Immigrants Pay Lower Fees to Send Money Home, Helping to Ease Poverty (New York Times)
President Nancy Birdsall is quoted in The New York Times on how reducing the cost of sending remittances can help the world's poor.
The first time Carmen Gonzalez sent money back to her family in Mexico, in 1991, Western Union charged her a $12 fee to wire $100. She earned that $12 working for six hours in a clothing factory in midtown Manhattan, which paid her $2 an hour.
These days Ms. Gonzalez pays $5, which she earns in less than an hour, so she sends a bit more. The family is benefiting from a financial transformation propelled by new technology and increased competition that has driven down the average cost of sending money to Mexico by nearly 80 percent since 1999.
The drop in fees saved Mexican immigrants about $12 billion over the decade that ended in 2010 — five times the amount of official United States aid to Mexico during that time, according to data from the World Bank and recent Mexican government figures. The cost of sending money to other countries has also declined sharply, though not by quite as much.
The benefits are far-reaching, development experts say, providing a powerful means to chip away at poverty in other countries and expanding the hard-won earnings of immigrants in the United States.
The lower costs may be one reason that remittances have held steady even as fewer immigrants from Mexico have come to the United States and the recession has cut into incomes. Overall remittances to Mexico declined during the global recession but picked up again after 2009.
Some experts say more money could flow to countries like Mexico if Congress approves an immigration overhaul granting a path to citizenship to millions of illegal immigrants, because studies have shown that legalization can lead to increased wages. Others argue that with legalization, many immigrants will invest more heavily in the United States, sending less of their income back to relatives.
The total remittance transfers sent across the globe from the United States in recent years are almost $50 billion annually, according to the Bureau of Economic Analysis, or roughly the equivalent of the government’s foreign aid budget. (Estimates by the World Bank suggest that the figure is significantly higher, close to $100 billion per year, according to Dilip Ratha, an economist who leads the World Bank’s remittances program.)
“Remittances may well be the best single way to foment development,” said Nancy Birdsall, the president of the Center for Global Development, a nonprofit research group in Washington. “It turns out that even a modest reduction in the cost of making remittance transfers adds up to a substantial amount compared to official aid.”
Growing competition among transfer companies has been the driving force behind the steady decline in costs. A decade ago, Western Union and Money Gram dominated the market. Now they contend with dozens of international competitors like Xoom and Ria.
