THE BIG PICTURE*
Migration
South-South Migration is Larger than South-North Migration (%)
People migrate voluntarily for a variety of reasons, but one major driver is the changing nature of work. Globalization, climate change, and perhaps most of all, the technology revolution have all converged to create a world where fewer people stay in one place working a steady job and more people pursue multiple opportunities. For hundreds of millions of those people, those opportunities involve living abroad for some portion of their working years.
Even when moving for work is the smart decision, migration can mean income volatility, uncertainty and insecurity. This is particularly true for migrants in irregular situations, migrant workers with precarious livelihoods, or those working in the informal economy. The same financial products which at home could help reduce vulnerability—liquid savings, lines of credit, insurance, pension, etc.—are seldom easy to access outside one’s home country. (And for low-income people, often not there, either.)
Remittances
At the global level, remittances are among the most important financial flows. They are projected to exceed USD 470 billion by 2021 in the world’s low- and middle-income countries. This is greater than foreign direct investment, and substantially greater than overseas development assistance.
Remittance flows to low- and middle-income countries projected to
remain higher than foreign direct investment flows
How remittances move now
Small wonder, then, that so many remittances bypass the formal channels and move through one of the unregulated networks that are ubiquitous in many countries. These networks go by different names (e.g., hundi, hawala) but the process is essentially the same: a migrant gives cash to an agent operating in the country where the migrant works. That agent has an associate in the migrant’s home county; the home-country agent delivers an equivalent amount of local-currency cash to the migrant’s intended beneficiary.

The drawbacks
The most obvious issue is cost. Globally, remittances carry an average 7 percent transaction fee, more than twice the target of 3 percent specified in the Sustainable Development Goals. The unregulated networks have also been linked to money laundering, financing of terrorism, human trafficking, and other abuses. Even where there is no connection to criminal activity, informal remittance flows distort the financial picture in harmful ways for developing countries, making receiving countries’ balance of payments appear less favorable than it actually is. This adversely affects those countries’ sovereign credit ratings, making it harder and more expensive to finance the kinds of large-scale initiatives that their countries need to develop.