Microfinance and small economies: leveraging remittances in Africa

01.06.2013
Remittances worldwide have increased more than tenfold from US$30 billion in the mid-1990s to over $400 bn in 2009. There are more than 30 million Africans living outside of their home countries, who have contributed almost $300 bn in remittances from 2000 to 2008, and sent over $35 bn in 2009. In some African nations, remittances make up a significant portion of their GDP. Lesotho received close to $450 million in remittances, which is almost 25 per cent of its economy. Money transfers have been, and will continue to be, a major source of capital inflows for these small developing economies, impacting millions of households. This paper analyses and presents evidence of the importance of remittances to small African countries and their resulting multiplier effect on economic growth, smoothing out consumption, supporting microenterprises, and enhancing economic activity while filling the void of small country cross-sectional studies linking remittances to development. It also describes how to best leverage the impact of remittances through innovative financial services and distribution channels, including microfinance institutions.