Financial Market Regulations as a Means of Refugee Aid – More Responsibility, Please!

Financial Market Regulations as a Means of Refugee Aid – More Responsibility, Please!

The rise and fall of Pegida, the deaths of refugees on the Mediterranean Sea and the associated debates about European immigration and refugee policies – immigration and refugee issues such as these are elementary topics of our time.

This is not surprising, since the worldwide number of refugees has risen to over 50 million, a number that hasn’t been that high since World War Two. Even though many refugees come to Germany and Europe, the majority of countries taking up refugees are developing ones, which then have to face great challenges. In Germany in 2013, around 110,000 people applied for asylum, which amounts to 0.1 percent of the overall population. According to unofficial estimates, Jordan, on the other hand, took on 900,000 Syrian refugees in the same year, which is the equivalent of 15 percent (!) of its total population. In comparison to these dramatic events and statistics, the efforts of the European Union to newly regulate the financial markets are proceeding at a much calmer pace. Currently, the EU is deciding on a new version and expansion of the guidelines for payment services, and the regulation of transnational payments (Payment Settlements Directive II). This will also affect remittances, meaning cash transfers from immigrants and refugees to their families back home. These remittances are of utmost importance, particularly for refugees and people from countries in crisis. A new version of the payment service guidelines, which would lower high transaction costs and other barriers for remittances, would therefore be a significant developmental contribution in which Germany and the EU could play a central role.

The volume of remittances in developing countries in 2015 will reach an estimated 450 billion USD. It therefore significantly surpasses international aid. These transfers help many people withstand emergencies. Refugees themselves contribute to this influx of money by making these remittances and supporting their relatives, both in their home countries and in the neighbouring countries that have given them refuge. Lebanon, Jordan, and even Syria have recorded a significant increase in remittances since 2011 due to the conflict in Syria. Remittances allow recipients to purchase food, health care, and cover educational costs. Furthermore, they also allow for compensations for damages and losses which have occurred due to conflict, economic crises, or environmental catastrophes. On a macro level, remittances are less volatile than other financial channels, and they help maintain important investments during periods of economic problems. As a rule, remittances are anti-cyclical, which means that they increase during periods of political and economic crises, since migrants increase the support of their families in their countries of origins during these periods. In countries with persistent instability, remittances are crucial for survival. Recently, they’ve accounted for 70 percent of the GDP in different Somali regions, and also make up 21 percent of Haiti’s GDP.

However, remittances are not a magical solution. A number of targeted measures are necessary in order to promote positive effects between migration and development. The legal situation, as well as the working and living conditions for migrants and refugees must be improved so that these people are able to support the development efforts in their home countries. In order for remittances to create an elementary contribution and to halt or even reverse the dynamics of poverty and displacement, they need good framework conditions. Relative stability, adequate regulation, good telecommunication services, and efficient methods of money transfers increase the investment effects of remittances. In contrast, lacking infrastructure, inadequate access to financial services, or political insecurity would reduce the positive effects.

Furthermore, the positive effects of remittances are still being hampered by high transaction costs. These vary, also for remittances from G20 countries, between 5 and 20 percent – in Germany, they lie at about 9 percent. The already low cash transfers are therefore highly diminished, particularly for those who need it the most. Since 2011, efforts by the G20 to significantly decrease the costs of remittances caused a decrease of mid-tier transaction costs to 8 percent. A majority of the remittances are carried out by suppliers of cash transfers, such as Western Union. In order to process the payment, these institutions must have access to domestic payment systems. This occurs either directly or indirectly over a bank account that belongs to the payment system. Therefore, a supplier of cash transfers’ improved access to the payment systems and a consistent regulation of all payment providers – a process which would increase competition – would lead to a further reduction of costs for remittances.

The new version of the European payment service guidelines would have great potential in this area, and could create a worldwide signal. According to the World Bank, among the top ten countries in the world from which the most money is flowing to the home countries of migrants, four large European countries are present. In 2012 alone, over 80 billion USD were transferred from the United Kingdom, Germany, France, and Spain. Germany, which occupies the fifth spot in this significant international list, should lead with the lowering of remittances costs. Even though Europe and particularly Germany is prone to reduce the debate about the effects of immigration and displacement to their own socities and economies, immigration to Europe also has an enormous significance for the families and home countries of migrants and refugees. For over a year now, President Gauck has formulated demands that Germany must take more global responsibility.

If our country wishes to fulfil these responsibilities not only in a military but also in a developmental manner, then the lowering of remittances costs would be an important first step. But it would also be good for the entire European Union to unify behind this matter. Unfortunately, Europe is currently not prepared to reform their refugee and asylum policies, which are based on deterrence and isolation. Therefore, a revision of the payment service guidelines PSD II and its effects on transaction costs for remittances, as well as the access of payment providers to payment systems, seems much more realisable. For many migrants and refugees, as well as their families, they could however make a crucial difference.

This article is part of IFAIR’s cooperation with the Diplomatic Magazine and was published first in its April 2015-issue.

© Titelbild: Human Rights Council – 22nd Session | UN Geneva (