Video Transcript: The Hidden Force in Global Economics: Sending Money Home

I live in Washington, D.C., but I grew up in Sindhekela, a village in Orissa, in  India. My father was a government worker. My mother could not read or write,  but she would say to me, "A king is worshipped only in his own kingdom. A poet  is respected everywhere." So I wanted to be a poet when I grew up. But I almost didn't go to college until an aunt offered financial help. I went to study in  Sambalpur, the largest town in the region, where, already in college, I saw a  television for the first time. I had dreams of going to the United States for higher  studies. When the opportunity came, I crossed two oceans, with borrowed  money for airfare and only a $20 bill in my pocket. In the U.S., I worked in a  research center, part-time, while taking graduate classes in economics. And with the little I earned, I would finance myself and then I would send money home to  my brother and my father. My story is not unique. There are millions of people  who migrate each year. With the help of the family, they cross oceans, they  cross deserts, they cross rivers, they cross mountains. They risk their lives to  realize a dream, and that dream is as simple as having a decent job somewhere so they can send money home and help the family, which has helped them  before. There are 232 million international migrants in the world. These are  people who live in a country other than their country of birth. If there was a  country made up of only international migrants, that would be larger, in  population, than Brazil. That would be larger, in its size of the economy, than  France. Some 180 million of them, from poor countries, send money home  regularly. Those sums of money are called remittances. Here is a fact that might  surprise you: $413 billion, $413 billion was the amount of remittances sent last  year by migrants to developing countries. Migrants from developing countries,  money sent to developing countries — $413 billion. That's a remarkable number because that is three times the size of the total of development aid money. And  yet, you and I, my colleagues in Washington, we endlessly debate and discuss  about development aid, while we ignore remittances as small change. True,  people send $200 per month, on average. But, repeated month after month, by  millions of people, these sums of money add up to rivers of foreign currency. So  India, last year, received $72 billion, larger than its IT exports. In Egypt  remittances are three times the size of revenues from the Suez Canal. In  Tajikistan, remittances are 42% of GDP. And in poorer countries, smaller  countries, fragile countries, conflict-afflicted countries, remittances are a lifeline,  as in Somalia or in Haiti. No wonder these flows have huge impacts on  economies and on poor people. Remittances, unlike private investment money,  they don't flow back at the first sign of trouble in the country. They actually act  like an insurance. When the family is in trouble, facing hardship, facing hard  times, remittances increase, they act like an insurance. Migrants send more  money then. Unlike development aid money, that must go through official  agencies, through governments, remittances directly reach the poor, reach the  family, and often with business advice. So in Nepal, the share of poor people 

was 42% in 1995, the share of poor people in the population. By 2005, a decade later, at a time of political crisis, economic crisis, the share of poor people went  down to 31%. That decline in poverty, most of it, about half of it, is believed to be because of remittances from India, another poor country. In El Salvador, the  school dropout rate among children is lower in families that receive remittances.  In Mexico and Sri Lanka, the birth weight of children is higher among families  that receive remittances. Remittances are dollars wrapped with care. Migrants  send money home for food, for buying necessities, for building houses, for  funding education, for funding healthcare for the elderly, for business  investments for friends and family. Migrants send even more money home  for special occasions like a surgery or a wedding. And migrants also send  money, perhaps far too many times, for unexpected funerals that they cannot  attend. Much as these flows do all that good, there are barriers to these flows of  remittances, these $400 billion of remittances. Foremost among them is the  exorbitant cost of sending money home. Money transfer companies structure  their fees to milk the poor. They will say, "Up to $500 if you want to send, we will  charge you $30 fixed." If you are poor and if you have only $200 to send, you  have to pay that $30 fee. The global average cost of sending money is 8%. That means you send $100, the family on the other side receives only $92. To send  money to Africa, the cost is even higher: 12%. To send money within Africa, the  cost is even higher: over 20%. For example, sending money from Benin to  Nigeria. And then there is the case of Venezuela, where, because of exchange  controls, you send $100 and you are lucky if the family on the other side  receives even $10. Of course, nobody sends money to Venezuela through the  official channel. It all goes in suitcases. Wherever costs are high, money goes  underground. And what is worse, many developing countries actually have a  blanket ban on sending money out of the country. Many rich nations also have a  blanket ban on sending money to specific countries. So, is it that there are no  options, no better options, cheaper options, to send money? There are. M-Pesa  in Kenya enables people to send money and receive money at a fixed cost of  only 60 cents per transaction. U.S. Fed started a program with Mexico to enable money service businesses to send money to Mexico for a fixed cost of only 67  cents per transaction. And yet, these faster, cheaper, better options can't be  applied internationally because of the fear of money laundering, even though  there is little data to support any connection, any significant connection between money laundering and these small remittance transactions. Many international  banks now are wary of hosting bank accounts of money service businesses,  especially those serving Somalia. Somalia, a country where the per capita  income is only $250 per year. Monthly remittances, on average, to Somalia is  larger than that amount. Remittances are the lifeblood of Somalia. And yet, this  is an example of the right hand giving a lot of aid, while the left hand is cutting  the lifeblood to that economy, through regulations. Then there is the case of 

poor people from villages, like me. In the villages, the only place where you can  get money is through the post office. Most of the governments in the world have  allowed their post offices to have exclusive partnerships with money transfer  companies. So, if I have to send money to my father in the village, I must send  money through that particular money transfer company, even if the cost is high.  I cannot go to a cheaper option. This has to go. So, what can international  organizations and social entrepreneurs do to reduce the cost of sending money  home? First, relax regulations on small remittances under $1,000. Governments should recognize that small remittances are not money laundering. Second,  governments should abolish exclusive partnerships between their post office  and the money transfer company. For that matter, between the post office and  any national banking system that has a large network that serves the poor. In  fact, they should promote competition, open up the partnership so that we will  bring down costs like we did, like they did, in the telecommunications industry.  You have seen what has happened there. Third, large nonprofit philanthropic  organizations should create a remittance platform on a nonprofit basis. They  should create a nonprofit remittance platform to serve the money transfer  companies so that they can send money at a low cost, while complying with all  the complex regulations all over the world. The development community should  set a goal of reducing remittance costs to 1% from the current 8%. If we reduce  costs to 1%, that would release a saving of $30 billion per year. $30 billion, that's larger than the entire bilateral aid budget going to Africa per year. That is larger  than, or almost similar to, the total aid budget of the United States government,  the largest donor on the planet. Actually, the savings would be larger than that  30 billion because remittance channels are also used for aid, trade and  investment purposes. Another major impediment to the flow of remittances  reaching the family is the large and exorbitant and illegal cost of recruitment,  fees that migrants pay, migrant workers pay to laborers who found them the job.  I was in Dubai a few years ago. I visited a camp for workers. It was 8 in the  evening, dark, hot, humid. Workers were coming back from their grueling day of  work, and I struck a conversation with a Bangladeshi construction worker. He  was preoccupied that he is sending money home, he has been sending money  home for a few months now, and the money is mostly going to the recruitment  agent, to the labor agent who found him that job. And in my mind, I could picture the wife waiting for the monthly remittance. The remittance arrives. She takes  the money and hands it over to the recruitment agent, while the children are  looking on. This has to stop. It is not only construction workers from Bangladesh, it is all the workers. There are millions of migrant workers who suffer from this  problem. A construction worker from Bangladesh, on an average, pays about  $4,000 in recruitment fees for a job that gives him only $2,000 per year in  income. That means that for the two years or three years of his life, he is  basically sending money to pay for the recruitment fees. The family doesn't get 

to see any of it. It is not only Dubai, it is the dark underbelly of every major city in the world. It is not only Bangladeshi construction workers, it is workers from all  over the world. It is not only men. Women are especially vulnerable to  recruitment malpractices. One of the most exciting and newest thing happening  in the area of remittances is how to mobilize, through innovation, diaspora  saving and diaspora giving. Migrants send money home, but they also save a  large amount of money where they live. Annually, migrant savings are estimated  to be $500 billion. Most of that money is parked in bank deposits that give you  0% interest rate. If a country were to come and offer a 3% or 4% interest rate,  and then say that the money would be used for building schools, roads, airports, train systems in the country of origin, a lot of migrants would be interested in  parting with their money because it's not only financial gains that give them an  opportunity to stay engaged with their country's development. Remittance  channels can be used to sell these bonds to migrants because when they come  on a monthly basis to send remittances, that's when you can actually sell it to  them. You can also do the same for mobilizing diaspora giving. I would love to  invest in a bullet train system in India and I would love to contribute to efforts to  fight malaria in my village. Remittances are a great way of sharing prosperity  between places in a targeted way that benefits those who need them most.  Remittances empower people. We must do all we can to make remittances  and recruitment safer and cheaper. And it can be done. As for myself, I have  been away from India for two decades now. My wife is a Venezuelan. My  children are Americans. Increasingly, I feel like a global citizen. And yet, I am  growing nostalgic about my country of birth. I want to be in India and in the U.S.  at the same time. My parents are not there anymore. My brothers and sisters  have moved on. There is no real urgency for me to send money home. And yet,  from time to time, I send money home to friends, to relatives, to the village, to be there, to stay engaged — that's part of my identity. And, I'm still striving to be a  poet for the hardworking migrants and their struggle to break free of the cycle of  poverty. Thank you.