Credit impacts of remittances

REMITTANCES positively influence the amount of loans that households obtain, says a new research report.

Remittances vis-à-vis bank credit and investments in Pacific Island countries: The case of Fiji investigates has been authored by Matia Tuisawau, Akata Taito, Mitieli Cama, Jak Khakharov, Lan Nguyen, and Parmendra Sharma.

They researched on the impact of international remittances on bank credit and household investments.

“Remittances positively influence the amount of loans that households obtain, which could be used for small business investment or consumption,” states the report.

“Remittances are also an important source of investment in capital markets and real estate, fuelling further developments in these market segments.

“Remittances help to boost the amount that a household borrows from banks. It appears that the higher amount of international remittances increases the amount of loans, confirming a positive link between remittances and this measure of bank credit.”

The study states any remittance dollar spent by recipients creates a multiplier effect for the economy.

“It increases demand for services and products that may in turn lead to the need for more workers hence job creation.”

The authors stated previous studies had not considered the impact of remittances on bank credit and investments.

“’The issue of how remittance earnings are spent and invested has been widely debated.

“Some studies find that international remittances are spent mostly on consumption goods (for example, food and consumer goods), which has little, if any, positive effect on the broader economy.”

The study states of 70 per cent of foreign remittances appears to flow to urban areas, while an average of about 20 per cent is received by those in rural areas.

People in urban areas have higher bank loans to the agriculture sector, states the study.

High remittance costs in Fiji discourage migrants from sending money back home or using formal channels. – Remittances report