Remittances play an increasingly important role in the economies of many countries, particularly developing countries where they contribute largely to economic growth and to the livelihood of the low-income population.

Money transfers by work migrants can help the process of income redistribution from the rich to the poor at the global scale. This money constitutes the second largest financial inflow to many developing countries, exceeding international aid. While foreign direct investments and capital market flows can fall sharply due to the recession in the high income countries, migrant remittances continue to bring capital to the developing states. According to the latest World Bank estimates, some US$250 billion was remitted globally in 2006 and these figures are increasing by almost 30% year on year.

Remittances are relatively new to Uzbekistan. They emerged with the increased openness of the economy and the outflow of migrant labour. The growth dynamics of money transfers, however, are very high. The volume of money transferred by official channels only is estimated at 5-10% of the GDP, which makes them an important factor of the country’s economic growth.

The market for remittances is expanding at an extremely high pace: the volume of remittances to Uzbekistan has grown from US$225 million in 2002 to over US$1 billion in 2006, thus increasing at 52% year on year. Remittances from Uzbekistan also showed high rates of growth, though twice as low as incoming remittances: the average annual increase made up 26% (from US$86 million in 2002, to US$168 million in 2005). In 2006, the outgoing remittances dropped to US$100 million.

As seen from the figures, Uzbekistan is a net receiver of remittances, and the surplus of the inflow of money transfers substantially exceeds and grows faster than the outflow.

In the first quarter this year, the volume of money transferred by migrants from Russia to Uzbekistan through official systems comprised US$178 million, whereas remittances from Uzbekistan to Russia – US$37 million. In the reporting period, money transfer systems noted a decrease in the remittances from Russia to Uzbekistan. They however see this as a seasonal, temporary drop, and expect the overall yearly results to show growth, especially since most migrant labour sends its earnings home at the end of the year – before the celebration of the New Year holiday.

International practice shows that competition and open access to the market are important factors determining the development and cost-reduction in the field of international money transfers. Moreover, it appears that money transfers tend to reduce the social tension in the vulnerable and needy groups of population by providing them an additional source of income.

In Uzbekistan, the remittance services are provided by commercial banks. Some banks operate up to 4-5 money transfer systems. The dynamics of the remittance flow reflects the growing popularity and fast territorial expansion of these systems in Uzbekistan.

Today, money transfers can be made by three methods: using the available twelve systems of international money transfers (Western Union, MoneyGram, Contact, Anelik, Migom, Blizko, UNIStream, etc), as well as using the SWIFT international system (traditional bank transfer) and the postal service (money order). But the most popular and probably the most convenient is the first of the three.

Competition has forced the fee charged for the service down. An average commission for the transfer has decreased from 10% in 2002 (with three systems in the market – Western Union and Money Gram (US) and Contact (Russia) to 2-4% in 2006 (with 12 systems in the market at the end of the year).

In general the potential for further growth of Uzbekistan remittance market is viewed as high. One of the important factors determining this is a cultural aspect – the importance of family ties for the migrants. This factor is particularly strong in Uzbekistan, and as the flow of migrant labour increases, the remittance flow is highly likely to increase accordingly.