Remittances flow to developing countries at volumes that dwarf official development assistance. They are also the least understood and most poorly governed form of development finance.
The Scale of Remittance Flows
Remittances — the money that migrants send to family members in their countries of origin — have grown into one of the largest financial flows between rich and developing countries. Officially recorded remittances to low- and middle-income countries were expected to reach $685 billion in 2024, larger than FDI and ODA combined, and since 2015, remittances have been the largest source of external finance flows to low- and middle-income countries other than China. Unlike ODA, remittances are not channelled through government or multilateral institutions — they flow directly to households, serving as income support, education finance, healthcare expenditure, and small business capitalisation for the receiving families.
This direct household delivery mechanism gives remittances several characteristics that make them highly effective as poverty reduction instruments: they reach the households that most need them rather than the projects and programmes that government budget processes prioritise, they arrive on the schedule that receiving households need rather than the disbursement schedule that institutional finance imposes, and they are spent on the priorities that receiving households identify rather than the priorities that donor or government preferences determine. The resilience of the flow reinforces the case: during the past decade, remittances increased by 57 percent, while FDI declined by 41 percent, a divergence that held through pandemic shocks that hit corporate capital far harder than household transfers.
The Cost Problem
The primary governance failure in the remittance system is the cost of transfer. The fees charged by the money transfer operators, correspondent banks, and payment processors that handle these transactions remain stubbornly high: the Global Average increased from 6.26 percent in Q4 2024 to 6.49 percent in early 2025, and averages in this six-to-seven percent range have persisted across recent quarters despite years of policy attention. The G20's own 2011 benchmark captured how far the system still has to travel — at the 2011 Cannes Summit, the G20 committed to work towards reducing the global average cost of remitting $200 from 10 percent to five percent by 2014, a target the industry has still not reliably met more than a decade later. Costs bear disproportionately on the poorest corridors: remittances to Africa far exceeded FDI and ODA flows, yet the cost of sending remittances remains too high—averaging 6% globally and 9% for Sub-Sahara Africa.
The sustainable development goal target is explicit: transaction costs for migrant remittances should be 3% or less by 2030, and the second component is to eliminate corridors where cost is 5% or higher. Reaching that target would release additional billions annually to receiving households. Some of the recent decline is attributable to digital and mobile-money instruments undercutting bank and cash-based transfers on price, so the remaining gap is not purely a regulatory failure — but the persistence of double-digit costs in specific corridors, and of an aggregate average still roughly double the SDG target after fifteen years of high-level commitments, points to durable regulatory rents rather than a purely technological lag. Correspondent banking arrangements, licensing barriers that favour incumbent money transfer operators, and fragmented jurisdictional oversight all sustain costs above what competitive markets in comparable financial services would produce.
Remittances are among the most effective development finance instruments available — targeted, demand-driven, and directly reaching the people who need it. The governance failure that keeps their transfer cost well above the SDG target is, in significant part, a regulatory choice that taxes development finance at the point of transfer. Addressing it is one of the higher-return institutional reforms available in the development space.
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