Global remittances, the hard-earned money sent by migrant workers to their family members in low- and middle-income countries (LMICs), grew by 8.6 per cent in 2021.
Despite predictions that the COVID-19 pandemic would reduce remittance flows, the momentum was sustained due to a 48 per cent increase in money sent through mobile channels, according to the report MobileRemit Africa launched today by the International Fund for Agricultural Development (IFAD).
“The digitalization of remittances, particularly through mobile channels, is a great opportunity to boost rural development as over half of these funds go to rural areas. Digitalization reduces fees and other transactions costs like travel time, making the process more convenient and safer while promoting digital and financial inclusion,” said Gilbert F. Houngbo, President of IFAD, speaking on the International Day of Family Remittances.
Remittances flow (US$605 billion) more than tripled the total amount of international official development assistance (US$178.6 billion). Money sent home by over 200 million migrant workers around the world this year is expected to reach US$630 billion, providing a lifeline for more than 800 million family members.
“Remittances lift people out of poverty, put food on the table, pay for education, cover health expenses, allow housing investments and many other family goals beyond consumption,” added Houngbo.
The aggregated flows of family remittances to LMICs are expected to reach US$5.4 trillion by 2030, a figure equivalent to twice the GDP of Africa in 2021.The upward trend of remittances growth is likely to moderate in 2022 as inflation erodes wages while pandemic-related support programmes end in rich countries. The war in Ukraine is expected to impact global figures, as it is triggering a sharp decline in transfers to Russia’s neighbouring countries, where remittances can account for as much as 30 per cent of their GDP.
Remittances in Africa: the opportunities of going digital
According to the analysis of seven African countries conducted by IFAD in the MobileRemit Africa report, the use of mobile channels for remittances by migrant workers and their families has brought an overall reduction in costs.
However, the African remittance market remains the most expensive, with an average cost of 7.83 per cent against the global average of 6 per cent. Reducing the cost to the 3 per cent goal agreed in the Sustainable Development Goals (SDGs) would lead to an additional US$4 billion per year being received by migrant families in Africa. Mobile transfer costs are already in line with the SDG target of 3 per cent.
In East Africa, home of mobile money innovations for over a decade now, countries like Kenya, Rwanda and Tanzania are leading by example in the adoption of mobile remittances, as reported by the new MobileRemit Index prepared by IFAD, which measures preparedness to take advantage of the growing digitalization of remittances. Beyond these leaders, almost half of all African countries surveyed scored high.
Individual country cases in the report showcase how digitalization links up remittances with financial services and products as it provides migrants and their families with more choices to manage and leverage their finances, including through savings, loans and insurance.
“Mobile remittances offer a unique opportunity to bring millions into the formal financial sector, bringing financial services and income-generating opportunities closer to their communities,” said Pedro De Vasconcelos, Manager of the Financing Facility for Remittances at IFAD.
The UN Fund is working to promote digitalization and financial inclusion on both sides of migration corridors, in order to benefit over 1 million people including through 15 projects in seven African countries (Ghana, Kenya, Morocco, Senegal, South Africa, The Gambia and Uganda) through IFAD’s Platform for Remittances, Investments and Migrants’ Entrepreneurship in Africa – PRIME initiative, co-financed by the European Union.
Working together with national private sector stakeholders, the PRIME initiative seeks to reduce transaction costs, encourage innovations, and bring financial inclusion and formalization options to senders and recipients. Remittances are also essential to support small-scale farmers’ investments in climate adaptation practices to build their resilience to climate change.
SOURCE: Modern Ghana