Remittances to low and middle-income countries rebounded to a record level in 2017 after two consecutive years of decline. The World Bank estimates that officially recorded remittance to low- and middle-income countries reached $466 billion in 2017, an increase of 8.5 percent on $429 billion in 2016. Global remittances, which include flows to high-income countries, grew seven percent to $613 billion.

The stronger than expected recovery was driven by growth in Europe, Russia and the US, alongside higher oil prices and a strengthening of the euro and ruble against the US dollar. This trend is expected to continue in 2018. Remittance flows to low- and middle-income countries are projected to grow by 4.1 percent to $485 billion. Global remittances are expected to grow by 4.6 percent to $642 billion.

Remittance inflows improved in all regions. The top recipients were India with $69 billion, followed by China ($64 billion), the Philippines ($33 billion), Mexico ($31 billion), Nigeria ($22 billion) and Egypt ($20 billion). However, longer-term risks to the growth of remittances remain.

These include stricter immigration policies in source countries, ‘de-risking’ by banks and increased regulation of money transfer operators. Since the global financial crisis of 2008, regulators have imposed higher transparency requirements and liquidity thresholds on banks. They have also stepped up enforcement actions on institutions that violate anti-money laundering (AML) regulations. 

The combination of increased operational costs and regulatory pressures have driven banks to withdraw from correspondent banking relationships. These bilateral agreements help facilitate cross-border payments. Cheque clearing, clearing and settlement, cash management, international wire transfers and trade finance are among the services particularly affected by so-called ‘de-risking’. 

However, de-risking may prove counter-productive if it pushes higher-risk transactions away from the regulated financial system towards more opaque channels. The restriction or termination of banking relationships also threatens progress on financial inclusion in some regions.

Financial inclusion has emerged as a significant policy objective over the last decade. There is considerable will among policymakers, the development community and private sector to bring the world’s two billion unbanked people into the formal financial system. Seven out of the 17 UN sustainable development goals mention financial inclusion as an enabler. 

De-risking is of concern to many, including the World Bank. Its effects are unevenly distributed with some regions more affected than others. Smaller countries with limited financial markets, the Caribbean for example, are particularly vulnerable to de-risking practices.

World Bank surveys have found that decisions to restrict or terminate banking relationships were largely driven by commercial decisions.

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