Every year, migrants send home some €8 billion from the Netherlands, according to official figures of the World Bank. The actual size of the cash flows is probably even larger. A DNB survey among over 1,600 migrants shows that in addition to regulated financial institutions, such as banks or registered money transaction offices, they use a variety of informal channels to remit money to family and friends at home, ranging from banknotes taken home on holiday, or carried by relatives or friends travelling to the home country, to cash withdrawals from ATMs abroad (see Chart 1). Migrants may also use non-registered money transaction offices, popularly known as hawala banks. How much money is actually remitted from the Netherlands over such alternative channels remains unregistered and is therefore unclear.
DNBulletin: Migrant remittances run into billions
|Date||4 April 2013|
According to official statistics, the annual amount of money remitted by migrants from the Netherlands to their home countries runs to some €8 billion. The actual amount is probably bigger, because an unknown amount is sent through informal channels. Research by DNB shows that the use of informal channels depends largely on the amount remitted, the sender's level of education and the cost and range of available payment means.
Note: The chart shows, for each remittance method, the percentage of respondents indicating that they had used that method to remit money home at any point during the twelve months preceding the survey. Percentages do not add up to 100 because respondents could provide more than one answer.
Cost and education levels determine choice of remittance method
DNB staunchly supports the safety, reliability and efficiency of the payment system: everyone should be able to pay everywhere without difficulty and in a safe and reliable manner. In addition, DNB strives to prevent abuse of the payment system for criminal purposes. Although every remittance method has its pros and cons for both the payer and the receiver, the informal channels are typically sensitive to abuse for purposes such as money laundering and terrorist financing. Also, they are intrinsically less safe because transactions are often made without a formal agreement, so that the payer enjoys less protection in case the money gets lost. DNB therefore firmly supports the use of regulated channels, that is, officially supervised parties such as banks and recognised money transaction offices. And as earlier research has shown, this also benefits the economic and financial development of the home countries.
To gain a better understanding as to what measures might promote the use of official channels, DNB has conducted a survey among migrants in the Netherlands to identify the factors and motives that decide their choice of a particular channel. The results show that the choice depends heavily on the amount sent. For small cross-border payments, migrants often use informal channels, whereas larger payment are usually sent through a bank. Charges stood out as an important motive for not using an regulated channel. Lower rates, especially for smaller payments, might therefore promote the use of banks and registered money transactions offices. There are also strong differences relating to the person of the sender. Highly educated senders will use informal channels less often than less educated senders. Better information on, for instance, the enhanced safety of bank transfers or transfers via a registered money transactions office could thus help increase the use of regulated channels.
Safer and simpler remittances through innovation
The choice of remittance channel also depends heavily on the range of possibilities on offer. This applies not only to the channels available to the sender in the Netherlands, but also to the options at the receiving end. In many cases still, migrants in the Netherlands send money over an informal channel because the receiving party has no bank account. Evidently, the use of regulated channels might be encouraged if they were made more accessible for the payer and the receiver alike, as by the introduction of innovative payment services.
Introduction of new payment methods by banks and other regulated operators may enable more people to use the official payment system even those who do not have a bank account or live at a prohibitive distance from a bank. A good example are the variety of mobile payment solutions currently existing in Africa, such as the successful M-PESA in Kenya, which not only allows people to make domestic payments, but also to receive money from abroad. Such or similar products for smaller cross-border payments from the Netherlands might make not only the payer but also the receiver less dependent on informal channels.
For full results and an exhaustive description of DNB's research on money remittances by migrants living in the Netherlands, click on the link to the DNB Working Paper 'Migrants’ choice of remittance channel: do general payment habits play a role?'.