Can migrant and diaspora remittances help develop economies? 

Currently, fees for sending cash from one country to another are in the region of 5-20% and can take up to 5 days to reach a recipient, if there is a cash out branch nearby. This irony has not escaped us at Empowch that the most financially vulnerable are being punished the most financially with high remittance fees. The unbanked are also excluded from the global economy because they have no other way to transact, other than in cash. 

According to Aisien (2009:98) diaspora is “the movement or dispersal of people or the migration of people from their father land or ancestral homeland for one reason or the other”. This movement can be voluntary or forced as in Ukraine, and other regions where civil unrest, environmental damage, droughts etc., forces people to leave their homes for short periods of time or permanently.

According to Goldine (2006:111) “Remittance is the transfer of money from a foreign employee to their home state or country” We do not deal or discuss business remittance in this article.

Ratha (2007) explains that the role of remittance in alleviating poverty cannot be underestimated as it has played a historical role as an external source of funds used in both development of that local economy and reducing poverty. It is estimated that in 2020 there was $ 700 Billion USD in remittances globally although this amount is expected to be much higher as reporting tools are not that robust and comprehensive.

Remittance is also a large generator of foreign reserves for countries and allows these countries to balance their import liabilities, improve their balance of payments and build up foreign reserves. This has led countries to embrace sending their citizens to foreign countries to work as a business model. (Azad 2005). It is imperative that these countries need to make sure their foreign workers are able to remit foreign reserves back home in the quickest most cost effective manner possible.

International and development studies show that remittances provide capital to small business owners and thereby entrepreneurship (Ratha, 2007). Remittances have helped to improve countries credit worth and thereby increase the quality value of its access to international capital markets.

Solimano (2003) argued that remittances are the second most  important source of external finance to developing countries, after foreign direct investment. He further asserts that remittances have a potential positive impact as a “development tool” for the recipient countries.

It is estimated that 15% of the diasporas earnings is sent back home in remittance and this averages out to $300 USD every month or second month. There are 195 countries in the world and 70 of these countries rely on remittance for more than 4% of their GDP. 50% of all remittances goes to rural areas. (financepond.com)

How can Fintech help lower remittance costs and speed up delivery? 

In the following academic paper, “IMF Working Paper Western Hemisphere Department Fintech Potential for Remittance Transfers: A Central America Perspective Prepared by Julia Bersch, Jean François Clevy, Naseem Muhammad, Esther Pérez Ruiz, and Yorbol Yakhshilikov” it is demonstrated that Fintech reduces costs of remittance and time for transferring and receiving the cash. Other key findings show the following:

Fintech advances and further digitalization in the remittance industry can be expected to expand this source of revenue to migrants’ families, thereby contributing to lowering poverty and inequality and raising their access to financial services. Vulnerable households living in the rural areas of Central America, with young and educated women, are to gain the most. • 

Traditional operators have provided remittance services at competitive prices by global comparison. In 2019, the average fee for a US$200 transfer to Central America was the second lowest worldwide behind South Asia. Nonetheless, average remittance fees remained above the Sustainable Development Goal (SDG) of US$6 (for a US$200 transfer) in all Central American countries. 

In addition to further cost reduction, fintech can promote financial inclusion. Detached from bank branches and agent networks, digital remittances can reach remote, low-income households. Digital remittances are also faster than those channeled physically and the associated information can complement traditional banking instruments for the assessment of creditworthiness. •

There is room for regulators to provide an enabling environment that fosters the digitalization of remittances, while guarding against any potential risks. Internet network coverage is broadly adequate in Central America, but financial literacy and digitalization, particularly mobile financial services’ penetration, are still lagging. A meaningful expansion of digital remittances necessitates a regulatory environment enabling a level-playing field for digital financial services and greater interoperability with payment systems. 

References:

• Aisien Nosa Leonard (2009):The Relative Potency of Fiscal and Monetary Policies on Price Stability in Nigeria.

• Goldine L. (2006), Migration and Remittances, In Bhargava Vinay.

• Ratha D. (2007), Leveraging Remittances for Development: development Prospective Group.

• Solimano (2003) Global Migration and International Development in Unstable Times.