Rethinking Remittances: How We Get Them, How We Use Them
At this year’s European Development Days (EDDs), IOM, the UN Migration Agency and the International Fund for Agricultural Development (IFAD) held a joint brainstorming session on “Remittances and Development in the ACP-EU Dialogue”. This session aimed to creatively explore how communities receive and integrate remittances.
Questions:
1. What challenges exist to accessing remittances, especially in rural areas?
2. How do we maximize the use of remittances for raising people/communities out of poverty (financial inclusion)?
Context: the moderator opened the discussion by highlighting a few key facts on remittances, migration and development:
- 1 billion people are directly involved with remittances (1 out of 7 people in the world), with indicatively 200 million migrants sending remittances to an estimated 800 million people;
- Over USD 30 billion a year is spent on average on the cost of transferring that money;
- 40% of remittances go directly into rural areas, raising the issue of a need for better financial inclusion (the process of moving people from unregulated to regulated management of their finances) programs;
- Cash remains the main source on the market;
- “Formal” remittances, as we understand the concept, is still an issue for many rural areas without access to formal banking institutions;
- Each region (Africa, Caribbean and the Pacific) needs a specific approach, owing to their diversity and their different formal banking systems. Participants highlighted that even within these regions countries needs to be approached individually.
1. Access in Rural Areas
The following were identified as ways to facilitate payments in rural areas:
- Credit Cooperatives, Postal offices and mobile carriers can become remittance disbursement hubs (the case of MPESA in Kenya was highlighted);
- Local stores were mentioned as places where remittances could be disbursed safely and act as a one-stop shop;
- It was agreed that different countries have different realities and that there is no one-size-fits-all solution (regulatory frameworks vary between countries, one rural area may be different from its neighbor, etc);
- Participants identified that big organizations/governments underestimate habits associated to sending remittances. Many people feel suspicion about organized forms of money transfer when it comes to sending funds directly to help their relatives. It is important to include the Diasporas in the process and sensitize them as to the best way to remit. TRUST in the system (weather regulated or unregulated) is a key factor.
- Building partnerships among different actors (Diaspora, Government, Transfer agents, etc.), and especially engaging the private sector to create of environments that enable a variety of avenues for accessing remittances will make great strides to lowering the costs.
2. Use of Remittances to End Poverty: Promoting Financial Inclusion
Context: The debate revolved around the question on how migrants can be supported in better planning to use the money they are remitting.
Key points raised:
- Education on financial literacy is critically important. Those sending money need to have basic financial knowledge;
Because remittances are a private flow between two individuals there is a strong case for stating that governments should not get involved in what they decide to do with the money. However, all participants agreed that engaging all stakeholders (including migrants and their counterparts) in discussions about the productive use of remittances would promote responsible investments in communities.
- The diasporas need to be engaged. Involving the diaspora in a conversation about the use of remittances is key. Bringing together community stakeholders encourages senders to remit;
- Communication with the diaspora is crucial — more work needs to be done in communicating opportunities for diaspora involvement;
- Involve the whole community. Remittances when used efficiently can have a productive impact on a community. More work needs to be done with migrants, and with the communities that received their funds, in order to locally encourage the productive use of remittances;
- Remittance costs are too high — Governments must commit to lowering remittance costs so that the money saved could be productively invested. This can be achieved through more capacity building on financial inclusion, regulatory changes and pressuring the money transfer operators (MTOs);
- Governments could provide additional ideas/resources about how to use and invest money in and within the community.
Outcomes:
Trust is a major factor to be addressed on the receiving side.
Tailored solutions for different circumstances need to be developed.
Diasporas need to be an intrinsic part of any initiative and answers will only be found by working with all the stakeholders.
SO NOW WHAT?
Tell us what YOU THINK?
Share your stories, impressions, suggestions and concerns below. Join the conversation and lets all work toward lowering the price of remittances.
Read on:
IOM — Global Compact Thematic Paper on Remittances
IFAD — The Use of Remittances and Financial Inclusion
IFAD — Sending Money Home: Contributing to the SDGs, One Family at a Time
This article is written by Mathieu Jacques, programme manager of the ACP-EU Migration Action, with thanks for the superb facilitation of Mauro Martini, Migration, Remittances and Development Officer with IFAD. It is the second of a three-part series tackling questions related to remittances and the path towards SDG 10.7. You can also read the original op-ed: The Walls Between Remittances and the People Who Need Them as well as pt. I Conquering the High Cost of Remittances: 9 Easy Steps. Stay tuned for pt. III on The Impact of Remittances.
