Survey: the economic impact of remittances in ETC countries [EBRD

The economic impact of remittances on Azerbaijan, Georgia and Moldova

The EBRD commissioned Bendixen & Associates (B&A), a professional research firm in Coral Gables, Florida (U.S.A.) to conduct a series of projects aimed at measuring remittance flows to Azerbaijan, Georgia and Moldova as well as analyzing the financial sector in those three countries.

The total project was broken in three phases, as follows:

Phase 1: National surveys in Azerbaijan, Georgia and Moldova
Phase 2: Survey with Azeri, Georgian and Moldovan Remittance Senders in Russia
Phase 3: Analysis of financial sector in Azerbaijan, Georgia and Moldova

The methodology and detailed findings from each phase of the project are presented in this report. What follows are recommendations to the EBRD based on the findings from all three phases of the project as well as a brief summary of the major findings from each phase of the report.

Overall recommendations

After analyzing the results from all phases of this project, there are three clear recommendations that can be made to the EBRD.

First, the studies show that low percentages of remittance receivers in Azerbaijan, Georgia and Moldova and of remittance senders from these countries in Russia have a bank account. However, many rely on the banking system for remittances. Moreover, these remittance senders and receivers have improved their economic condition over the last three to five years. They are much better off today than during the last days of the Soviet Union. In other words, there is greater access to cash and greater financial stability for many senders and receivers. Still, they have not taken the opportunity to develop a relationship with a financial institution. There is a great opportunity here for the EBRD and its institutional associates to influence Azeris, Georgians and Moldovans who are involved in the remittance process to open bank accounts. Our studies clearly indicate that most of them are familiar with banks as they are the most common mode for sending and receiving remittances in these countries. Therefore, the EBRD needs to consider implementing “information” and “marketing” campaigns designed to educate these populations about the advantages of opening a bank account and developing a relationship with a financial institution.

Another recommendation from the study is that the EBRD and its institutional associates need to improve the “financial literacy” of Azeris, Georgians and Moldovans. The study reveals that there is little interest in financial products, such as insurance policies, savings accounts, home mortgages and small business and educational loans. In fact, interest in financial products is lower in Azerbaijan, Georgia and Moldova than in some of the poorest nations of Latin America. Haiti, Honduras and Bolivia – the three poorest nations of the Americas – seem to have a higher level of “financial literacy” than Azerbaijan, Georgia and Moldova. The “financial sector analysis” finding that shows remittances to be an important part of keeping many banks in these countries afloat should result in these institutions accepting the responsibility to participate in the educational campaign recommended above.

The third recommendation is that the EBRD and its institutional associates should consider encouraging governments and private companies to offer some basic financial products that can benefit the majority of Azeris, Georgians and Moldovans. They could include savings accounts, insurance policies that cover health care and funeral expenses, microfinance loans of less than €3,000 to start a small business, and educational and construction or home improvement loans. These basic financial products could be used to help teach the populations about the value of credit and of developing a relationship with a financial institution and may increase the prospects of prosperous economic development in Azerbaijan, Georgia and Moldova.

Phase 1: National surveys in Azerbaijan, Georgia and Moldova

In Azerbaijan, the overwhelming majority of the money is sent from Russia, while in Georgia and Moldova, less than half of the funds come from that nation.
Remittance recipients in these three countries report that they received a remittance between six and eight times during 2006 and that the average remittance was between €100 and €150.
The study indicates that the remittance process has been directly impacted by the improvement and low cost of international communications.
The study shows that the remittance process involves all types of relatives – parents, sons and daughters, spouses, siblings, cousins, and uncles and aunts.
This study reveals that remittances are a relatively new economic phenomenon in these three countries. Approximately one-half of all recipients have been receiving money from abroad for less than three years.
A substantial percentage of the money sent from abroad to these three countries arrives by informal means. Nevertheless, the majority of recipients in the three countries collect their money at a bank or financial institution.
The three polls indicate that more than eighty percent of the money received in Moldova, Georgia, and Azerbaijan is spent on daily expenses – housing, food, clothing, and medicine.
The study shows that a very low percentage of remittance recipients have a bank account and therefore have access to credit and other financial investment products. In Azerbaijan and Moldova, about one-fifth of recipients have a bank account, while in Georgia, the percentage of those with a bank account is even lower – 11 percent.

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Phase 2: Survey with Azeri, Georgian and Moldovan remittance senders in Russia

Azeri, Georgian and Moldovan senders living in Russia tend to be young and male. However, unlike remittance senders in other continents, significant percentages of senders in the Russia study are citizens or legal residents of Russia and very few are undocumented.
Approximately 3 out of 5 Moldovan, Georgian and Azeri immigrants living in Russia regularly send remittances to their families in their countries of origin. In total, these immigrants sent approximately €718 million to their family members during the last 12 months.
The most common mode of sending money from Russia to Moldova, Georgia and Azerbaijan is through banks.
Most of the remittance senders in the study send money to their parents to help take care of basic family needs.
The overwhelming majority of Moldovan, Georgian and Azeri remittance senders in Russia do not have a bank account.
Although most do not have a formal relationship with a financial institution, the majority of Moldova, Georgian and Azeri remittance senders in Russia are saving money in some way.
Moldovan, Georgian and Azeri immigrants living in Russia report relatively little interest in investment products such as mortgages or business loans in their home countries.

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Summary of findings from Russia survey (0.1Mb)
Russia survey presentation (1Mb)

Phase 3: Analysis of financial sector in Southern Caucasus

Remittances represent a non-negligible source of foreign earnings to the banking institutions in Azerbaijan, Georgia and Moldova amounting to €1.1 billion. They have varying impacts depending on the economy of the country.
The inflow and the benefits of these transfers are distributed across the population whereas only 9 to 20 percent of people are remittance recipients.
The banking industry competes for the remittance business with a relatively important informal sector but it still handles the substantial majority of international money transfers to Azerbaijan, Georgia and Moldova. The remittance business and money transfer payments account for revenues that represent up to 20 percent of the financial institution’s net income in all three countries.
Payment competition is often affected by the concentration of a few banks and by restricted participation of non-banking financial institutions, such as credit unions, which exhibit a strong presence in rural areas.
Financial intermediation through cross sales of products to remittance senders or recipients is relatively absent.

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Financial sector analysis (0.2Mb)

Survey on remittance flows