Sector study for remittances from europe to sri lanka

Sector Study for Remittances from

Europe

Presented by Saminda Kodithuwakku (Reading for PhD in Remittances , B.Sc(First class) and Project

Planning Consultant

Total foreign revenue generated by Sri Lankan migrant workers US $ 5.1 billion in 2011

In 2009 US $ 164 in Sri Lanka but South Asia of about US $ 35.

14 % increase in inward worker remittances to Sri Lanka between 2008 to 2009

(Source: Sri Lanka Bureau of Foreign Employment)

Income Quintile (Q)

Income Range (US $ per month)

Region

Q1 Less than 150 Middle East

Q2 150 – 299

Q3 300 – 544 Middle East and Asia

Q4 550 – 1,000 Europe and Asia

Q5 More than 1,000 Europe, Asia, America

Q4 and Q5 subdivided into 03 Remittance Socioeconomic Groups

Based on social and remitting behaviour

Purposes of use

Income Groups (remittance from Europe)

Remi-1 Remi-2 Remi-3

Consumption 62.3% 2% 23.1%

Housing and household assets

26.3%6%

27.1%

Business investment

1%7%

15.0%

Savings 4.4% 82.2% 29.2%

Other expenditure 6% 2.8% 5.8%

Remittance from Europe represents the highest value in per capita terms

- approx 400 Euros/ Rs. 60,000 per month

- (approx 48,000 Euros/ Rs. 7.2 lakhs per

annum)

Usual poverty parameter- Monthly income

But… Remittance Receivers of Remi-1 Overall monthly cash balance is minus Low level of social development

Remittance Receivers of Remi-2 Save money on simple financial instruments Opportunity cost – forego investment

income 8

Work and earn in Europe

Start a business or invest

All for Consumption

Bankruptcy or loss of

investment

Sheer impact to Sri Lanka’s FOREX earnings and total GDP in monetary terms

Case of the ‘missing’ money (flourishing informal sector – drawbacks and threats)

Case of the ‘missing’ data (reliable case data on remittances to Sri Lanka unavailable with CBSL, SLBFE, Dept of Census and Statistics)

Sender side – Sri Lankan migrants in Italy, Germany, France, Netherlands and Cyprus

Fall into 3 categories:1. Legal migrants remitting through formal

channels2. Legal migrants remitting through

informal channels3. Illegal migrants remitting through

informal channels

Receiver side – remittance recipients and returnee migrants residing in Colombo, Gampaha, Kalutara, Kandy, Kegalle, Kurunegala, Puttalam and Trinco.

Keen on1. Business start up/ expansion/ revival2. Investing on financial market instruments3. Investing on capital market instruments

Create (indirect) incentives for legal migrants using informal channels to shift to formal (induce financial sector and policy bodies)

Provide recipients/ returnees with financial literacy, SME and technical training

Facilitate direct linkages to financial institutes for investment and business development purposes

Banking Sector (including state, private and international banks)

Non-bank financial institutes

Microfinance institutes

Stock brokers

Create incentives to develop customer oriented remittance/ financial products

Provide opportunity to present their services to Sri Lankan migrants in Europe

Facilitate direct linkages to potential clients

Central Bank of Sri Lanka

Sri Lanka Bureau of Foreign Employment

Colombo Stock Exchange

Arrange advocacy workshops (National Remittance Forum)

- raise awareness on remittance sector issues

- a platform to discuss possible improvements

- introduce socioeconomically viable remittance models

Induce authorities to create a conducive environment

- support to financial sector - preferential treatment to users (social

benefits e.g. health, education)

Present models of incorporating illegal migrants who are currently unable to utilize formal channels, into financial mainstream

Social remitting behavior of receivers and sender to craft socially viable, cost effective remittance products.

Opening Exchange houses in different European countries

Interbank remittance agreement: while maintaining a common current account

Zero physical handling of cash is emphasized Prepaid rechargeable remittance cards Simple KYC to introduce pre-paid rechargeable

remittances cards Intra-bank remittances: transfer money via the

international banking system22

In Sri Lanka, there is no problem in disbursement of remittances

Microfinance institutions are required to Develop SME development financial products Educate receivers to invest on sustainable

businesses Link receivers with banks to invest on advanced

financial instruments Provide pre-departure remittance literacy

Decision on remittance channels done by sender after migrating to Europe

23

Sri Lankan migrant in Europe Europe (Exporter)

Remittance receiver tends to buy imported goods

Increase the aggregate demand for imports

Increase deficit of BOP

24

Remittance is end product

Need to add marketable features to remittances

Provision of preferential treatments for remittance receivers’ families

Policy level and financial sector interventions 25

Sri Lanka Bureau of Foreign Employment

integrate migrant returnees to Sri Lanka’s Society

Liquidate skills & knowledge Educate for next trip

26

Black Market = Formal remittance market

?27

Other countries 2.58 USD billion

Europe Informal 3.76 USD

billion

Europe formal0.72 USD billion(22%)

All Formal 3.3 USD billion in Year 2009

28

In Europe ------------- 680,000 Remittance Active Migrants (BASUG field research)

Avg. Remittance per head per year--------- 6,600 USD

(SEEDS field research)

Total Europe per year----------------------- 4.48 USD billion

EUROPE-formal -------------------------------- 0.72 USD billion

EUROPE-informal------------------------------ 3.76 USD billion

Total -formal for Year 2009------------------ 3.3 USD billion

Europe informal out of Total-formal--------------1.13 ≈ 1.0

29

First NEEDS: Speed of service

•High speed of service reduces the risk of missing

•Rather than loss due to high cost of channel

First NEEDS: Speed of service

•High speed of service reduces the risk of missing

•Rather than loss due to high cost of channel

Second NEEDS: Psychological Access

•Mental Easiness or compatibility with service providers

•Hide themselves and their details

Third NEEDS: Conversion Rate Attractive FOREX rate provides Extra -Remittance

30

Sudden influx of income flow

Response

Artificial affluent Social Behavior

Unfeasible IGA Flying Mentality

31

Usual poverty parameter = Monthly income

But remittance ReceiversOverall monthly cash balance is minusLow level of social development

32

Nationalisation of Exchange houses

Interbank remittance agreement

Minimum physical handling of cash(not at frontline)

Closer relationship at Sender side

Arrange KYC for pre-departure rechargeable cards

Transfer via Account to Account 33

Thank You

34