A fresh insight into the value of remittances

Remittance flows have increased significantly in recent decades as more people have moved overseas for work and are sending money home to support their families. International money transfers are a lifeline for millions of individuals as well as whole communities,as they help to pay for basic needs and provides for people, particularly in rural and underdeveloped regions.

It is therefore fitting to highlight and promote the economic and social value of remittances, which is why we now have an official International Day of Family Remittances (IDFR). Celebrated on 16 June every year, this special day was formally endorsed in 2018 by the United Nations General Assembly.

The aim is to raise awareness of the key role that remittances play in sustainable development, to encourage more effective remittance policies and practices and to share ideas and insights that will improve living standards in underdeveloped regions and help future generations. Not least is the need to harness digital technology to improve the remittance industry and increase financial inclusion.

According to the International Fund for Agricultural Development (IFAD), which devised the International Day of Family Remittances, more than 200 million migrant workers currently send money home to support around 800 million family members. This means one billion people are directly affected by remittances every year, either as senders or receivers, which clearly has a profound macroeconomic impact.

According to World Bank data remittances to developing countries are expected to reach more than $550 billion dollars in 2019, an estimated increase of $20 billion from 2018. That’s more than three times the amount of official development assistance and is greater than foreign direct investment. Making up this vast sum are regular individual remittances of, on average, $200 or $300 that migrants send to their loved ones.

IFAD’s latest press release reports that these sums represent just 15% of migrants’ total earnings, as 85% remains in the host countries and is either absorbed into the local economy or saved by the workers. However, the 15% that is transferred overseas has a disproportionate importance, as it often accounts for the largest part of a household’s income. Without these regular payments, many people would slip below the subsistence level.

It is estimated that three quarters of remittances are used for immediate needs such as food, housing, school fees, clothing and medical expenses.The balance of 25%,which represents over $100 billion, is usually saved or put towards income-generating activities and projects. Remittances are therefore also about investment as well as consumption, which reinforces the need for better education and awareness to ensure that money works harder for those in need.

The International Day of Family Remittances is rising to these challenges. It emphasises the importance of the UN’s Sustainable Development Goals (SDG) and the related Global Compact for Safe, Orderly and Regular Migration. Both include remittances within their scope and underline the need to reduce transaction costs to less than 3% by 2030. Today, the global average is approximately 7%.

In focusing on goals and collective action, these initiatives recognise how technical progress, particularly through mobile technologies and other digital innovations, can transform the remittance marketplace and better serve senders and receivers. This is where international money transfer organisations can make a major contribution by developing cheaper, faster and more secure services. With the UN predicting that remittances will surpass $8.5 trillion during the 2015-2030 timeframe set for the Sustainable Development Goals, digital technology must be fully exploited to protect migrants’ hard-earned money and ensure that more of it reaches those in need.

The International Day of Family Remittances reflects a spirit of cooperation and partnership that can mobilise the remittance industry and focus on alleviating poverty and increasing financial inclusion. This covers all aspects of financial services, combining cost-effective transfers with savings schemes and better money management. When governments, regulators, money transfer organisations and technology providers work together, millions can build a better and more secure future.

Reference: http://www.ipsnews.net/2019/06/immense-cost-200-million-migrant-workers-pay-rescue-families/