Making Remittances Work for
Migrant Workers—the Role of
About BSR Introduction
A leader in corporate
responsibility since 1992, International migrant workers—those workers who cross borders for
BSR works with its global employment—total approximately 215 million people, thus making up a
network of more than 250 significant portion of the global workforce. These workers often leave their
member companies to countries of origin for protracted periods, sending up to 40 percent of their wages
develop sustainable business back home in periodic installments to support their families and the communities
strategies and solutions from which they hail. The World Bank estimates these remittances total more
through consulting, research, than US$300 billion dollars annually. In nearly 40 countries, remittances make up
and cross-sector collab- more than 10 percent of the gross domestic product (GDP). Indeed, migrant
oration. With offices in Asia, countries of origin have begun to depend on remittances since they often exceed
Europe, and North America, official development assistance (ODA) and foreign direct investment (FDI)
BSR uses its expertise in the combined.
environment, human rights,
economic development, and Since 2008, BSR has been working with multinational corporations that source
governance and account- from suppliers (e.g. private employers) in countries of destination for migrant
ability to guide global workers to educate them on migrant labor issues; help them engage with
companies toward creating a suppliers, labor unions, rights groups, and government officials; and expand
just and sustainable world. solutions to help ensure that migration facilitates positive socioeconomic
Visit www.bsr.org for more development. BSR also works with suppliers to address the very practical
information. challenges that stem from employing migrant workers. This “horizon” brief on
remittances represents the first in a series of reports that will focus on specific
issues in the discourse surrounding migrant workers. As such, this brief:
» Analyzes the importance of remittances for national economies
» Provides an overview of the current remittance “system,” where value
erosion currently occurs for migrant workers
» Outlines a fairer system for migrant workers
Ultimately, a fair remittance system that limits cost and risks for migrant workers
can have a significant impact on these workers’ take-home pay 1.This is why
business has an important role to play in making remittances work for migrant
As per International Labour Organisation (ILO) Conventions on decent wages.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 1
The contribution of remittances to social and economic development is a hotly
debated topic. Regardless of where one falls in the debate, indications are that
remittance flows around the world have not abated significantly during the
economic downturn of the past few years. In certain countries, remittances
account for more than double the combined ODA and FDI they receive. Migrant
workers are thus contributing to growth and development on both sides of the
equation—in destination countries through the labor they provide, and in origin
countries, through the money they send back home to their families.
The system that migrant workers use to send money home is set up in a way that
erodes the value of their “take-home” pay. Research indicates this value erosion
varies depending on specific migration corridors, industries, and the level of
workers. Still, it is apparent that more needs to be done to look out for individual
workers, ensure they have access to fairer deals, and help them avoid risks
inherent in channeling money through this informal system. The business world,
composed of global buyers, private employers, and financial intermediaries
operating in both destination and origin countries, has a clear role to play to help
create a fairer remittance system for migrant workers. This fairer system can only
be created if business educates itself about the current remittance mechanism
and anatomy of a migrant worker’s paycheck, engages with actors in the
remittance value chain, and expands solution sets through cross-sector
BSR | Making Remittances Work for Migrant Workers—the Role of Business 2
THE IMPORTANCE OF REMITTANCES
Despite the global economic downturn, remittance flows in the developing world
have not abated. The World Bank estimated that US$325 billion in remittances
would flow from migrant countries of destination to migrant countries of origin in
the developing world by the end of 2010, an increase of about 6 percent from
2009, and an increase of about 300 percent from 2000.By virtue of the sheer
volume of these transactions, development literature has focused a significant
amount of attention on the potential of remittances for positive socioeconomic
impact. As depicted in the chart below, on average, some of the most important
migrant origin countries in the developing world receive more from annual
remittances than they do from ODA or FDI combined.
GDP Population Total Total Total Total
2009 (Total), Amount of Amount Amount ODA +
US$ 2009 Remittances of ODA of FDI FDI 2008
(billions) US$ Received 2008 US$ US$
(millions) 2008 US$ US$ (millions) (millions)
Bangladesh 230 162 8,941 2,061 1,010 3,071
India 3,783 1155 49,941 2,108 41,169 43,277
Indonesia 967 230 6,794 1,225 9,318 10,523
Nepal 34 29 2,727 716 1 717
Nigeria 333 155 9,980 1,290 4,876 6,166
Pakistan 446 170 7,039 1,539 5,438 6,977
Philippines 326 92 18,642 61 1,544 1,605
Factors limiting the
potential of remittances
Source: World Bank – remittance data inflows – developing countries, 2010
Access to remittance-
sending and -receiving A Conduit to Economic Diversification, Increased Consumption, and
mechanisms can work to Development
inhibit their potentially Remittances can provide a platform for migrants and their families to engage in
positive impacts. For economic activity from which they otherwise might be excluded. In particular,
example, it is difficult for when migrants and their families are considered as enablers for value chain
recipients to travel to their 2
linkages, benefits can accrue to the migrant countries of origin. Development
nearest town to collect agencies have concentrated on ways to forge links between diaspora members
money on a regular basis. and the remittances they send home to maximize the potential for positive
Additionally, incumbent development.
regulatory regimes ensure
that competition between Additionally, remittances can spark better financial decision making among
financial institutions and individual recipients. For example, a report by the International Fund for
money transfer operators Agricultural Development (IFAD) finds that in Africa those who receive
(MTOs) for the remittances remittances save twice as much money as those who do not.
market is limited, resulting in
onerous fees being borne by Despite these positive findings, the potential of remittances to contribute to
both remitters in migration economic development is far from assured. Questions remain about how the
destination countries and remittance system in its current form needs to be changed to ensure that the
recipients in origin countries.* financial value of the money that migrants send home does not erode. In most
* Source: IFAD – Sending Money
cases, value erosion usually begins at the onset of the value chain. The purpose
Home to Africa, remittance markets,
of this paper is to see if this is the case with remittances today, and to analyze
enabling environment, and
prospects, 2009 “Creating Value Through Migration – guidelines for technical cooperation for promoting value chains
in the context of migration,” GTZ, 2010.
“Sending Money Home to Africa, remittance markets, enabling environment, and prospects,” IFAD,
BSR | Making Remittances Work for Migrant Workers—the Role of Business 3
the current system as it relates to the worker—the remitter—and the businesses
that employ them.
THE CURRENT REMITTANCE SYSTEM
The Remittance Process
The diagram below details the typical remittance process. A migrant worker is on
one end; his or her family is on the other.
Migrant Destination Country Migrant Origin Country
1 2 3 4
Worker Receives Money to Money Remittance
Employer Payroll Distributes
Monthly Check and Transfer Operator Recipient Collects
Pay Check to Worker
Withdraws Money and Transfers to Money
Throughout the process, there are instances when the value of the money being
sent is eroded for the migrant worker and his/her family, and when that value is
transferred to other actors in the system:
1. Employer payroll distributes paycheck to worker in destination country.
» Deduction from monthly payment by employer of original recruitment fee if
migrant worker was recruited through the formal agency system.
- Employers can deduct fees from migrant worker paychecks to
recoup original recruitment fees. According to research by Verité,
those fees can be up to US$4,100 for an Indian worker migrating to
the Gulf region 4. The average monthly take-home pay for a
“fresher”—a recently recruited Indian construction worker—in the
United Arab Emirates (UAE) is 1,100 Dirhams per month (approx.
US$299) . Paying back 1 percent of the original fee per month (not
accounting for interest) would take the worker 8.5 years and reduce
his/her gross paycheck by 14 percent on a monthly basis.
2. Worker receives monthly check and withdraws money in destination
» Financial services institutions charge monthly services fees for workers to
operate a checking account, which includes use of ATM machines on the
migrant worker camp.
- These service fees vary, but can be more than 5 percent of the
worker’s gross monthly salary .
3. Worker takes money to Money Transfer Operator (MTO) and transfers
money to origin country.
» MTOs charge a minimum fee to workers per transaction.
- Again, fees vary greatly depending on the migration corridor, but can
be up to 1 percent of the worker’s gross monthly salary.
“Help Wanted: Hiring, Human Trafficking and Modern-Day Slavery in the Global Economy,” Verité,
Based on an interview in UAE, October, 2010
Based on an interview in UAE, October, 2010
BSR | Making Remittances Work for Migrant Workers—the Role of Business 4
4. Remittance recipient collects money in origin country.
» A migrant worker’s family member in the origin country expends valuable
time and money traveling to a money collection point or bank in an urban
- A collection fee sometimes can be charged to the recipient of the
- Opportunity costs can vary, but a two-hour return journey from a
semi-rural setting to an urban center money collection point in India
can cost the recipient family upward of US$3. In rural areas of
Central America, it can be upward of US$10.
Recognizing these practices vary across geography and sector, the following
table provides a sample of migrant remittance value erosion in the UAE/Indian
UAE/India Migration Corridor
Average Monthly Wage, 1100 Dirhams (approx. US$299)
New Migrant Hire
Average Recruitment 154 Dirhams (approx. US$41)
Fee Payback Amount assumes total fee of US$4,100 paid back over 8.5
years at 1% per month
Average Checking 50 Dirhams (approx. US$13.60)
Account Service Fee
Average Money Transfer 15 Dirhams (approx. US$4.08)
Recipient 11 Dirhams (approx. US$3)
Total Value Reduction 234 Dirhams (approx. US$61.68)
Total Value Reduction 21
(% of gross monthly
Source: Interview with expert in UAE, December 2010
The above represents a “back-of-the-envelope” calculation based on BSR’s on-
the-ground experiences in the UAE, and on conversations with those familiar with
remittance systems involving migrant workers from an employer perspective. It
should be noted that the figures do not include fees levied on migrant workers for
pre-departure medical checks, one-way airplane tickets from origin to destination
countries, visa application charges, and other “service” fees; these are tallied in
other reports. In addition, migrants usually incur fees for housing and food, and
these are deducted from their gross monthly paychecks. Again, the table does
not account for these.
Based on figures provided by St. John’s Medical Centre, Bangalore, December 2010.
“Help Wanted: Hiring, Human Trafficking and Modern-Day Slavery in the Global Economy,” Verité,
BSR | Making Remittances Work for Migrant Workers—the Role of Business 5
According to an employer in the UAE, the “contribution” per migrant worker to
food and housing on a monthly basis increased in response to the global
downturn, and this has resulted in higher monthly deductions. Employers did this
to protect their margins and ensure they did not have to lay off any workers.
The Formal vs. Informal System
Our calculations pertaining to value erosion are based on an analysis of the
“formal” remittance system. In order to understand the full picture, however, there
also is a need to analyze the “informal” remittance system. This sphere is
characterized by intermediaries and interfaces that are not legally authorized to
handle financial transactions (unlike banks, MTOs, and other officially registered
The exact global volume of informal flows is unknown. Estimates have varied
significantly. In 2005, a World Bank-IMF study guessed that anywhere between
35 to 70 percent of remittance flows were being sent through informal
channels. With such a significant volume of flows through the informal system it
is clear that a large number of legal international migrant workers currently
employed in global supply chains are utilizing this system.
Migrants use these informal channels for a number of reasons, though cost
Importance of the Informal appears to be the major determinant for why a worker would choose to use the
System for the Malaysia- informal system. It has been estimated that reducing remittance commission
Indonesia Corridor: charges by 2 to 5 percent could increase the flow of formal remittances by 50 to
It is estimated that only about 11 12
70 percent . Studies also have found that high usage of informal channels by
10 percent of the total migrant workers is the result of the following:
remittances (US$2.7 billion)
sent from Malaysia to » Low financial literacy
Indonesia by Indonesian
workers is processed through » Lack of bank account
formal channels* » No government-issued identification card
* Source: The Malaysia-Indonesia » Unregulated official remittance-sending industry not providing ease of
Remittance Corridor. Raul service access for workers
Hernandez Coss. World Bank. 2008.
» Geographic ease of access provided by informal money changers
All told, a combination of speed, low cost, convenience, versatility, and potential
for anonymity are key determinants of usage by workers. Despite these positive
benefits, substantial risks exist for workers utilizing informal channels. For
example, the cash-courier method is common and can lead to seizure of cash at
customs checkpoints and financial losses due to robbery or outright theft by the
courier him or herself. In these instances, there is no form of redress for the
Risk of Informal Transfers—Testimony From a Malaysian Migrant Worker
“Initially I saved my earnings. When I knew that a friend was going home, I gave her my
money to give to my parents. I had met her at my agent’s place. I didn’t know her that well,
but I trusted her. … My parents received the money a month late. I rang my family in the
village and told them that I had given her (my friend) US$422 and they told me that she
had only given them US$112, which she had paid in three installments. They should have
received the equivalent of US$422.”
Source: The Malaysia-Indonesia Remittance Corridor. Raul Hernandez Coss. World Bank. 2008.
Based on an interview in UAE, October 2010
“Remittances: Transaction Costs, Determinants, and Informal Flows,” Freund and Spatafora, 2005.
The World Bank Group.
“Approaches to a Regulatory Framework for Formal and Informal Remittance Systems:
Experiences and Lessons,” International Monetary Fund, 2005.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 6
A snapshot of the formal and informal systems—intermediaries and their
Point of Remittance Transfer Transaction Tools Point of Remittance Transfer
(Destination Country) (Origin Country)
Formal » Commercial Bank » Messaging and Settlement » Commercial Bank
» Money Transfer Operator » Infrastructure » Money Transfer Operator
» Credit Union » Society for Worldwide » Credit Union
» Post Office Interbank Financial » Post Office
» Telegraphic Transfers
» Telephonic Message –
» Web-enabled Instructions
Informal » Bus/Courier Company » Physical Transport of Cash » Bus/Courier Company
» Collection Agen(t)(cy) and Goods » Collection Agency's
» Recipient's Location
Source: IMF, International Transactions in Remittances: Guide for Compilers and Users. October 2009.
CREATING A FAIRER SYSTEM
The Role of Business
Independent of systemic regulatory reform, businesses—namely global buyers,
private employers, and financial service institutions—have the potential to
address certain root causes to migrant remittance value erosion. Actions by
employers and global buyers in particular fall into two primary categories:
1. Practical steps that can be taken within a company’s own operations.
2. Collaborative steps that can be taken by business across key sectors to
improve worker access, manage cost, and limit risk.
Inherent in all of the recommended business actions is BSR’s Educate, Engage,
Expand framework . There is a need for business to educate itself and better
understand the remittance system as well as the migration value chain that
underpins it. Each of these actions also requires business to engage workers and
other stakeholders, reinforcing the fact that in an interconnected system—no
solutions can be achieved in isolation.
Lastly, more innovative solutions require business to expand beyond normal
stakeholder and commercial relationships and seek collaboration with other
The Hawala System is one such example used in the Middle East. This is an alternative or parallel
remittance system with origins (as a term) in Islamic law. It exists and operates outside of, or
parallel to, 'traditional' banking or financial channels. The components that distinguish it from other
remittance systems are trust and the extensive use of connections such as family relationships or
regional affiliations. Unlike traditional banking, Hawala makes minimal (often no) use of any sort of
negotiable instrument. Transfers of money take place based on communications between members
of a network of dealers. (See www.interpol.int)
“International Labor Migration—a responsible role for business,” BSR, 2008
BSR | Making Remittances Work for Migrant Workers—the Role of Business 7
industry players in overcoming barriers to a fairer system such as cost, and
geographic and service access.
Root Cause #1: Limited competition among remittance intermediaries
Regulatory Reform: results in high banking fees for migrant workers.
regimes ensure that
competition between Business Action
financial institutions and » Global buyers and financial institutions push for changes in regulation and
MTOs for the remittances competition law through public policy advocacy.
market is limited. There is no - While there are external advocates for such reform, there is no
doubt that a necessary industry lobby focused on this. The European Commission (EC) is
ingredient to improving the currently supporting developing countries establish policy
remittance system is frameworks more conducive to remittances and create more
regulatory reform. According favorable business environments. The EC’s Thematic Program on
to the International Monetary Migration and Asylum is one such example.
Fund (IMF), effective
regulations should not
impede the flows of Root Cause #2: Lack of financial literacy and access to licensed financial
remittances, nor should they services leads workers to use money changers or informal channels where
drive remittance systems risks (and fees) are higher than formal system.
reform is difficult for myriad Business Action
reasons: » Private employers partner with financial institutions to provide literacy
courses for workers (with support from global brands).
» There are a plethora of
- ETA Ascon Star Group, a large, private employer operating in the
Gulf States, has partnered with both UAE Exchange and Western
Union to conduct training in financial literacy on migrant worker
» The demographics and camps. These training seminars help workers understand fee
remitting habits of structures and how to construct family budgets.
senders and receivers
Root Cause #3: Money paid to workers in destination-country currency
» Financial systems in results in currency exchange fees being paid by migrant workers.
migration corridors (in
origin and destination
countries) are governed Business Action
differently. » Private employers work with financial intermediaries on a means to create
two accounts per worker—one to distribute pay in destination-country
» Reliable data to better
currency, one to distribute pay in origin-country currency.
leverage points are - To date, given the complexities and specialization of the currency
elusive. buying business, this practice has not occurred. But the right
collaboration between specialized partners could make it happen
and spark significant change.
Further, the implementation
of reforms is challenging,
particularly in cash-based,
where access to banking and Excessive Recruitment Fees Levied Upon Migrant Workers Still an Endemic
other financial services is Issue
limited and enforcement In its 2010 “Supplier Responsibility Progress Report,” Apple noted that as a result of
audits and corrective actions, migrant workers have been reimbursed more than US$2.2
capabilities are lacking.
million in recruitment-fee overcharges since 2008. Businesses must address the issue of
*Source: “Approaches to a Regulatory
recruitment fees to ensure migrant workers are not subject to excessive payments and
Framework for Formal and Informal deductions from their monthly paychecks. While some private employers (including
Remittance Systems: Experiences and Western Digital Malaysia Bhd., with which BSR has worked) are using direct recruitment
Lessons,” IMF, 2005. as a disintermediation strategy to bypass recruitment agencies and reduce the financial
burden on individual workers, this practice is not the norm.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 8
Root Cause #4: Lack of access to financial intermediaries in rural and non-
urban areas in origin countries results in remittance recipients spending
time and money on transportation to collection point.
» Financial institutions in partnership with ICT providers scale up access
innovations for migrant workers, such as card-based transfers, mobile
banking services, and dual-use debit cards.
- According to a 2009 Ernst and Young report , in Kenya, few people
have access to banking facilities, mainly due to the high transaction
fees and a scarcity of bank branches. In response, Safaricom, in co-
junction with its majority shareholder Vodafone, has established M-
PESA, a mobile payment service. Partnering with Kenya Commercial
Bank and Western Union, M-PESA has acquired around 6 million
users. More than 10 percent of Kenya’s GDP passes through it.
The Need for Greater Cross-Sector Collaboration
The key to making the remittance system fairer for migrants and to limiting value
erosion is to improve worker access to transaction tools currently available. To
do this, barriers such as cost, geographic and service access, convenience, and
versatility must be addressed. ICT providers, MTOs, and financial institutions are
leading the way, collaborating on programs that leverage innovative technologies
currently in the marketplace. But these barriers must be addressed by other
business actors, in other industries, as well. Cross-sector collaboration—through
which global buyers, private employers, financial intermediaries, and
development institutions work together—offers the best means to create a fairer
remittance system for migrant workers moving forward.
Below are some collaborative solutions already being rolled out for use by
migrant workers in the remittance process. While these efforts represent valiant
beginnings, there is a need to extend and amplify collaboration and coordination
among efforts, and to ensure migration corridors around the globe benefit from
“Mobile Money: an overview for global telecom operators,” Ernst and Young, 2009.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 9
Collaborative solutions used in the remittance process
Solution Description Examples Attributes Business Action
Using a mobile phone, a » Western Union mobile » Lower cost Employers partner with
Mobile- consumer with a mobile- money transfer » Improved telecom providers in
Mobile enabled account can send program with access destination and origin
transfers funds to a recipient with another Vodafone (independent of countries to offer mobile-
mobile-enabled account. Funds bank access) mobile transfer technology
are added directly to the to workers.
recipient’s account balance.
Remittance features are added » FINCA International, a » Lower cost Employers/global buyers
Card-based to prepaid cards as follows: microfinance » Financial partner with banks to offer
16 organization based in workers dual-use debit
remittances » Card-to-cash—the recipient access
does not have a card of Washington, D.C., technology in destination
their own, but has the established a pilot and origin countries, linking
ability to retrieve the card-based remittance technology to workers (and
transferred funds directly in sending program in vice versa).
cash. Uganda. The
» Dual card—two cards with distributed access
access to the same cards to remitters who
account are issued. The lacked previous
common account could be access to banking
a sub-account of the main services, and
account to prevent full established point-of-
withdrawal of money on the sale (POS) machines
recipient end. throughout the
» Recipient only card—the country. With a vastly
sender purchases a improved network and
prepaid debit card which is access to low-cost
either sent directly to the technology, this
recipient or issued in the program has lowered
recipient’s country. The remitter transaction
sender can then reload fees significantly.
funds onto the card.
Local agents, or » The South Korean » Improved Employers partner with
Agent “correspondents,” are Postal Service geographic banks to identify and create
Banking contracted by financial (sender) has a access to agent banking opportunities
institutions and mobile network relationship with the financial in geographies where
operators to offer their services National Savings Bank services workers do not have
in hard-to-reach and of Sri Lanka » Lower cost access to existing bank
geographically dispersed areas. (receiver), through branches.
Local agents can range from which remittances can
retail to national postal outlets. be received via 134
branches and 4,500
“Card based remittances: a closer look at supply and demand,” The Center for Financial Services
“Promoting Financial Inclusion through Innovative Policies,” Juantia Woodward, Eurogiro, 2009.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 10
There is an opportunity for business to take a leadership role in helping to
establish a fairer remittance system for migrant workers in global supply chains.
To date, labor-intensive industries such as manufacturing, construction, and
agriculture have struggled to be proactive in taking such leadership. As the
percentage of remittances sent through informal channels remains high and
value erosion for the migrant worker persists, a stronger link between these
industries and remittance service providers—banks, MTOs, and ICT providers—
is needed. Businesses can work to create a fairer system for migrant workers by
educating themselves on the remittances issue, engaging with value chain
actors, and expanding positive impacts through cross-sector collaboration.
BSR | Making Remittances Work for Migrant Workers—the Role of Business 11