Analyzing the scenario in El Salvador, Anzoategui et al. argue that remittances do not necessarily led to “a significant and robust” demand for and use of credit from formal institutions. However, it has positive impact on financial inclusion by promoting the use of deposit accounts. Remittances account for about 17 percent of GDP of El Savador. Here is the abstract of the paper:
This paper investigates the impact of remittances on financial inclusion. This is an important issue given recent studies showing that financial inclusion can have significant beneficial effects on households. Using household-level survey data for El Salvador, the authors examine the impact of remittances on households' use of savings and credit instruments from formal financial institutions. They find that although remittances have a positive impact on financial inclusion by promoting the use of deposit accounts, they do not have a significant and robust effect on the demand for and use of credit from formal institutions. If anything, by relaxing credit constraints, remittances might reduce the need for external financing from financial institutions, while at the same time increasing the demand for savings instruments.
The latest household survey in Nepal shows that with massive increase in remittances (which is close to 25 percent of GDP), the proportion of households taking loans from financial institutions increased (from 15.1 percent of total households in 2003/04 to 20 percent in 2010/11). Meanwhile, there was a decline in the proportion of households taking loans from money lenders and relatives.
