Understanding the Impact of Remittances on Peru’s Migration Landscape

Though it might not be the first thing you think about when this country pops up in a conversation, Peru and migration go hand in hand. From the Inca Empire all the way through to modern times, Peruvians have got a knack for moving around their unique and diverse country and have even gone beyond their own borders. Through thick and thin, the Peruvian diaspora and its citizens have always endured.

The Migration Phenomenon in Peru

Hundreds of years after the indigenous population suffered mass displacement and exploitation at the hands of colonization, Peru began to see huge waves of migration from all over the world.

Many citizens crossed both the Atlantic and Pacific oceans in search of better opportunities that the flourishing Peruvian economy provided, with many hailing from Spain, China or Japan. However, while the latter two are the biggest Asian migrant groups, modern-day Peruvians are also descended from Filipinos, Malays and Cambodians.

In the second half of the 20th century, economic hardship and violence stemming from political instability led to a huge internal migration process from rural areas to urban centers.

In a 2022 report, the UNDP highlighted several key points about migration in Peru, including migration driven by different economic opportunities and social factors, a sharp increase in inflow from Venezuela or the difficulties citizens faced during the Covid-19 pandemic.

The UNDP explains that in more recent years there has been a more noticeable rise in both internal migration and emigration; within the country people continue to move to major cities, such as the capital Lima, while others seek other favorable opportunities in neighboring countries like Chile.

The Covid-19 pandemic also played a big role in the recent movement of Peruvians. A younger demographic was— and continues to be— keener to search for work opportunities in different countries.

Climate change and environmental impact in Peru

Another rising factor for Peruvians going through national or international migration is climate change. Peru is particularly vulnerable to these changes, according to Unesco.

The country’s mountainous region is prone to extremely high heat and extreme freezing temperatures, which threatens the retreat of glaciers, while the rainforests are suffering from both large-scale floods and severe droughts.

Moreover, Peru’s thousands of kilometers of coastline sees periods of constant droughts, extremely high temperatures or strong winds. But what’s most threatening is the constant warming and cooling events of the Pacific ocean’s surface temperature, which causes unusual atmospheric changes and can affect rain patterns, among other climate-related factors, Unesco explains.

In essence, Peru’s migration trends are marked by a combination of both internal and external movements that are driven by climate change and unforeseen world events, leading Peruvians to seek work opportunities elsewhere, which has had important implications for the country’s development.

Remittances as a lifeline for Peru and from Peru

Peru’s urbanization and migration trend continues to this very day. Remittances play a key role in facilitating these migrations and prove to be a critical source of income for many Peruvian families: they provide financial stability, contribute to the local economy, alleviate poverty and enhance living standards for those on the receiving end.

In the Peruvian economy, remittances have a huge impact in the financial aid provided to families and communities. According to the World Bank’s data, remittances sent to Peru have grown massively since 2020, with Peruvians receiving $4.24bn in 2023, which accounts for around 1.5% of the country’s GDP.

As such, remittances in Peru play a multifaceted role, which the World Bank considers are crucial when it comes to reducing poverty and lifting families above the poverty line. The extra financial support allows for an improved quality of life thanks to investments in healthcare, education or housing.

Moreover, many Peruvian migrants who decide to one day return home also bring with them a whole host of new skills, savings and business ideas, on top of helping to relieve poverty and stabilizing the economy during times of crises.

The money Peruvian families receive from remittances also goes towards investment in education and health, which is particularly significant in rural areas, where the economic opportunities are more limited than in cities.

Though remittance inflow is much bigger, remittance outflow from Peru cannot be overlooked, as it’s also a country that hosts a myriad of migrants, most of which are Venezuelan.

According to the UNHCR, there are currently over 1.5 million Venezuelans living in Peru who have been forcibly displaced from their home country. In stark contrast, the second largest migrant group is made up of around 45,000 Colombians.

Overall, Peru hosts a considerable migrant stock, and much of the outgoing money makes up a noticeable chunk of the country’s economic interactions with the world. According to Knomad, the value of outgoing remittances from Peru increased to $322m in 2023, returning to the pre-pandemic level, greatly aided by an ever-growing migrant workforce.

Policy and Regulation: Governing Informal Remittances

As a country that depends heavily on remittances, both inwards and outwards, Peru has had to ensure proper oversight when it comes to sending and receiving money. Nowadays, formal channels are the preference for consumers, given that they are driven by competitive costs and increased security, according to the IMF.

However, this hasn’t always been the case. As the IMF explained, the existence of an informal remittance market in Peru is mainly down to the presence of informality as a whole, which has represented an important part of the Peruvian economy and workforce.

Thanks to regulatory improvements, the establishment of formal regulations and the involvement of banks, there has been improved transparency and security of remittance channels and a decline in informal channels.

The main players in the regulatory game were the Superintendence of Banks and Insurance Enterprises (SBS) and the Central Bank, who adopted SBS data for official remittance records from 2003 onward. This made it so that remittances were able to be better tracked.

This collaboration between regulators was so successful that by 2011 the use of informal channels to send money to Peru was reduced to 10-12%, according to the IMF, consistent with other Latin American countries.

And by 2012, surveys indicated that the majority of remittances were sent through formal channels like money transfer operators and banks, helping to maintain a relatively low percentage of informal remittance channels ever since.

Ria’s long-time customer Porfirio Pisfil Aguirre, swears by the benefits of using formal channels to send money back home to his loved ones in Peru. This 67-year-old baker has been living in Chile for close to two decades and has used Ria’s services for over ten years, helping his family back home and ensuring that they get their money where they need it.

“Every time I have come, Ria staff have provided me with a first-class service,” he said. “When I send money through Ria, I feel security and confidence.”

Future prospects in Peru through financial inclusion

In their article “Financial inclusion in Peru: Appraisal and Perspectives,” Emerson Toledo Concha and Victor León Reyes highlight that financial inclusion in Peru is seen as a key driver for economic growth and poverty alleviation, aiming to provide affordable banking services to all, including disadvantaged groups. The Latin American country has made significant strides, ranking highly in global financial inclusion indicators, and has developed a robust regulatory framework guided by the Multisectoral Committee for Financial Inclusion (CMIF).

But there is still a long way to go in terms of providing the population with access to financial services. The CMIF set a goal for themselves in August 2015 to ensure 75% of the Peruvian population had access to a bank account within a few years.

However, by 2022 only 56% of adults in Peru had access to financial services through an account with a regulated organization, the article explained.

For any country, increasing financial literacy is crucial, as tailored educational programs can empower individuals to make informed financial decisions. Expanding access to financial services, particularly in rural and underserved areas, can be achieved by establishing more banking points, promoting digital services, and leveraging fintech innovations to provide affordable solutions.

Additionally, developing targeted financial products for specific groups—such as the Venezuelan diaspora—can address their unique needs, ultimately fostering a more inclusive financial environment that supports economic growth and enhances the livelihoods of Peruvian citizens and migrants living in the country.

In conclusion, Peru’s history of migration, both internal and external, has significantly shaped its socio-economic landscape. Internal migration has driven urbanization, while external migration, motivated by economic opportunities and environmental challenges, has led many Peruvians abroad.

Remittances have become a lifeline for the Peruvian economy, playing a crucial role in poverty alleviation and enhancing living standards for families. With an increase in formal remittance channels, Peru has made progress in regulating these financial flows, which, coupled with efforts to foster financial inclusion, supports long-term economic growth and stability.

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