A surge in remittance flows throughout eastern Europe and central Asia, outlined by EBRD economists over the weekend, has attracted the interest of credit-card company Visa.
From negligible levels 15 years ago, remittances sent home by migrant workers now exceed foreign direct investment in one-third of the EBRD’s countries of operation. The cash eked out of foreign pay checks and shipped home accounts for more than 25% of GDP in Moldova, over 20% in Bosnia & Herzegovina and more than 10% in Albania, Serbia & Montenegro and Tajikistan, the EBRD stated.
The rapid growth in the flows, which barely existed when the EBRD was set up 15 years ago, are attracting increasing attention from businesses keen to break in on markets where companies like Western Union and MoneyGram have been able to earn big fees.
“I think we can play a bigger role in that [transmitting remittances] going forward,” said Christopher Rodriguez, president and chief executive of Visa International, in an interview with Emerging Markets. Visa, which has previously focused on migrant workers in other parts of the world, is now expanding a system to facilitate remittances within Russia.
“The potential is huge,” notes Lou Naumovski, the company’s general manager for Russia and the CIS. Previous trials between Russia and the Ukraine stumbled over the length of time taken to process transactions over the Visa network, which encompasses 21,000 banks worldwide, but Naumovski reckons Visa will be able to offer a genuine cross-border cash-transfer service in the next “couple of years”.
Officially, gross remittances to transition countries were $19.1 billion in 2004, but the true figure could be twice as much because so many transfers go unrecorded.
“Remittances can play an important role in the development of micro enterprises. Where they are present, other kinds of funding can be raised,” EBRD chief economist Eric Berglof told Emerging Markets. In Latin America, future remittances are securitized to raise bank loans, and such methods are now being looked at in European transition countries.
In order to do that it will be crucial to formalize more of the remittances, a process which also tends to have the beneficial effect of increasing the stability of the flows. That will be down to improving competition within local banking systems.