Education has long been seen as a key determinant of economic development and social progress. Adam Smith, the pioneer of political economy, recognised its value more than two centuries ago. In The Wealth of Nations, published in 1776, he emphasised the contribution that an educated and skilled population can make to the progress and wellbeing of a country.

 Today we call this human capital – the collective skills and knowledge of a population – and it’s why many countries provide funding to support primary and secondary education. However, there is often little or no state support for education in the world’s least developed and poorest countries; and because families in undeveloped regions often live at subsistence level, they have no spare money to fund their children’s education.

This is where remittances come in. According to World Bank figures, global remittances grew to $689 billion in 2018, of which $528 billion flowed to low- and middle-income countries. While remittances are mostly spent on day-to-day essentials such as food, clothing and shelter, any surplus can be put toward education. Remittances help to pay for school and college fees, as well as books and other necessary educational materials. They are a vital subsidy for educating children in poorer countries, and can be viewed as an informal educational foreign aid. Remittances have the potential to raise the level of family income sufficiently to enable children to enrol in school or help those who are already enrolled continue with their education.

Without a doubt remittances positively contribute towards widening the reach of education. For example, surveys in El Salvador and Sri Lanka have revealed that children from remittance-receiving households have a lower school drop-out rate. Similarly, studies in Nepal have shown that remittances correlate positively with school attendance, while studies from numerous Latin American countries also reflect a positive trend.

The most recent Global Education Monitoring Report from UNESCO provides further background, underlining the contribution by country and region. On average, international remittances are said to increase education spending by 35%. In Latin America, there is a 53% increase, while in 18 countries in sub-Saharan Africa and central, southern and south-eastern Asia there is a 19% increase. In eastern Europe the effect is said to be close to zero, but UNESCO reports a positive contribution for the majority of countries reviewed. Given the way remittances support education, a bone of contention is the exorbitant transfer fees charged by some banking institutions and money transfer organisations.

The World Bank’s December 2018 Migration and Development Brief states that the average cost of remitting to South Asia is the lowest at 5.4%, while sub-Saharan Africa continues to have the highest at 9%. Soaring transfer fees adversely impact remittances which in turn affects education. This is why supporting UNESCO’s target of lowering the global average to 3% is essential for the greater good of the global remittance industry. As per UNESCO’s claims this move would save families USD25billion per year, while opening the purse-strings for an extra USD1billion to be spent on education.

Restrictive practices are yet another bane facing the global remittance industry which indirectly impact remittances. Simply put if regulators removed some of the barriers to competition, more money would be available for education. The practice of de-risking, which effectively means concentrating business with a handful of players in order to increase risk control, sounds well-intentioned but comes with repercussions of creating a monopoly and pushing prices up.

As a remittance industry insider, it must not be overlooked that remittances are a gateway to education and help in securing the future of the next generation. A collective effort to ensure cash reaches the hands that need it in a safe, secure and cost-effective manner is the unprecedented need of the hour.