The paper uses a unique survey of remittance-receiving individuals from Tajikistan to study the impact of policy awareness on consumer behavior. The results show that knowledge of deposit insurance encourages the use of formal channels for transmitting remittances and reduces dollarization. Given the size and importance of remittances in Tajikistan, improving financial literacy and better publicizing details of the social safety net may encourage a more frequent use of formal channels for transferring remittances and reduce reliance on foreign exchange for transaction purposes. This is likely to improve bank profitability, enhance financial stability, and improve access to finance.
To the best of our knowledge this is the first paper that looks at the impact of DIawareness—an element of financial literacy—on the method of transfer and the use of remittances. The paper argues that educating consumers about DI can help channel a larger share of remittances through the formal channels and reduce the dollarization of their use. The main hypotheses to be tested in the paper are as follows:
Hypothesis 1 : Knowledge of DI is important for channeling the remittances through the formal financial sector.
Hypothesis 2 : Knowledge of DI