Introduction

Ladies and gentlemen, I am honored to have
been invited to give a speech at the UPU strategic conference and
thankful to have the opportunity of elaborating on a major
challenge today which is increased human mobility and how it
transforms our relation to services such as the one offered by the
postal industry.

More and more people nowadays live and work
outside their own country and are eager to maintain links with
their families and communities back home. In addition to
traditional forms of exchange of information such as letters and
phone calls, new technologies such as the internet have facilitated
communication across borders and the preservation of these links
with the home country.

However, the nature of the exchanges between
(the) migrants and their home community go beyond the exchange of
news.  Indeed, migrants’ motivation in going abroad is
often to sustain their loved ones by sending back money earned
abroad, or when established in the destination country to invest in
the development of their country of origin. These transfers of
funds are generally referred to as remittances which will be the
main topic of my presentation.

For IOM’s purposes, remittances are
broadly defined as the financial flows associated with migration -
in other words, personal, cash transfers from a migrant worker or
immigrant to a relative in the country of origin.

But the definition of remittances can also be
broadened to include funds invested, deposited or donated by a
migrant to his or her country of origin, and include in-kind
transfers of goods as well as donations which are made either by
individuals or collectively by migrant associations.

So, when we speak about remittances, we can
speak about all of these sorts of transnational flows. However, in
most cases, we are referring to a more limited definition of
monetary transfers.

The global scale and importance of
remittances and their link to migration

What is so important about these financial
flows and how are they linked to migration?

Remittances are an outcome of migration and
they are also the most direct link between migration and
development. As global migration has grown, so have remittance
flows, and so has their potential impact on development.

Over the past 35 years, the number of people
living outside their country of birth has doubled. Today there are
over 190 million migrants, meaning that worldwide, 1 in every 35
people is a migrant. And this trend of increasing international
migration, and of migrants in absolute terms, can be expected to
continue in the coming decades.

While the majority of international migrants
originate from developing countries, migration is not just a
south-north phenomenon. Close to 50% of migrants move from one
developing country to another. This helps explain why, while the
majority of remittances flow from north to south, somewhere between
30 and 45% of remittances flow south-south, from one developing
country to another, because remittance flows mirror migration
patterns.

Migration, in general, has 3 key determining
factors: (1) the pull of changing demographics and labor market
needs in high income countries, (2) the push of wage differentials
and crisis pressures in less developed countries, and (3) and
social networks (within regions and across continents), based on
family, friends, culture and history, all of which will continue to
fuel international migration well into the future.

One of the challenges associated with these
growing migration flows is how to help maximize their benefits for
countries of origin, countries of destination and for individual
migrants themselves. In this context, the topic of remittances
plays a central role because the largest economic benefit of
migration for origin countries is very clearly, remittances.

According to the World Bank, a total of $167
billion in remittances were transferred from migrants to their
relatives in 2005, twice as much as total remittances just five
years ago.  Even still, this number is likely to be a drastic
underestimate of the real total flow, because payments are made
through informal channels (unrecorded channels are not necessarily
captured in this figure) and because some countries do not have any
systematic way of recording formal remittance flows.  So you
should probably add another 50% to this figure of $167 billion to
get to the real total.

Regardless of where they come from,
remittances are unquestionably an important source of foreign
exchange, which allow origin countries to acquire vital imports or
pay off external debts.  In many cases, remittance inflows are
far greater than international official development assistance
(ODA) and, as a form of external financing, are only second to
foreign direct investment (FDI).

There is also widespread belief that
remittances play an important role in reducing poverty, although
the data measuring the impact of remittances on poverty is
limited.  In Guatemala, for example, remittances are believed
to have reduced the incidence of poverty by 20%, in Uganda –
11%, in Bangladesh – 6%. These are significant numbers.

What can be said with more certainty about the
link between remittances and poverty reduction is that remittances
often flow to poor and marginalized families, and in many cases,
make up a large percentage of total household income, acting as a
substitute for earned income lost to unemployment, illness,
retirement, emigration, falling wages, crop failure, etc.,
ultimately, protecting poor families against the erosion of what
are already scarce basic household assets.

Even in cases where remittances are not a
regular part of monthly income, they can often act as a safety net
in the case of an emergency or special need in the family. 
But regardless of whether they are sent regularly, or in special
circumstances, remittances are generally a fairly reliable and in
some cases, longstanding form of economic support for many
migrant-sending households, an income source which is not sensitive
to fluctuations in the origin country’s economy, and which
ultimately has a smoothing effect on household income, reducing
vulnerability.

The link between remittances and poverty
alleviation, however, has not always been so widely accepted. In
fact, there have been cycles of pessimistic and optimistic thinking
about remittances.  In the 1990s for example, the general
pessimistic view was that remittances do not promote growth but
rather exacerbate the dependency of sending communities by raising
material expectations without providing a means of satisfying them,
other than more migration.  In other words, critiques believed
that migrant-sending families attained a higher standard of living
but communities, in general, achieved little autonomous
growth.  In addition, at the local level, remittances can
sometimes increase inequalities between those who have access to
migration opportunities and those who do not.  Some analysts
went as far as to advise governments and donors to discourage
migration and remittances.

Recently, however, there has been a sea change
in the consensus views, and there is now a great deal of excitement
about the potential of remittance inflows to support growth and
development, partly because remittance flows have become so large,
and partly because the theoretical understanding of remittances has
changed. Migration and remittances are now generally seen to be the
result of family decisions based on optimizing their potential,
given the opportunities and constraints that they face, and the
potential costs of remittances are now largely derived from moral
hazard problems.

The current consensus now is that while
remittances alone cannot address all development needs of poor
countries, nor be a substitute for foreign aid, they do place
migrants firmly within the development equation, and as they grow,
offer more and more opportunities for contributing to economic
development and poverty alleviation in many parts of the world.

Strategies to enhance the development
impacts of remittances

How do remittances actually contribute to
development?

Firstly, remittances have a natural
development effect at the household level. Remittances income
allows families to spend more money on better food, to improve
their housing - often very significantly, to pay for educational
costs or keep children in school longer, to pay for otherwise
unaffordable medications or medical care, buy land, buy animals,
buy a car, start a business, even save.  This spending
generates important development impacts at the family level.

These individual impacts also have positive
developmental spill-over-effects at the community level.  For
example, all the housing construction paid for by remittances,
creates employment and stimulates demand for local materials. 
Similarly, increased monthly household income increases demand for
every day products like food, as well as for other things like new
clothing, gasoline for the car, phone service, or furniture. 
All of this spending adds to the amount of money circulating in the
local economy, supporting local producers and service
providers.

In some cases, remittances are sent, not to
individual families, but instead to migrant-sending communities,
usually by migrant associations abroad, in the form of collective
donations, which usually help pay for improvements in basic
physical infrastructure - like roads, electrical or water service,
schools and medical clinics - or for ecological or cultural
projects, again contributing to development.

Clearly, remittances sent and received by
migrants and their families all over the world have important
development impacts on their own, without any form of institutional
intervention. However, there are a number of things that
institutions can do to enhance these already important development
impacts - at the individual level, at the community level, and at
broader regional and national levels.

I will briefly touch on those institutional
interventions now, and will then focus on the specific role that
postal unions can play in this market place.

Types of institutional interventions in
the remittance market

Institutional interventions in the remittance
market can be divided into two categories: (1) Those which
contribute to enhanced development impacts, and (2) Those which
improve remittance transfer services by reducing cost, expanding
choices, improving access, etc.   The role of postal
services fits clearly in the second category. So let me first
briefly review some of the institutional interventions that
contribute to enhanced development and then discuss how remittance
transfer services can be improved and how the postal services can
play a role.

Enhancing Development Impacts

• Creation of new investment opportunities for migrants and
  households receiving remittances

One thing that institutions can do to help
enhance the development impacts of remittances is to help create
new investment opportunities for migrants and households receiving
remittances.

Remittances are a form of foreign savings
which interact directly with their local environment.  In
other words, if there are opportunities for savings and/or
investment in the place where people are sending or receiving
remittances, they are more likely to save or invest part of their
money.  In cases where these opportunities are limited or
non-existent, savings and investment are minor or non-existent.

Private savings and investments, for example
in housing, education and small business development are all
drivers for development, so institutions which help create new and
expanded savings and investment opportunities for migrants and
their families are helping to enhance these development impacts.
This is most commonly done through new collaborations between
banks, micro-finance organizations, credit unions, etc. and
sometimes also with development organizations.

One example of this kind of intervention is a
current initiative involving IOM and UNDP in Tajikistan. In this
case, migrant-sending households receiving remittances are offered
access to credit (small loans) using their remittance income stream
as collateral, which these families use to start or expand small
businesses. These small businesses help increase household income,
put more money into circulation in the community and generate
employment, all of which contribute to development in these
migrant-sending areas.

Another example is a newly proposed project
between IOM Colombia and Caixa bank in Spain. In this example,
Caixa bank will offer new lines of credit for Colombian migrants
living in Spain who want to make investments in housing, education
or small business development in their country of origin.

A third example is an initiative in India
which does not involve IOM. In this case, Indian migrants living
abroad are given opportunities to invest remittances in development
bonds   managed by the Indian government.  This
initiative has been widely successful, raising billions of dollars
for national development projects in the country and provided
migrants a profitable return on their investment.

• A second strategy for institutions is to facilitate
  closer and more productive partnerships between diasporas and
  partner institutions in their country of origin, and to increase
  the development impact of philanthropic remittances

There are more and more cases whereby migrant
associations abroad make collective, philanthropic donations
towards development projects in their communities and countries of
origin.  However, when these groups work in partnership with
government officials, local NGOs, development organizations, and
other such institutions, then the impacts of these projects can be
greatly enhanced because institution partners can provide support
in designing and implementing good development projects, and also
because it is then more likely that the development projects chosen
are more in line with national development goals and
priorities.  It is also possible that through collaborations,
and matching schemes, the funding available for this work can be
substantially increased.

Perhaps the most successful and best known
matching program is the "4 x 1" program in Mexico. In this
initiative, collective, philanthropic donations from Mexican
migrant associations in the United States which support local
development projects in education, health, sanitation and civil
works are equally matched by national, state and municipal
government funds.

Another example of a project in this category
is an IOM capacity building project currently underway in which
leaders of Salvadoran migrant associations in the US, many of which
are involved in transnational, philanthropic development projects,
receive capacity building training to improve their skills in
project design and implementation. The project is also helping to
strengthen links and communication between these diaspora groups
and the national government of El Salvador to ensure that
development work sponsored by migrants is in line with the
country’s development priorities.

• A third role that institutions can play is to help provide
  information to migrants about the real costs of remitting and
  transfer options in host countries and/or to improve consular
  services for migrants, including the issuing of ID documents,
  allowing irregular migrants to access formal remittance
  channels

Plans are now underway at IOM to incorporate a
unit on remittances into our Pre-Departure Orientation Sessions for
migrant workers so that migrants have reliable and complete
information about remittance transfer costs, transfer options and
investment or savings opportunities before they go abroad.

In terms of consular services, the best
example is perhaps the Mexican Counselor ID card initiative which
has allowed irregular Mexican migrants living in the US to obtain
an ID card through their local consulate, which they can use to
open a bank account at a US bank for the purpose of transferring
remittances home. Without this identity card, irregular migrants
would not have access to formal banking services and would be
forced to use informal channels or more expensive transfer
services.

• A fourth strategy for institutions is to contribute to improved
  data collection and research on remittances

Official records usually underestimate
remittance flows, largely because of inadequate data collection
policies and procedures, and because of the large presence of
informally transferred remittances which are difficult to
accurately track or estimate.  When good data on remittances
exist, they are often not compiled in a way that makes them easily
accessible or understandable.

Institutions can help improve the reliability
of remittance data by helping governments and national banks to put
into place centralized data collection and reporting mechanisms
which help to more accurately track remittance transfers, at least
those which flow through banks and other formal financial
institutions.  Following models of successful practices is
useful here.

Another method to improve remittance data is
to facilitate national or locally based data gathering, usually
through individual and household surveys, which can give very
accurate and detailed information about remittance flows, transfer
methods, costs, use, impact, etc. These different kind of surveys
can also help to make more accurate estimates of informal
remittance flows.

Better research/data are needed to develop new
policies and programs to enhance the development impact of
remittances.

In the past few years, IOM has taken the lead
on a large and growing number of such remittance-related research
projects all over the world, all of which are published on our
website.

• Lastly, institutions can contribute to policy dialogue on the
  issue of remittances, through direct consultation with governments,
  or through larger workshops and conferences

There is an opportunity to draw from the
growing data available and from all the emerging pilot initiatives
in various regions of the world to advise governments, financial
institutions, development agencies, donor institutions, etc. on the
different interventions that are possible, to share best practices,
and to encourage government and other institutions to experiment
with some of these interventions in their own national context.

One example of this work is an international
conference on remittances for the benefit of the Least Developed
Countries (LDC) in Benin hosted by IOM. This conference brought
together finance ministers and senior officials from more than 25
LDCs to hear presentations on best practices and the latest
strategies for enhancing the development impact of remittances.
Several attendees are now in the process of formulating new
initiatives for their own countries based on what they learned at
the conference

Improve remittance transfer
services

• Reducing transfer costs and expanding access to formal transfer
  services

As mentioned earlier, in addition to enhancing
the development impacts of remittances, institutions can also help
improve remittance transfer services by reducing transfer costs and
expanding access to these services.

Depending on where they live and where they
wish to send money, migrants can usually choose from a variety of
formal and informal money transfer services.

Formal transfer mechanisms generally include
banks and other kinds of financial institutions, private money
transfer companies like Western Union, or postal services.

Informal transfer mechanisms generally include
hand carrying money home by migrants themselves, sending money
through a third party like a small business owner, a bus driver, a
trader, or a friend, a practice which in some parts of the world is
referred to as "hawala."

Migrants make their decision on how they will
transfer their remittances based on the cost, reliability, speed
and accessibility of each of the services available.  Most
people who do not choose formal channels do so because fees are too
high. In some cases, fees charged are as high as 20% of the amount
transferred and currency conversion rates can be as high as
6%.   Just to give a concrete example, let’s
imagine a Ghanaian young man who migrated to the US to help out his
family in Tamale. He manages to save, after all his expenses
abroad, 20 USD per month. Of those, 4 USD go into transfer fees. Of
the remaining 16 USD, (the money that actually reaches his family
in Tamale are in fact only 15 USD due to the money exchange fee). 5
USD are therefore lost during the transaction. If we think that 5
USD correspond to about 45,000 Cedis and that local people can live
a few days on this amount, we can understand why migrants prefer to
find other ways than using formal money transfer channels. In other
cases, migrants may not have access to formal transfer services,
specifically banking services, because of their legal status in the
host country and lack of required documentation. In still other
cases, formal transfer agents may not offer services to recipients
in rural or hard-to-reach areas.

Generally speaking, private money transfer
companies dominate the formal remittance transfer market.  The
largest players in the market, such as Western Union and Money
Gram, earn enormous profits from this relatively simple and low
risk operation. One estimate from 2003 placed Western Union’s
operating profits at 1.23 billion USD.  These companies charge
fees which are high, regressive (higher for smaller amounts) and
non-transparent.

Over the past few years, prices have declined
in some high-volume corridors, but still remain very high in
low-volume corridors.  This situation is unwarranted when one
considers the fact that money transfer operations are generally
simple and low risk. Where there is sufficient volume or
competition, there is no reason why formal remittance transfer
services should not be low cost, efficient and accessible. 
Research by the World Bank indicates that the true cost of
remittance transactions are far lower than the prices charged by
large private money transfer companies to migrants who want to send
money home.  In some remittance corridors, banks offer
comparatively less expensive transfer services, but transfer
procedures which are perceived to be complicated and delays of
several days or weeks for money to arrive at its destination
discourage greater use of banking services. Mistrust of banks can
also be a factor in some markets.

Let me stop here to provide an insight of the
particular situation of South-South remittances costs. 
South-South migration generates remittances which appear to be
between 10-29% of total flows to the South. What is of great
concern is that remittances costs tend to be higher than
North-South costs: for example, if transferring money from London
to Lagos costs USD 29, the same amount of money transferred from
Cotonou to Lagos costs USD 35. Similarly, transferring money from
Los Angeles to Mexico City costs USD 13, but when the transfer is
done from Guatemala City the charge rises to USD 23. Considering
that South-South migrants are more likely to be irregular and they
enjoy a much lower increase in income (than South-North) and are
for these reasons more vulnerable than others, there is an urgent
need for the international community to work towards reducing
remittances costs in these particular corridors.

One way to lower the cost of formal transfer
services is to improve and streamline financial laws and regulatory
systems which then open up the market to more providers and promote
competition. Competition and an increased number of service
providers eventually help lower cost and improve the quality and
range of transfer services available to migrants.

Simplifying the paperwork and other procedures
required of migrants to use formal remittance services is also
needed.  Part of the reason why so many migrants choose to use
private money transfer companies like Western Union is because
their money transfer procedures are simple.  Transferring
money through a bank or other formal institution is complicated
and/or intimidating for many migrants.  Alternative transfer
services also offer to migrants services which are rapid and
reliable, two other qualities which attract many migrants to
private transfer companies.

Partnerships between formal remittance
transfer service providers can help achieve some of these aims
– they can lower cost, increase simplicity, improve service
quality and expand accessibility.

One good example here is an initiative
targeting Haitian migrants in the Unites States. Thanks to a new
partnership between a US bank and FONKOZE, a Haitian micro-finance
institution, Haitian migrants in the US have a new choice in formal
remittance transfers.  People can now send money home via
transfer services provided by the partner US bank. The money is
bundled, and sent at a reduced rate to FONKOZE in Haiti, which then
distributes individual transfers into private savings accounts in
the name of the recipient. The recipients can then withdraw their
funds or use them as collateral for other kinds of financial
services such as micro-loans for business or education.

Another example, this time a partnership
between government and banks, is in India where migrants have the
opportunity to set up a “Non-Resident Indian deposit
account.”  When migrants transfer remittances from
abroad into this unique kind of savings account, they are offered a
number of benefits, including higher than usual interest rates,
exchange rate guarantees and tax exemptions on the interest
earned.

Other kinds of services which can encourage
more formal transfers are card-based schemes. Card based
innovations do not require clients to open and maintain bank
accounts and are cost-effective.  Visa offers four products
for money transfer and has tie-ups with banks, MFIs and retail
outlets.

Generally speaking, service providers catering
to the poor and migrants have tremendous new opportunities to
participate in this market, particularly if they can forge creative
and successful partnerships.  Alliances between banks, credit
unions, postal networks, retail outlets, and even private money
transfer companies, as well as governments, development agencies,
NGOs and international organizations, can allow new service
providers to overcome their weaknesses.

In summary, expanding people’s choice of
the kind of transfer services available, and ensuring that these
services are of high quality will help to lower costs and encourage
more people to use formal remittance transfer methods.  Lower
transfer costs allow more money to get into the hands of
migrant-sending families and communities rather than ending up with
intermediaries.  When formal transfer services are also linked
to other kinds of related financial products, like savings and
investment opportunities, these services have an even larger
development impact.

• Role of Postal Services

Postal operators can play an important role in
helping to lower remittance transfer costs, improve transfer
services and expand choice. Playing a larger role in this market
place will not only be good business, but will also help enhance
the contribution postal services currently make to global
development, an objective included in the Universal Postal
Union’s (UPU) most recent strategic report, where the aims of
eradicating poverty and developing global partnerships for
development are detailed.

Postal networks have a number of qualities
which can be leveraged for successful participation in the
remittance transfer market.  Postal operators enjoy a vast and
well established service network linking countries worldwide and
are present in many of the most remote and hard-to-reach areas.
This network, which allows postal service providers to deliver
mail, packages, goods, and in some countries, people, is also
perfectly suited to handle remittance transactions.  And as
postal operators already serve a broad range of clientele,
expanding services to include transfers to (migrants and) poor,
migrant-sending households is a natural extension of this work.

Finally, many postal operators already offer
financial services to their clients, services which are
particularly important in places where banks and other financial
institutions are not present. In these cases, remittance transfer
services are a logical extension of existing services. 
Furthermore, there are good opportunities for synergies between
transfer services and other available financial products, which as
mentioned before, can help enhance development effects.

Although the UPU has a long history of
involvement in the financial transfer market, these services,
according to its strategic report, fail to respond to current
needs. For postal operators to be competitive in this market,
remittance transfer services must be accessible, simple,
transparent, fast, safe and affordable. As it stands now, transfer
charges are often too high for modest clientele and services are
not always readily accessible. Furthermore, there is a need to
strengthen financial infrastructure in order to handle these
transactions, particularly for postal operators in developing
countries, as well as to build capacity among postal staff to carry
out this work and make use of the required technology. Lastly,
attention must be given to informing migrants and remittance
recipients of these services as they become available.

You may know that UPU has responded to this
challenge and is currently in the process of developing a system of
Worldwide Network for Electronic Funds Transfers which aims to
connect postal operators in all of UPU’s 191 members,
facilitate interconnection with other networks, and provide the
entire population of its member countries access to postal and
non-postal financial services.  This is a great step in the
right direction.

To complement this effort, new, strategic
partnerships between IOM and postal service providers are also
being discussed. In order to facilitate this collaboration the
Universal Postal Union has been granted observer status at the 91st
special session of the IOM governing body in Geneva (June 2006), on
which occasion UPU Director General Edouard DAYAN emphasized the
important role of the worldwide postal sector in providing the
world's growing migrant population with access to secure, effective
and affordable money transfer services.

In fact, the ‘Dialogue with the Postal
Services on International Migration and Development’ was held
last July in Geneva and gave the opportunity to IOM, UPU, the NGO
FRDA (Forum pour la recherche des services postaux en Afrique) to
exchange ideas and experiences, and to identify ways in which our
institutions can work together. It was suggested that IOM will
start a study on the fiscal legislation in sending and receiving
countries in order to enable migrants to benefit from tax
exemptions on the money they transfer back home.

A month ago, IOM met a second time with UPU in
Bern during the Postal Financial Group. The meeting stressed again
the great need for cooperation between our two institutions and the
necessity of developing a worldwide electronic payment network (as
mentioned above); for this to happen it was observed that a
multilateral agreement will need to be adopted during the next
Congress of UPU in 2008. As you can see, the cooperation process
between IOM and UPU has started but there is much more (to do) we
can do together. Countries are aware of the great potential
represented by the Postal Administration and this is an opportunity
we cannot miss.

While speaking of partnership, I
would like to finish by mentioning an IOM broad initiative to join
efforts with a view to releasing the positive contribution of
migration to development, including in the area of remittances.

At a side-event during the UN
General Assembly High-Level Dialogue, IOM launched a proposal for
an “International Migration and Development Initiative:
Labour Mobility for Development (IMDI)”.  In short, IMDI
is a framework for labour migration and development programmes and
policy advice, drawing on voluntary inter-agency, governmental,
public and private sector collaboration.  All of these
stakeholders have major roles to play, as project partners,
providers, or recipients of services and advice. Such a tool would
allow for the creation of synergies between activities developed by
all these stakeholders in a systematic manner. It will also create
resources for the design and implementation of pilot projects in
new or little explored areas and draw lessons learnt and define
good practices. Such information would assist policy makers and
industries in developing future initiatives. IMDI will be discussed
by private and public sector representatives in a special session
during the IOM Council on 29 November in Geneva, to which all among
you who are interested are invited to participate.

Thank you.