Impact of exchange rate on Diaspora Remittances in Kenya

Abstract

Diaspora remittance has become a key driver in economic growth in Kenya and is a major source of foreign exchange in the Kenyan economy only rivaled by tourism, horticulture and tea export. Remittances have led to economic boom and have resulted in improvement of both economic and social welfare of direct and indirect beneficiaries. Remittances are influenced by several factors key among them being the exchange rate between the resident country and the home country of the remitter. The objective of this research was to establish the impact of exchange rate on Diaspora remittances. A descriptive study was used in the research using secondary data obtained from the Central Bank of Kenya and the Kenya National Bureau of Statistics. The data was analyzed using a multiple regression model to obtain coefficient of the variables. SPSS was used to analyze the data. Findings of the study indicated that exchange rate does indeed has a positive impact on Diaspora remittances to Kenya. In the findings it was also evident that this was not the only factor affecting Diaspora remittances hence the study concluded that exchange rate impact Diaspora remittances besides other prevailing factors like interest rate, inflation rate and other factors which were beyond the scope of this research. The study recommends policy formulation to safeguard a stable exchange rate regime and to regulate remittances coming through informal channels. This will allow for predictability of the exchange rate and remove uncertainty in the remittance circle.