Digitalisation Spurres Global Remittance Flow

Published June 17, 2022

Gilbert F Houngbo, President of International Fund for Agricultural DevelopmentMoney sent by migrant workers to their family members in low- and middle-income countries (LMICs), grew by 8.6 per cent in 2021.

“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 International Fund for Agricultural Development (IFAD).

Remittances flow (US$605 billion) more than tripled the total amount of international official development assistance (US$178.6 billion). Money sent home by more than 200 million migrant workers around the world in 2022 is expected to reach US$630 billion, providing a lifeline for more than 800 million family members.

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“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,” Houngbo says.

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.

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Digitalisation Spurres Global Remittance FlowAccording 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.

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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.

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Pedro De Vasconcelos, Manager of the Financing Facility for Remittances at IFAD“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,” says 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.

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