Recent years have seen a surge in official remittance flows to Central America. Money sent home to the region grew by approximately 10% to about US$12.1 billion in 2007.

Although a huge portion of remittance flows to Latin American and the Caribbean still goes to countries outside of Central America, (almost 60% reportedly just to Mexico, Brazil and Colombia) remittance flows to Central America are rising.

Remittances to Guatemala and El Salvador receive almost 64% of total remittance flows to Central America. Remittance growth in Guatemala tripled from 2001 to 2004 and is continuing to grow. Honduras and Nicaragua followed at some distance.

In all but 3 Central American countries, (Costa Rica, Panama and Belize) remittances are equivalent to at least 10% of GDP, suggesting a heavy dependence on remittances as an engine of economic activity.

Except in Costa Rica and Panama, remittances also far outweigh both private capital flows and official development assistance. Particularly remarkable in this regard is Guatemala, where remittances are 21 times greater than foreign direct investment (FDI) and official development assistance (ODA). In Guatemala, El Salvador and Honduras, remittances are far larger than ODA and FDI combined.

Remittances also make up for the shortfall in exports of some traditional products such as coffee in Guatemala, El Salvador and Nicaragua, and bananas in Honduras and Panama.

Dominance of remittance flows over traditional exports signals Central American countries are transitioning away from ‘agro-exporting economies’ towards mainly exporting labor to the United States.

For decades now, the perception has lingered that remittances are used mostly for consumption by individual households and rarely invested in productive enterprises.

Household surveys show that Central Americans who receive remittances mainly use them to cover basic necessities. According to the World Bank, about 77 & of remittances, on average, are believed to be spent on immediate needs such as food.

More recently, however, an increasing number of studies suggest a more positive developmental role for remittances. Contrary to common perception, studies have found, that Guatemalan households receiving remittances actually spend slightly less on consumption—food and consumer goods and durables—than do households receiving no remittances.

Remittances reduce the depth of poverty and are therefore particularly beneficial for the poorest of the poor. Some say that remittances have reduced extreme poverty in Guatemala by almost 22%. A study on child schooling in El Salvador also found that remittances have a large and significant effect on school retention.

The rise in remittances sent to Central American countries can partly be attributed to more choices when it comes to sending money home. Remittances to Honduras and other countries can now be processed over the phone or online less expensively than ever before.

2.5 million Salvadorans, legal and illegal, live in the United States, more than one third the total in El Salvador itself. Therefore, remittances (money that immigrants send to their home country while working abroad) from Salvadorans working in the United States are vital to the Central American country’s economy.

There are 2 types of remittances—family and community. Family remittances are money sent by individual immigrants to family and friends back home. Community remittances are money sent by individual immigrants and by hometown associations to communities in their home country. This money is traditionally used for infrastructure like roads, parks and churches.

In 2007, the Central Bank estimated that remittances to El Salvador totalled $3.7 billion. United Nations Development Programme surveys show that an estimated 22.3% of families in El Salvador receive remittances, more than any other Latin American country.

Remittances sent to El Salvador have increased by more than 6 percent a year for more than a decade. During the first half of 2008 remittances grew 4.9% to US $2.58 billion compared to the same period in 2007, according to central bank statistics. This increase however represents a slowdown in the pace of growth of remittances, which were up 8.2% from January-August 2007 over the same eight-month stretch of 2006.

El Salvador’s principle export is its people. 57% of immigrants from El Salvador send remittances, totalling 18.1% of the country’s GDP. Remittance flows to El Salvador are so large that the country completely dollarized its economy in 2001.

Remittances have succeeded where the Salvadoran government and international community have failed. While they are not a substitute for foreign assistance or sound development policies at home, they are increasingly an important tool through which poorer rural people can pull themselves out of poverty.

Studies have found that families that receive remittances stay a long number of years in school and have access to better quality health services than families with similar levels of income and demographic characteristics that don’t receive remittances.

However, the high cost of sending and receiving money can limit the effectiveness of remittances to El Salvador. In the past 5 years new services have developed that allow migrants to send money by phone or online which has attributed to the continued rise in remittances to El Salvador.

A recently released World Bank report has revealed that remittances are a significant contributor to the Caribbean economy.

The situation is most apparent in Guyana, as increasing numbers of Guyanese have left their home country to live elsewhere. The report notes that the money being sent home is playing a big role in the growing economy.

The number of remittances to Guyana has increased more than eight fold between 2000 and 2007 — from US $27 million to US $218 million. This information is taken from the Migration and Remittances Factbook 2008, which was released this month. It is also noted that the majority of the remittances have come from the United States. This situation is mirrored in Jamaica and the Dominican Republic as well.

Jamaican remittances make up more than 18% of that country’s GDP, which has doubled since 2000, going from US $892 to US $2 billion. In Haiti, remittances mad up almost 22% of Haiti’s GPD in 2006, which has more than doubled since 2000, from US $578 million to US $1,184 million.

In the Dominican Republic, remittances made up more than 10 per cent of the GDP and almost doubled since 2000, going from US $1.8 billion to US $3.2 billion.

Remittances Trinidad and Tobago made up only 0.5 per cent of the GDP, they have also more than doubled since 2000, from US $38 million to US $92 million. The United States was the largest source of the remittances for all four countries.

In 2005, Jamaica and Trinidad and Tobago were in the top five of countries with the largest proportion of their population emigrating. Jamaica, with 39% of its population emigrating, is number one, followed by Trinidad and Tobago, with 28% of its population moving away.

Suriname, Guyana, Jamaica, Haiti, and Trinidad and Tobago correspondingly made up the top five of countries losing large numbers of their tertiary educated citizens to emigration in 2000. Suriname lost 90% of its tertiary educated, Guyana 86 per cent, Jamaica 83%t, Haiti 82%, and Trinidad and Tobago 78%.

The remittance figures are clearly a reflection of a larger trend that increasing numbers of people, particularly the well educated, are emigrating away from these countries. As these workers’ skill levels increase, those migrating to other areas are able to obtain better jobs with higher wages, resulting in the ability to send more money home.

Money transfers or remittances of migrant workers to Ukraine have been a crucial part of financial support for families for many years. These transfers, for the most part, have been ignored and unaccounted for.

As migration has increased and the remittances flowing at a steady pace, more attention is being paid to the growth in remittances. In fact, this has gained the attention of many and the necessity to regulate money transferred to Ukraine more closely.

It is estimated that there are 150 million migrant working abroad worldwide and they have sent an estimated US $300 billion to their families in their native countries. During 2006, migrants sent between US $100 to US $300 home with each transaction, totaling more than US $1.5 billion in financial transactions.

Sending Money to Ukraine

With remittances at a steady flow, the options to send and receive money have also been on the rise. Besides the traditional money transfer services, who normally charge outrageous fees, migrants are seeking other alternate means of sending money home to their families.

Visa Money Transfer recently announced their transfer service in Indonesia, expanding to 14 countries in Europe, the Middle East, and Asia. This service allows cardholders to send funds to another cardholder using their 16-digit account number. Depending on the issuing bank, a person can transfer at a bank branch, online, or at an ATM.

Other Money Transfer Options

Another option is the ATMCASH card. The sender loads money onto a card, which bears the MasterCard logo. The card is sent to the recipient via FedEx. The sender notifies the recipient of the PIN number and when the card arrives, the recipient can use it to make purchases, withdraw cash at a participating ATM, shop online, etc.

One of the advantages of using an ATMCASH card is that the sender can load money onto the card for a low flat-rate fee from the convenience of their home or office using their bank account or credit card.

While banks and other services continue to be used, there are many other options, which offer a secure way to remit funds.

Kenya and Uganda have been noted as Africa’s top 10 recipients of migrant remittances for the second year running, according to a 2008 World Bank report.

The report, titled Migration and Remittances Factbook 2008, notes Kenya was the second highest recipient of remittances in 2007 at $1.3 billion, which is up from 2006 when the country hit $1.1 billion.

Nigeria was the highest recipient, with $3.3 billion. Other recipients in the top 10 were Sudan with $1.2 billion, Senegal and Uganda with $0.9 billion each, South Africa $0.7 billion, Lesotho $0.4 billion, Mauritius $0.2 billion, Togo $0.2 billion and Mali $0.2 billion.

Remittances for all developing countries stood at $10.3 billion in 2006 and $10.8 billion in 2007, accounting for less than 2 per cent of their average gross domestic product.

According to the report, by 2005, Kenya’s migrant population was 1 percent of the country’s total population while Uganda, was listed as the fifth highest recipient of migrant remittances in 2007 with $0.9 billion, up by $0.1 billion from 2006.

For Uganda, where the migrant population is 0.5 per cent of the total population and remittances constituted 8.7 per cent of the GDP in 2006. The report says that remittances to both Uganda and Kenya have risen steadily over the past seven years. In 2000, remittances to Uganda were $238 million, while those to Kenya were at $538 million.

For Tanzania, remittances currently accounting for 0.1 per cent of the GDP and have stagnated at $14 million for both 2006 and 2007 after declining by $4 million from $18 million in 2005.

Rwanda’s remittances, which accounted for 0.8 per cent of the country’s GDP in 2006, have also declined to $21 million since 2005 having risen from $10 million during 2004. Rwanda’s migrant population is 2.2 per cent of the country’s total population.

The report lists the world’s top five recipients of migrant remittances in 2007 as India $27 billion, China $25.7 billion, Mexico $425 billion, Philippines $17 billion, and France $12.5 billion.

The World Bank report also notes that, in 2000, the flight rate for people with tertiary education stood at 26.3 percent in Kenya, 21.6 percent in Uganda, 19.9 percent in Burundi, 19 percent in Rwanda and 15.8 per cent in Tanzania.

With the rise in educated and higher migrants leaving their countries for higher paying jobs, the remittances to Africa will continue to rise and help not only the families, but the economy as well.

In the first six months of 2008, money being sent home by Mexican migrants has declined by 2.2 percent. This is the first significant drop in more than ten years, reported by Mexico’s Central Bank recently.

One of the reasons for this decline is the decrease in the United States housing construction and the increase in immigration raids in the United States. This is making it more difficult for migrants to find jobs, therefore, decreasing the amount of remittances being sent to Mexico for the support of their families.

The Director of Economic Measurement, Jesus Cervantes, said the year-end figures are expected to continue to decline. This is the first significant drop since 1995, when Mexico’s Central bank began keeping records of remittances coming into Mexico.

Remittances are Mexico’s second largest legal source of foreign income, with oil exporting being first. For years, remittances have contributed significantly to Mexico’s growing economy. Annual remittances almost tripled from US $9 billion in 2001 to upwards of US $24 billion in 2007.

More businesses in Mexico have come to rely on the cash flow and as of late, they are being forced to take a step back. This is also a result of the declining U.S. dollar, which has decreased by 8 percent in value against the Mexican peso this year.

An analyst for the Center for Investigations and Superior Studies in Social Anthropology, Agustin Escobar, says “Mexico’s overall economy should be able to withstand these pressures, but some families will be hit hard. It depends on the type of household. For households that are largely dependent on remittances, their poverty is going to be felt sharply.”

How Much Is Being Sent

Approximately two million adults born in Mexico and the Dominican Republic are living and working abroad. Seventy percent of these migrants send money home to their families on a regular basis. Typically, family remittances range from US $1,500 to US $2,000 on a yearly basis. About 38% of all adults in the Dominican Republic receive remittances regularly from their families living abroad. Remittances are typically sent 12 to 15 times a year.

During 2004, over US $42.7 billion in remittances was expected to be sent to families in the Dominican Republic. Of the 70 percent of Dominican families who receive remittances on a regular basis, many of them have annual household incomes of less than US $3,500. For these families, remittances often make up almost half of their total income.

The decline in remittances, based on the results so far this year, will hit the economy hard, and the families even harder. With many families, relying on money sent from relatives, the reduction of remittances will cause a significant hardship, especially for those already living at poverty-level.

Debit cards or “electronic checks” are placed into the category of signature cards and PIN cards.  With a PIN card, the cash is automatically deducted from your account at the time of your purchase.  You must enter a PIN number to complete the transaction.  A signature card, also known as “check card,” works a bit different.  The cash is deducted from your account normally within 2-3 days.  A PIN number is not required with this transaction, as you have to sign a receipt just as you would with a credit card purchase.

Debit cards can be used both as a PIN card and a signature card.  Both of these cards can work at ATM machines.  By using the PIN, you can withdraw money directly from your account, usually by selecting “checking” or “savings” account.  With the use of a signature card, you must select the “credit card” option and the cash is deducted a few days later.  It is important to keep your receipts, especially when using the “credit card” option since the money is not deducted immediately.

For businesses today, debit cards are preferred and the most commonly used method of payment.  Debit card payment processing is considered to be the “safe mode” of transactions and it protects you from online theft as well.  In the case of lost or stolen debit card, you must notify the cardholder company within two days and a theft report will be launched for recovering any losses.

Normally, the debit card transaction process is a very smooth one.

When you make a purchase, you simply insert or swipe your card through the terminal (if making a face-to-face transaction), or key in the card number if a purchase is being made by telephone, fax, or online.   If it is a face-to-face transaction, the customer has to enter a PIN (personal identification number) to verify the purchase.

The terminal sends details of the transaction to your bank, which then checks to make sure the funds are available to complete the transaction and that the card has not been reported lost or stolen.  If the card is approved, the transaction is authorized.  Once the transaction is completed, your bank continues to process the transaction and credits the merchant’s account with the customer’s money (usually within 3-4 business days).  The merchant does incur a processing fee.

When you make a face-to-face transaction, the transaction is moved over to the Chip and PIN system.  These are transactions verified by the customer using a PIN.  In some cases where the transaction is not authorized – perhaps the Chip and PIN system is not working properly or the cardholder has an older style card that is not compatible with the system, the cardholder may be required to sign for the transaction, thus using it as a signature card.

Charge-backs

Authorization at the time of the transaction does not guarantee that a transaction is not fraudulent or that it will not be charged back at a later date.

If a cardholder reports an unauthorized transaction at a later date, the merchant could be required to refund the cardholder’s money.  This is called a “chargeback.”  Chargeback’s can be made up to 20 days after the money has been debited from the cardholder’s account.

For most businesses, the debit card process is a smooth one, but from time to time, they are required to refund money due to authorized use of a card.  Overall, the use of debit cards has been an asset to businesses, eliminating the need for checks and cutting down on the amount of time they have to wait money to be credit to their account.

There are several options available for people who wish to send money to Australia.  Whether a friend or family member is traveling or living in Australia or you’re trying to complete a purchase with a merchant Down Under, it’s important to understand the pros and cons behind some of the methods of sending money that are currently available.  The most common ways to send money to Australia are through bank channels, through money transfer companies, and through debit or ATM cards.

Bank Transfers

Australia’s banking history is an interesting one, as it was almost impossible for foreign banks to operate in Australia until 1983.  As a result, there are fewer banks even today in Australia than exist in other comparable nations. Banks have always been heavily regulated in Australia.  Prior to 1983, banks were classified either as savings banks, which handled deposits and mortgages, or trading banks, which serviced only merchants.  Finally, beginning in the mid 1980’s, the lines between savings and trading banks were removed and foreign banks were allowed to open branches on Aussie soil.

Currently, there are four dominant Australian banks, a long standing tradition known as a “four pillars� policy prohibits those four banks from merging and ensures that healthy competition between these market leaders will continue to exist.  As for foreign banks that have a presence in Australia, the biggest banks currently are Citibank Australia and HSBC, out of London.  Both banks are well equipped to handle money transfers, although fees and hold times can be cumbersome.

Money Transfer Companies

Many people use traditional money transfer companies to send money to Australia who are in need of a faster transfer than can be provided by a bank.  Fees are generally not as high as bank transfer fees, but are substantially higher than other available options.  On the receiving end of these transfers, the recipient of the funds has to find an agent from the money transfer company being used.  This can be fairly easy in urban, commercial areas, but difficult as you get outside of Australia’s larger cities.  For a one time transfer or one that needs to be completed in a hurry, this can be an effective option.

Debit and ATM Cards

One of the fastest growing options for sending money to Australia, many people are turning to this technology to send money in a fast and affordable way.  This is an excellent method for people sending money to Australia fairly frequently or for people plan effectively ahead of time to use this method to send money.  The way it works is simple: the person sending money simply deposits funds to an account that can be accessed by an ATM or debit card.

This can be linked to a checking account to give the recipient “on demand� access to funds or a prepaid card can be used to authorize the receipt of certain amounts periodically.  This is a secure, fast, cheap way to send money to Australia that will continue to grow in popularity because of its advantages over more traditional methods.

Mexico, just like the United States entered recession in 2001, and has been struggling ever since.  Mexico’s redeeming mark has been the stream of money entering the country by way of workers’ remittances.  In 2002, Mexico was at the top of the list with the most remittances of any country in the world.  This provided some reprieve, especially in the central and southern regions of the country.

Sizing Up World Remittances

In 2002, remittances for the entire world totaled $75.4 billion, up from $68 billion in 2001.  Of that $75.4 billion, Mexico received the largest amount (nearly $10 billion), followed closely by India with $8.3 billion.  The worldwide top receivers of remittances were Pakistan, Egypt, Morocco, Bangladesh, Colombia, Dominican Republic, Turkey and El Salvador.

Exceeding Africa ($7.8 billion) and Europe ($5.8 billion), remittances in Mexico in 2002 were about 15 percent of all remittances by developing countries.  India led the way in 2000 receiving $8.3 billion, followed closely by Mexico at $6.5 billion.  Since then, Mexico has continued to stay on top even with the declining economy slowing down.

Mexican workers’ remittances

The $13.3 billion in workers’ remittances Mexico received in 2003 symbolizes a 35 percent increase over 2002, when the country received $9.8 billion.  In fact, workers’ remittances have continued to rise since 1960, with the only decline in 1982 of 1.8 percent.  Remittances averaged a 12.8 percent annual growth rate from 1960 through 2003.

In the first quarter of 2008, money transfers to Mexico have dropped 2.9 percent from the first quarter in 2007.  Central Bank reported the first substantial decline since transfer tracking began with the estimated total remittances to Mexico for 2008 being $45.9 billion.

The Inter-American Development Bank said during an interview in May of this year, “In a sign that the economic downturn is hitting hard among Latino immigrants, more than three million of them stopped sending money to families in their home countries during the last two year.”

Although many immigrants continue to transfer money home to support their families, it is becoming increasing difficult to maintain support in Mexico and daily living in the United States.  Because of this, many Mexicans have contemplated returning home.

With an increasing number of Indians living abroad, either for work or having settled there, foreign exchange remittances into the country is likely to increase. India has a strong believe in taking care of their family and feel compelled to sending money home for support of their families, business endeavors, or to build a nest egg for themselves upon returning home.

India receives the largest amount of remittances in the world, “getting over 10% of the $230 billion global market, according to World Bank numbers,� says Manish Misra, ICICI Bank’s head of global remittance. It is expected that the business will grow 15-20% annually in the next 4-5 years. “It is inevitable that, with the need for overseas workers, that India will remain a big market for the remittance business,� Misra says. One of the top bank’s remittance services, has a 22% market share in the Indian business, and according to estimates, the remittance market is expected to grow to $26-27 billion by 2006-07.

The United States and Saudi Arabia are the largest sources of workers remittances to developing countries and it is forecasted that in the next five years, Asia will be the top destination for Indians willing to migrate out of the country. Besides the Gulf, United States and United Kingdom, Australia, New Zealand and Canada are also fast catching up because of the desperate need for skilled labor there.

Out of the $23 billion, that enters India, an estimated $8-9 billion comes from the United States, and the next highest is from the Gulf. India accounts for over 20 percent of the remittances.

According to the World Bank, India receives more remittances than any other country from the 25 million people of Indian origin and nonresident Indians living abroad. Remittances so far this year in private transfers has reached $27.1 billion, according to the latest balance of payments figures. This private foreign remittances figure is leading the way in foreign exchange through foreign direct investment or foreign institutional investment.

A recent J.P. Morgan report stated that international remittances to India are growing at a rate 25 percent annually.  The United States has also emerged as a major source of remittances in the past few years as the information technology industry created countless job opportunities for Indians.

The Indian southern state Kerala receives the highest number of foreign remittances from the Gulf as nearly half of more than 4 million Indians working in various Gulf countries are from the state.

Foreign remittances to the state have been seven times of what Kerala received from the government of India as budget support. The other Indian states with large foreign remittances are Punjab, Gujarat and Andhra Pradesh.

Anand Kute, head of marketing of online remittance company remit2india, says that low-income workers from Gulf countries are major contributors to overseas remittances to India. He added that out of the estimated $26.8 billion in remittances sent by overseas Indians last year more than $10.5 billion was transferred from the Gulf countries.

Key players say that the popularity of fast money transfer services among Indian emigrants is increasing while the more conservative transfers through demand drafts have begun to show a downward trend.