, the relevant G20 leaders in this space continue to support these initiatives in the context of the discussions of the Development Working Group and the Global Partnership for Financial Inclusion.

The next session will address what the G20 has done and is going to do.

International and regional efforts to improve remittance markets have continued to grow. In this region, the ASEAN countries – under the Indonesian chairmanship in 2011 – have committed to improving remittance flows in the region by considering the General Principles.

A number of ASEAN countries have already taken steps toward implementing reforms. They include Indonesia, Malaysia and the Philippines, and we will hear from them during the Forum about their efforts.

Also in 2011, the Commonwealth Heads of Government also agreed to reduce the cost of remittance transfers by removing barriers to sending money, and by encouraging greater competition in the transfer market by endorsing the General Principles.

Many Commonwealth countries in Asia and the Pacific have begun their efforts to reduce remittance costs. Australia and the Pacific Islands are noteworthy in this regard.

Many more regional initiatives, at many different levels, are contributing to this global initiative. They range from policy initiatives to work in technical areas, such as the development of payment infrastructures and of data.

The Global Remittances Working Group – as the global coordinating body at the World Bank – is working with the G8, the G20, regional initiatives and individual countries. As the chair of the Group, I invite you to join their efforts.

When it comes to the global efforts on reducing the cost of remittances, there are encouraging trends, overall, as we move toward the 2014 goal. The latest data offer good news about progress toward achieving the 5×5 objective.

That’s especially clear when we look at a deeper analysis of the data, using the size of bilateral remittance flows as a way to calculate remittances’ average cost. In the last calculation, the weighted average reached the lowest level it has ever recorded: 6.92 percent. This suggests that prices are indeed decreasing in the areas where higher volumes are being transferred – just as anecdotal evidence and industry analysis had suggested.

Realistically, however: We should keep in mind that the current picture is mixed. There are some encouraging trends – but we must keep up the pressure for positive change, because any easing-up of our efforts invites the danger of backsliding.

Let me offer three key points, to help focus our discussion, here at this conference.

First, I’ll underscore why increasing the efficiency of remittances market is vital – in both social and economic terms.

Second, I’ll outline the continuing challenges that we confront – and some of the changes that are beginning to occur in the marketplace.

And, third, I’ll describe some of the steps we’re taking – as a community – to provide practical guidance on maximizing the benefits of remittances, while minimizing their drawbacks.

First: Let’s remember why this is a compelling concern, in the context of global finance and international migration.

The flaws in today’s remittance system pose a chronic problem for an estimated 215 million people –3 percent of the world’s population. Striving to escape the chronic poverty that afflicts their homelands, they do indeed have jobs – sometimes good-paying jobs. But to earn enough to support their families, they have had to emigrate far from home. They could be workers from Bangladesh who go to Saudi Arabia to work in the construction trade . . . or Afghans who go to Iran to work in the oilfields . . . or workers from Burkina Faso who go to Cote d’Ivoire to work on the cocoa or coffee harvests. In fact, those specific migration routes are some of the largest in the world.

You might think that those workers would be rewarded for their enterprise. But, instead, the financial system hits the poorest, the hardest of all. When they send their money home, they are often charged exorbitant fees – sometimes about 20 percent of the sums they’re sending.

The flaws in the system put a heavy burden on migrants and their families – and on the development process.

The flow of remittances has the potential to lift families out of poverty; support small businesses; and help countries with their balance-of-payments problems. Yet inefficiencies in sending and receiving remittances drain away much of their potential benefit.

In some countries, the impact is far greater: In Nepal and Samoa, almost one-quarter of the country’s entire GDP is made up of remittances. In Tajikistan, remittances are more than a half of the country’s GDP. Countries like those are victimized by the distortions in the marketplace.

Moreover: For personal transfers by poor migrants, the high fees for sending small sums can inflict a punishing burden. In a worrisome development: The World Bank’s monitoring of remittance prices worldwide show that – in the first quarter of this year – the global average total cost for sending remittances was 9.05 percent. The global average had been consistently decreasing between 2008 and 2010 – but the cost has been relatively stable over the past 12 months, with no further decrease.

At the same time: There have also been some encouraging signs of progress. The international “MTO Index,” for example, has shown an almost one-percentage-point reduction – from 10.16 to 9.24 – since the last calculation. That index covers the Money Transfer Operators with a global footprint, who are present in more than 85 percent of the corridors covered by “Remittance Prices Worldwide.”

The percentage of corridors that are now within the lower cost ranges – between the zero-to-5 and 5-to-10 percent ranges – has been increasing significantly. In almost 20 percent of the remittance corridors, the 5×5 target has already been achieved. That’s a dramatic improvement since 2009, when only 7 percent of corridors had met that target.

Moreover, in another fifth of the mapped corridors, the objective is close to being achieved. In 22 percent of corridors, there is an average price of between 5 percent and 7 percent.

So that’s my first point: Making progress may be difficult, but it is certainly achievable.

That brings me to my second point: We still confront many barriers to change – even as we applaud the progress that we have been able to see, so far, in the marketplace.

Prices are highest in the poorest countries because their markets remain underdeveloped, in terms of financial infrastructure and their regulatory environment. Payment systems are often inefficient: Processing remittances requires a great deal of hands-on activity. Moreover, banks often lack technical infrastructure and links among their branches. A lack of modern payment-and-settlement systems can drive costs further upward.

Markets are often dominated by just a few remittance providers – who sometimes have exclusive agreements with the networks of disbursing agents that are able to pay remittances. That lets them lock out competitors and charge exorbitant fees. Regulatory regimes can restrict competition – sometimes excluding non-bank financial institutions from processing remittances. At times, commercial arrangements with exclusive conditions may also have restricted competition.

Nonetheless, there are both market-based and policy-based ways to encourage lower costs. Lower capital requirements on non-bank remittance services can encourage small-scale institutions – which often compete on the basis of lower prices. Opening up postal, banking and retail networks to non-exclusive partnerships can also help drive prices down. And better transparency on fees –along with industry codes of conduct – can lead to better-informed consumers.

The prospect of lower-cost remittances is achievable, thanks to the use of new technologies – like the internet, mobile phones, “smart” Point Of Sale technologies, and biometrics.

But, at the same time, the shift away from the traditional “cash-based” money-transfer services – toward mobile, online and card-based remittances – creates a new set of challenges.

Several major remittance-sending countries have recently liberalized their remittance markets – in particular, Japan and the European Union. As a result, new service providers are entering the market – with lower costs, but also with different regulatory and operational requirements.

Less-developed countries need to position themselves to benefit from such changes. In an encouraging sign, several success stories in recent years show how the remittance system can be strengthened.

In Sri Lanka, the cost has fallen from 10 percent to 5 percent in the last 5 years. Sri Lanka’s reforms on payment systems infrastructures have contributed to this cost reduction.

In Mexico, the cost of remittances fell from 15 percent in the year 2000 to less than half of that figure today. Mexico achieved this progress by using both policy tools and market forces. Government agencies created a database for prices; created a financial ombudsman to protect consumers; and set up an electronic funds-transfer system in partnership with the U.S. Federal Reserve. Meanwhile, Mexico’s private sector expanded the use of products in the local market, like credit cards that can be used to transfer money.

To offer another example: The Philippines now enjoys an average remittance cost of about 5 percent. Active policy steps have helped: Policymakers created pre-departure training programs for emigrating workers, including financial education. They also set up special agencies for overseas Filipino workers.

The private sector has been producing new products and services that have continuously innovated the market for remittances, enabling cost saving and efficiency. New solutions are being created on a daily basis, and they have the potential to revolutionize the market.

So a combination of public policy and market forces is driving change.

So that’s my second point: Changes in the marketplace are already occurring.

And that brings me to my third point: about the steps we can take to make sure that the recent momentum continues, and to suggest practical policy options.

The first big step is the broader adoption of the General Principles for International Remittance Services. They have been widely accepted and endorsed as a best-practices standard. They have been embraced by the G8, the G20, the former Financial Stability Forum and other regional fora.

The principles include such market-based approaches as fostering transparency; improving the payment systems infrastructure; and adopting best practices for governance and risk management.

The World Bank last year issued the Guidelines for the Implementation of the General Principles, which are a useful tool for policymakers and market players to put the General Principles into practice.

The Bank has identified a set of initiatives – consistent with the Rome Road Map on Remittances – that would cut remittances’ cost and strengthen their development impact.

Let me single out four promising initiatives that seem especially promising.

• National databases are being created to inform customers of costs. The World Bank has also created a global database, “Remittance Prices Worldwide,” which is reaching more people than ever.

• Codes of conduct for remittance operators are being established.

• Predictable, non-discriminatory legal frameworks should be created, as the General Principles assert.

• And a wide range of innovative projects are being designed and financed, promoting payment instruments to ease fund transfers.

So: While we should not be complacent about the challenges that are still ahead, we can certainly point with pride to the constructive action that has now been set in motion.

We must continue to build on the current momentum for change, and overcome the structural weaknesses that afflict hundreds of millions of enterprising, striving migrants.

Thank you for your efforts on this critical issue in global finance. It is critical that we drive progress forward on this critical area of global economic development and financial stability.

With your commitment, and with our continuing diligent work in this area, I feel confident that dramatic progress is possible in the days ahead.

Thank you very much.