Charlotte Salford, Associate Vice President, External Relations and Governance Department, IFAD
Ceyla Pazarbasioglu, Senior Director, Finance, Competitiveness and Innovation Global Practice, World Bank Group
Jessica Chew Cheng Lian, Deputy Governor, Bank Negara Malaysia (the Central Bank of Malaysia)
Welcoming remarks by Charlotte Salford, Associate Vice President, External Relations and Governance Department (ERG), IFAD
I am very pleased to have this opportunity to address you at this important event. This Forum brings together diverse stakeholders from governments, the development community and the private sector who share a belief in the power of remittances to not only change individual lives, but to shape our common future as a whole.
Around the world, there are over 200 million people working outside their home countries. In 2017, they sent US$480 billion in remittances to their families back home. These flows directly involve the lives of 1 billion people.
Let me tell you the story of one of them. Her name is Lily.
Lily is a Filipino woman with four children. Her husband has been working in Saudi Arabia since 1998. He is one of the 10 million Filipinos who left their families to earn an income abroad.
He sends home about US$400 per month. Lily’s budget is very tight and she doesn’t have enough money to raise the family. She is also worried because her family depends entirely on remittances. And how will they survive when her husband returns?
These are the kind of issues remittance families face. For more than a decade now, the International Fund for Agricultural Development has been working on remittances to help poor rural people overcome poverty and realize remunerative, sustainable and resilient livelihoods.
Remittances are a lifeline in remote and under-resourced regions. They are sent to every developing country in the world, and add up to three times official development assistance worldwide.
Here in the Asia-Pacific region, remittances equal more than 10 times ODA from all sources. In more than half of the region’s countries, remittances exceed 3% of GDP. And let me underscore that the countries with the highest reliance on remittances are predominantly rural.
This is extremely significant, when you consider that three quarters of the world’s poorest and hungry people live in rural areas. If we want to achieve a world in which extreme poverty and hunger are eliminated — which are the aims of Sustainable Development Goals 1 and 2 — then we need to invest in rural areas.
Remittances can supply some of that investment. Indeed, remittances are already instrumental in helping millions of families reach their own personal goals of sustainability.
The Agenda 2030 and the SDGs are not the only global initiative to appreciate the immense potential to leverage remittances to address development challenges. The Global Compact on Safe, Orderly and Regular Migration is expected to be adopted later this year. Objectives 19 and 20 of the Global Compact specifically address the positive contributions of migrants and diasporas to both their destination countries and their families and communities back home.
In that regard, today we will be hearing directly from Louise Arbour, the UN Special Representative for International Migration, about the priorities of the Global Compact on Migration.
In another significant move, the United Nations General Assembly is also devoting attention to the issue of remittances and development. The GA is currently scheduled to consider establishing 16 June as the International Day of Family Remittances, to promote recognition of the fundamental contribution by migrant workers not only to their families’ needs, but to the sustainable development of their countries of origin.
A further sign of the sense of collective ownership of this issue is this Forum itself. We are very pleased to see the diversity of stakeholders at this meeting. And for the first time, the Forum is being convened by a Member State, through the Central Bank of Malaysia, Bank Negara.
Equally important is the increasing involvement of the private sector as an active participant. Effective and efficient remittance markets can only develop if remittance regulators, the private sector and civil society work in concert to achieve shared goals.Over the past decade, the focus on remittances has been mostly on the sending side, through gathering data on volumes and costs. At IFAD, we believe that it is now the time to give more attention to the receiving end. In particular, we need to look at how to increase the impact of these precious resources.
With a broad global consensus on the power of remittances to drive development, it is high time that we move beyond recommendations and implement scaled-up initiatives. And these need to become an integral part of our strategy to reach the SDGs by 2030.
At IFAD we are already mainstreaming and bringing to scale our most successful operations and business models. Some recent examples in the Asia-Pacific region include three remittance grant projects in the Philippines and Nepal. With an IFAD contribution of US$1.7 million, they have mobilized an additional US$20 million in savings and investments from remittance families themselves towards agricultural development and rural entrepreneurship.
The success of these programmes in turn led to a US$68 million partnership between IFAD and the Government of Nepal to scale-up support for remittance families, focusing on financial inclusion, value chain investment in agriculture, employment for women and youth.
Remittances are often relatively small transfers, typically US$200 or US$300, but their cumulative impact is huge. Roughly 40% of remittances are destined for the rural areas of developing countries, where most of the world’s poorest people live.
As we are going to hear during this Forum, digital technology in particular offers an enormous opportunity to improve the way that remittance markets work, especially for those in isolated communities. Innovative technology can also provide families with more options to leverage the impact of their hard-earned money. And we know that they are eager to do so.
At IFAD, we have seen how rural people are ready to seize upon opportunity to improve their own lives and the health of their communities. In Tonga, for example, members of one community raised US$100,000 from their own funds and from relatives living abroad to build a road from their village to the harbor, making it easier to transport goods to market and creating greater economic potential.
To further capitalize on the development potential of remittances will require investment, an enabling environment, sound policies and strong partnerships. This demands coordinated support from governments, development institutions, the private sector and others.
With that in mind, I am sure that over the course of the next few days this Forum will provide opportunities to share new ideas and build new partnerships.
Lastly, let me finish the story of Lily. Lily had the opportunity to take part in a financial literacy project supported by IFAD. She learned how to budget, and how to save. With her first savings, she invested US$120 and bought two fish cages to do fish farming. Now she makes more than what her husband sends her. And her husband came back eventually. They now work on the fish farm and run it as a family business.
I look forward to a rich exchange of experiences and views so that we can further our collaboration.
Welcoming remarks by Ceyla Pazarbasioglu, Senior Director, Finance, Competitiveness and Innovation Global Practice, World Bank Group
I am very honored to be here at the first country-led regional Global Forum on Remittances, Investment and Development. Excited as we have come a long way since we first decided and realized the potential of remittances which is huge, both in terms of empowerment – which was just mentioned – and also in terms of giving people dignity through sending and receiving remittances.
I would like to thank Bank Negara Malaysia for organizing this Forum alongside with the International Fund for Agricultural Development. On behalf of the World Bank Group we are very pleased to be a co-host of this important event.
We have come a long way since we first realized the potential of remittances, both in terms of what it means to send and receive money and to make sure this is low-cost, efficient, but also done with dignity. I underline this word. At the World Bank Group we have a very inspiring mandate, to eliminate poverty and increase shared prosperity. In our work with communities, you can see how important it is for them to be empowered and to be treated in dignity. I have seen with my own eyes the big difference it makes when you don’t have to line up to receive money, but you can do it digitally.
We have made significant progress since the General Principles for International Remittance Services was issued ten years ago. These principles have contributed to improving the remittance market and the cost of sending remittances has declined quite substantially since then. Today, the average global cost of sending remittances is about 7.1%. According to our estimates, the cost reduction has saved migrants and their families more than US$90 billion. That’s how large the impact has been, which is thanks to many of you here today.
We at the World Bank Group are committed to supporting critical legal, regulatory, and financial infrastructure reforms to lower the cost of remittances, while maintaining consumer protection. We are working on several projects around the world that focus on creating environments where remittance services can be offered in competitive, transparent, and efficient manners. It is essential that regulations continue to adapt to the new challenges posed by complex and diverse markets, and that the payments infrastructure is properly leveraged and technological advancements are used efficiently.
Kuala Lumpur is a perfect setting to host the first country-led GFRID. Malaysia’s efforts around this are impressive. In recent years, Malaysia has implemented a series of reforms to transform its remittance market. These included amendments to the Money Services Business Act of 2011, as well as a more recent e-KYC regulation to facilitate customer due diligence while also promoting innovation for remittance services.
The World Bank Group, jointly with the Global Remittances Working Group, introduced a new indicator called SmaRT for Smart Remitter Target, to monitor progress toward the Sustainable Development Goals in a granular way. The UN has now officially recognized the SmaRT methodology for monitoring the 5% target for each corridor. These targets will require that all stakeholders work together and take effective reforms to bring costs down.
Going forward, we had the opportunity to work on two specific areas:
- Identify ways to accelerate the pace of reduction in average remittance costs.
- Contribute to the important topic of mitigating de-risking pressures for remittance service providers.
‘De-risking’ has been put on the agenda in the global forum, both on the Financial Stability Board, G20 and many others. There are countries that are suffering from the impact following implementation of some of the KYC regulations that are adequately put for fighting with corruption, money laundering and counter financing of terrorism. Although these regulations are important, its disproportionate implementation had an unintended consequence of corresponding accounts moving from many of the countries we work in. Some of the smaller countries have been subject to decline in the correspondent accounts, but also very much concentrated, therefore vulnerable and fragile to one bank in some cases.
Recently, the Financial Stability Board launched a global initiative to address the challenges that de-risking poses for the remittance sector and created a Remittances Task Force, which has produced a set of recommendations to the G20 on:
- Promoting dialogue and communication between the banking and remittance sectors
- Encouraging a better application of the risk-based approach and better supervision and oversight of the remittance sector
- Leveraging innovations for reducing the cost of customer due diligence, improving efficiency in remittance services, reducing remittance service providers dependency on correspondent banking networks, and
- Encouraging technical assistance efforts in targeted areas, such as strengthening risk-based regulations, developing national risk assessments, reducing the use of cash in remittance flows, and improving linkages between remittance sending and recipient countries.
The Financial Stability Board report recognizes the important role that the World Bank Group plays in providing technical assistance to improve remittance markets in general, and to enhance the capacity of national authorities in jurisdictions that are home to affected respondent banks.
Last week, we published a report called The Decline in Access to Correspondent Banking Services in Emerging Markets that examines what effect de-risking has had on developing countries. The report is based on eight countries in Latin America, sub-Saharan Africa, East Asia and South Asia that had expressed concerns over de-risking and its impact on their financial systems and remittances. It included a survey and interviews with government officials, regulators and supervisors, international and local banks, money transfer operators, chambers of commerce, and inter-institutional commissions for financial inclusion. The report provides suggestions to limit de-risking that are fully consistent with the recommendations from the Financial Stability Board.
The de-risking agenda is pivotal to pursuing remittance cost reduction but it is also essential to furthering financial inclusion.
In today’s agenda there was one word in particular that caught my attention. “RemTECH”, which I gathered means remittance innovation. It caught my eye because at the World Bank Group, we are scaling up our focus on FinTech and that includes RemTECH. Payment systems have been at the forefront of technology applied to financial services for a long time, so we are very passionate about this and impressed at the progress we see around us.
Our role as the World Bank Group is to help countries take full advantage of new financial technologies, while also helping them identify and manage related risks. Fintech is a central topic for us because of its potential to reach the unbanked and the under-banked.
Technology is accelerating the pace of reducing the cost of remittances, but we also need to consider some of the challenges. For example, to what extent have these innovations disrupted the remittances market? What are the frictions that prevent them from achieving the impact and scale we have seen in other sectors? Which business models are showing better results? Can RemTECH help facilitate AML/CFT compliance for remittance service providers and reduce compliance costs?
These are some of the questions that I am very eager to hear about during the Forum. Thank you for your time and I hope you have an inspiring experience over the next two days.
Leveraging Remittances for Sustainable Development Goals: A Call to Action
Keynote Address by Jessica Chew Cheng Lian, Deputy Governor, Bank Negara Malaysia (the Central Bank of Malaysia)
It is my great pleasure to welcome you to Kuala Lumpur and the Global Forum on Remittances, Investment and Development 2018 Asia-Pacific.
We host many regional and global events here in this building. From time to time, we are reminded at these events that not all challenges are created equal. Some challenges inspire hope for the improvement of countless lives beyond our own borders, and create not just opportunities but a need for us to come together across social, economic and cultural boundaries to advance the development agenda. This Forum is such an occasion and Bank Negara Malaysia is honoured to be able to partner with those that we work closely together to build a better future for economic migrants the world over.
To provide some context for the discussions that will follow over the coming days, it seemed fitting to draw on the work of Nobel Laureate Professor Amartya Sen nearly two decades ago. In his magnum opus “Development as Freedom”, Sen described how a particular childhood incident shaped his views on the concept of development.
It was during the days of religious conflicts in Dhaka, now the capital of Bangladesh. Ten year old Sen was playing in his garden, when a man named Kader Mia came through the gate, bleeding profusely. He had been knifed by some communal thugs while working in the neighborhood. Kader Mia unfolded his tale of woe to Sen and his family as he was rushed to the hospital. Despite his wife’s warning to Kader Mia not to venture into a hostile area in such troubled times, he had no choice but to seek work there to bring food home to his impoverished family.With the passing of Kader Mia, Sen learned from a very early age that economic “unfreedom”, as he calls it, in the form of extreme poverty, can make one a helpless prey in the violation of other kinds of freedom – including freedom from want, from fear and freedom from discrimination. Sen argued that development requires the removal of major sources of “unfreedom”, one of them being poverty. In Kader Mia’s case, the price he had to pay for his economic “unfreedom” was death. This is why we are here – to do our part to help many, like Kader Mia, who remain shackled by their circumstances, achieve economic freedom.
This Forum seeks to address not just the question of facilitating transfers more efficiently, but how to make such transfers go further and do more to meet today’s most pressing global challenges – from access to healthcare and education, equal economic opportunity for all, to protection of the environment. Without addressing these challenges, economic freedom would remain an elusive dream for many.This Forum will cover a broad range of issues – not all of which will have clear solutions. But we will most certainly learn more, understand better and hopefully, be able to determine what our next steps must be. With that in view, let me take this opportunity to offer some brief reflections on what those steps could be.
First, we need to do more to reinvigorate financial services to drive the United Nations Sustainable Development Goals (SDGs).
Many countries in this region, including Malaysia, have made important progress in the adoption of the SDGs under the national development agenda. Certainly, Malaysia has had a long-standing commitment to the pursuit of sustainable and inclusive growth. Malaysia’s national economic development policies adopted since more than four decades ago reflect many of the SDGs. Like many central banks in this region, financial inclusion is an important priority of Bank Negara Malaysia – one that is in fact legislated as a mandate of the central bank, which is actually not all that common in many countries. Because it is a statutory mandate of the Central Bank in Malaysia, it has enabled us to work on the financial inclusion agenda, to lead and drive that agenda with the support of our key domestic partners and stakeholders.
With growing global concerns over rising inequality and the disproportionate impact of crises on the poor, there has been considerable focus by Governments and policymakers to ensure that no segment of society is left behind in participating and benefitting from the nation’s development. But what of the role of the financial services industry? It is worth noting that fourteen out of the 17 SDGs include specific targets that focus at some level on the financial sector. To mention a few:
- On poverty: The SDGs include a specific target to build resilience of the poor and those in vulnerable situations.
- On hunger: Targets include doubling productivity and incomes of small-scale food producers through secure and equal access to financial services.
- On health and well-being: Ensure universal health coverage, including financial risk protection.
- On education: Ensure all youth and a substantial proportion of adults achieve literacy and numeracy.
- On decent work and economic growth: Encourage the formalization and growth of micro and small and medium enterprises, including through access to financial services
- On industry, innovation and infrastructure: Increase access of small scale industrial enterprises to financial services.
- And of particular interest to this Forum, on inequality: Reduce the transaction costs of migrant remittances to less than 3% and eliminate remittance corridors with costs higher than 5%.
The list goes on.
Yet, based on a recent survey report by GlobeScan1, only one third of the private sector respondents reflected on SDGs in setting long-term sustainable strategies for their organizations. This should concern us.In 2015, 15 years after the Millennium Development Goals (MDGs) were adopted, the United Nations itself conceded that the MDGs, despite propelling significant progress, fell short for many people. So a different approach was taken for the SDGs. One that was more encompassing and inclusive. Five million people from 88 countries shared their deepest, most pressing concerns and aspirations to create the SDGs. These aspirations would ring hollow without the dedication and commitment of those with the influence and position to make a difference. For the financial sector, this needs to go beyond the cursory initiatives that have generally been associated with “corporate social responsibilities”. Greater progress by financial institutions to more fully embrace sustainable principles in their business strategies will play an important catalytic role in delivering the SDGs. Among other things, it would provide a stronger focus on needs-based selling, increase financial resources that are directed at economic activities that promote sustainable goals, and encourage support for businesses to adopt sustainable practices.
Evaluating Progress Towards the Sustainable Development Goals, Globescan/SustainAbility (2017) Turning more specifically to remittances which is the focus of this Forum, more can and should be done to amplify the developmental impact of remittances. In its report Sending Money Home, IFAD estimates that about 1 billion people – migrants and their families – send and receive remittances. This translates to one in seven people in the world. The most dynamic growth in remittances over the past decade has been in Asia, which receives 55% of all flows. In some countries, remittances equal more than 20% of GDP. These statistics underscore the profound impact of remittances on development.
For most migrants, the prospect of dealing with banks remains generally daunting. Non-bank remittance service providers (RSPs) on the other hand are trusted by migrants and a regular point of contact to send and receive money. This places them in a strategic position to evolve from narrow service providers to change agents for entire communities, by providing financial education and solutions that can help pull families out of poverty traps. For example, RSPs can partner with financial institutions in sending and recipient countries to create savings, insurance and investment products that are linked to migrant remittances. Some developing countries with large diaspora groups have successfully issued diaspora bonds, where the bond proceeds have been channeled to finance development projects in their home countries. Other innovations can surely be developed to more effectively leverage migrant resources for development.There is certainly no shortage of creativity and innovation in financial services. Regrettably, the global financial crisis will remain a dark period of history where such creative forces were misdirected, with dire consequences for growth and development. We must ensure that this never happens again. But that should not discourage us from harnessing and redirecting such creative forces to address today’s most urgent global challenges. And in the process, restore trust and confidence in the financial industry.
In recent years, global standard setters including the Basel Committee on Banking Supervision, the Insurance Association of Insurance Supervisors and the Financial Action Task Force, have heeded the call to promote a better balance between the objectives of financial stability, financial integrity and financial inclusion. This has resulted in important strides taken to encourage a more proportionate regulation. Despite this, a recent report by the Financial Stability Board disclosed that as of 2017, the de-risking phenomenon continued at the global level, affecting remittance service providers and many poor countries that rely on remittances from abroad. Clarifying regulatory standards is an important step, but clearly this alone is not enough.
So where to from here?
First, taking a cue from Albert Einstein who famously said that we cannot solve our problems with the same thinking we used when we created them, there is a need for policymakers to create safe harbours for experimentation. A number of regulators have introduced regulatory sandboxes that have helped create a virtuous cycle of innovation and sensible regulation, while isolating risks. In Malaysia, solutions tested in the Bank’s regulatory sandbox enabled the Bank to design regulatory safeguards that would allow the implementation of end-to-end electronic know-your-customer processes for the provision of remittance services. By dispensing with the need to conduct physical face-to-face verifications, this is expected to significantly expand access to remittance services for customers working and living in remote parts of Malaysia, while effectively addressing money laundering and terrorist financing risks. Bank Negara Malaysia also successfully collaborated with the World Bank Group and the money services business industry in Malaysia to pilot and adopt solutions that have expanded the reach and reduced the costs of formal remittances.
Second, policy life cycles will need to be managed more proactively, to allow for policies to be renewed when conditions change. While much is often said about policy stability, policies that fail to keep pace with conditions that are changing far more rapidly than we have experienced before, can be counterproductive at best, and at worst, create greater risks for the system.
The SDGs are undeniably one of the most comprehensive attempts to capture the most important global challenges that we face. Solutions to these challenges will invariably create new issues for policy makers to consider. This in turn will lead to shorter policy life cycles, and a need for faster policy responses to emerging issues.
Third, we need better remittance data. It is encouraging that efforts are being taken to ensure the availability of official global data sources on remittance flows. Yet, challenges remain in ensuring that the data is both complete and comparable.
These challenges are compounded by an increasing need for data at a more granular and disaggregated level. For example, initiatives by the United Nations Capital Development Fund to survey remittance recipients in the Mekong region helped develop a better understanding of relationships between gender and financial inclusion. Yet such data is not available in many other countries. With the large and increasing size of intra-regional migration in this region, there are opportunities to collect and share remittance and migration data at the regional level to complement global datasets. This could be advanced through existing regional forums, including various forums at the ASEAN level. Without good data, we cannot hope to move very far, or with much confidence in efforts to increase the development impact of remittances.
In summary, the notion of proportionate regulation has more than one dimension. It should not be mistaken for lighter regulation, nor should it be informed by considerations of size alone. The world is much more complex and regulators will need to find creative ways to better understand and manage that complexity.
This is a paradigm shift in the way that regulation is traditionally approached – to one that is more iterative, more inclusive and more discerning.
Ladies and gentlemen, let me conclude. Eleanor Roosevelt once said that universal human rights begins in small places close to home – where every man, woman, and child seeks equal justice, opportunity and dignity without discrimination.
Remittances have significant potential to deliver such opportunities to millions of migrants in their home countries. Let this Forum serve as a call to action, based on an honest search for better understanding and a genuine commitment to pursue individual and collective solutions.
With much at stake, we cannot afford not to. I hope you have a very productive exchange in the coming days, and thank you very much for being here.