The information shown in this diagram refers to 2006, but it gives us an idea of the amount of remittances as a percentage of the receiving country’s gross domestic product (GDP). This in turn illustrates their economic significance.
If we exclude the two main recipient countries, Mexico and China, the graph shows not just the size of the flows, but also the fact that for some countries remittances represent a significant proportion of GDP. In some cases this reaches peaks of over 35% (for example in Moldova and Tajikistan).


The economic-financial crisis that has hit the world economy so hard since 2008 will certainly affect international flows of remittances. In recent years, these flows have seen constant growth of over 10% per year. Their impact on receiving countries’ economies is difficult to predict, but very definite.
A lot will depend, of course, on the duration and severity of the current crisis. The World Bank estimates that flows to medium- and low-income countries will fall by about 5% in 2009, and then recover in the next few years. This fall is still relatively limited compared with the fall expected in flows of private capital to these same countries.
The following table summarises the World Bank forecasts.

The data available on remittance flows from Italy are only an estimate of the actual volumes. One reason is that in Italy we still do not have a specific survey system to measure these flows of money. Another is that the figures naturally do not take into account remittances sent through informal channels. And these remittances, though difficult to quantify, make up a significant percentage of the flows. This is illustrated in Table 1, below.



If we consider the geographical distribution of remittance transfers at the regional level here in Italy (Table 2, below), the market appears strongly concentrated in Lazio and Lombardy. Indeed, 46.6% of money transfers by migrants resident in Italy are sent from these two regions.



¹Source: CeSPI, from ISTAT (National Statistics Institute) and World Bank data 2003-2007
²The ABI-CeSPI study was published in, “Banche e nuovi italiani, I comportamenti finanziari degli immigrati”, edited by J.L. Rhi-Sausi and M. Zupi, Bancaria Editrice, Rome, 2009.

We must not forget that remittances are essentially private (“It’s their money”, as Donald Terry³, manager of the Multilateral Investment Fund MIF, has pointed out). However, they are an important resource as they have:

A positive macro-economic impact:
- constant growth in each stage of migrants’ integration;
- strong stability and low elasticity with respect to interest and exchange rates;

A direct impact on reducing poverty:
- remittances are sent, in most cases, to poorer segments of the population;
- remittances reach beneficiaries directly.

At the micro level, remittances can be considered as part of the immigrant’s received income, which they then send to their families in their countries of origin. They do not necessarily include all of the immigrant’s savings. This is because immigrants all have different needs, linked to their integration process, which lead them to accumulate part of their income in the form of savings in their destination country. Still at the micro level, remittances can be broken down into two components⁴.
The first is the ordinary component, which is the normal amount the migrant sends to their family on a fairly regular basis. And the second is the discretionary component, which is any sum in excess of the ordinary component that the migrant sends occasionally for various reasons, usually linked to particular needs or requirements.
At the same time, remittances can have many different functions and end-uses, which can be classified as: individual, business and community⁵.

In terms of possible end-uses:

- remittances are first and foremost a source of subsistence and consumption for the immigrant’s family of origin. For this reason, any reduction in transfer costs and the possibility for the migrant to influence consumption decisions are two strategic factors.

- remittances can be a source of future consumption, especially with respect to education, buying a house and forms of social and pensions insurance. In this sense, the availability of suitable financial products (for savings and investment) and the ease with which the accumulated funds can be transferred are two factors of vital importance.

- remittances can become a resource to develop and support business activities in the migrant’s country of origin, and for trans-national business activities. But to channel remittances to enable access to credit by small- and medium-sized companies, new and appropriate instruments are needed.

- lastly, by funding community social projects, remittances can be an important resource for migrants to help support and develop their community of origin. At the same time, they nourish the migrant’s link with their home community and enable them to maintain their identity and roots. We need to create mechanisms that can act as catalysts and multipliers in this process.

This diagram is an attempt to summarise in graphic form the different functions and roles played by remittances.



The term “remittance” therefore has a much wider significance that cannot be considered separately from the concept of “savings”. Remittances are, first and foremost, a form of savings intended for a whole range of functions related to the migrant’s integration, migration and resource allocation strategies.
Financial intermediaries who provide appropriate instruments to intercept these savings can generate financial leverage, thus enabling the resources to be allocated to better effect and promoting a sense of ownership of the savings themselves. In so doing, they can enhance the resources and bind them to their specific geographical area, without losing sight of the essential component of the remittance. Namely, that remittances are a private resource and largely respond to immediate consumption needs.
For this to happen, financial intermediaries need to be able to offer complete financial products that allow real resource-allocation strategies. These products must respond to the various needs and reasons for which remittances are sent in the first place, and offer some stimulus for migrants to divert part of the remittances that currently travel over informal channels (see fact-sheet on remittances and financial instruments).

³Donald Terry, FMI-BID, 2004.
⁴R. Pleitez, Heterogeneidad de las Remesas, Implicaciones para el desarrollo de produco financieros, Departamento de Estudios Economicos y Sociales DEES, June 2007.
⁵Estruch, Ferro, Frigeri, in "Strumenti finanziari per l'invio delle rimesse degli immigrati", in Fondazione ISMU, RIAL: Dagli Appennini alle Ande: le rimesse dei latinoamericani in Italia, Ed. Franco Angeli, Milan 2008

This is a typical function of financial intermediation, but it is also a challenge for the financial industry in general and for micro-finance in particular. A challenge that requires a new approach that is able to see immigrants in all their aspects and needs, and in all their potential. Low-income individuals, a significant proportion of whom are immigrants, often have a low capacity for saving, a capacity that is also subject to a high degree of uncertainty and variability. They often find it impossible to access formal channels to accumulate and protect their savings. In the case of immigrants, their decisions on how best to allocate their savings also have to bridge two countries – their country of origin and their destination country. Their decisions are directly influenced by their different personal and family migration strategies.

We need new, appropriate financial instruments to meet these challenges – instruments that should be highly accessible and have flexible conditions. They should also have a low degree of risk, offer an adequate return on savings and be easily transferred into ready cash to meet the needs arising from migrants’ different migration experiences and often precarious circumstances. Above all, financial instruments should be mobile, in keeping with the immigrant’s “double identity” (country of origin and destination country).
Micro-finance in particular, and the financial industry in general, is responding rapidly to these challenges. Financial inclusion is slowly rising up the policy agenda in many countries. And researchers are trying to find innovative instruments and models, starting with an analysis of the financial needs expressed on a case-by-case basis.
We have drawn up a chart outlining some of the main financial instruments, each with their different features and objectives, that could be developed to channel and add value to remittances. The instruments are classified on the basis of the specific aims underlying immigrants’ different types of financial behaviour (and their different approaches to allocating savings). On the basis of the goals and interests expressed by the migrant, various products and allocation opportunities open up, which have direct and indirect repercussions on migrants and their family of origin. The repercussions and impact – both in Italy and in the country of origin – of financial products designed for the immigrant population can encourage and support immigrants in making greater use of banks, and thus foster financial inclusion. This will occur in different ways, depending on the product considered. Suitable financial products can also:

- reduce immigrants’ financial vulnerability;
- provide access to payment services (in Italy and their country of origin);
- provide access to credit and other financial services (various forms of guarantees);
- add value to savings by providing an adequate return and fostering asset-building strategies.

View chart

This chart is intended to be up-dated as the financial instruments develop. It will also be up-dated in line with the on-going research in which CeSPI is directly involved along with operators in the sector.