The Real Impact Not Being Able Send Money Home
Remittances change and save lives. Workers who send money home to families make it possible for their loved ones to eat, get to school, to work, to invest in new clothes, tools and pay the bills.
June 16, 2016, marked the second annual International Day of Family Remittances (IDFR), which recognises the impact of 250 million migrant workers on their developing countries of origin. In 2015, the World Bank estimates that remittances were three times more than official development assistance (ODA), currently worth over $436 billion.
The Value of Remittances
In some countries, such as the Philippines, remittances – mainly from the US – were valued at $25bn, more than the countries electronics industry, which generates $22bn. Money sent to Vietnam were the same as petrol exports, worth nearly $11bn. This money can make a huge difference to hundreds of millions of people in developing regions, especially sub-Saharan Africa and Latin America.
Remittances are generally spent in the same way as other forms of income: split between consumption (e.g. food, water, electricity) and investments (new shoes, tools, a car, etc.). Some economist argue that spending on consumption is a bad use of this money, although The Adam Smith Institute would disagree:
“Imagine if the consumption takes the form of foodstuffs: Although the immediate effect of remittances is for non-investment purposes, these can be seen as an investment in the individuals’ long-term health. And, ultimately, a world in which people eat until they are full rather than going to bed hungry is a better world to live in.”
This money has a direct impact on people’s health (as shown by a study of 11 Latin American nations), and therefore on their ability to contribute to their local economies, to attend school, raise children, and start businesses. Remittance inflow countries are better for receiving money from family and friends working overseas.
Fees Still Too High
In 2009, the G8 pledged at the L’Aquila summit, to reduce remittance transfer fees to 5%. This hasn’t been done. In many parts of the world, many who can afford it least are paying too much to send money back to their families.
There are five popular remittance corridors, all in Africa, where fees are over 20%, and some countries where to transfer money it costs as much as 29%. Far higher than the G8 pledged over seven years ago. Even for remittances from G8 countries to developing nations, the average is 7.5%, only 0.5% lower than the global average of 8%, which is still more than people can or should pay.
A World Bank report said that, “Forcing migrant workers to pay as much as $50 to send $200 is wrong, especially when they are sending salaries they have earned in the hope of supporting their families back home.” In 2014, an Africa Progress Panel report, chaired by Kofi Annan, noted that remittance fees were “unethically expensive”, in part due to a “lack of competition, insufficient transparency and restrictive business practices.”
Traditional money transfer services, including Western Union and MoneyGram, have since defended fees and policies, arguing they are providing value for money. Whereas, new competitor services are making inroads into African and Asian markets, making it cheaper to send money between countries.
Banks and legacy transfer companies may not have the market share they have previously enjoyed, but for many, the cost is still too high, given for some “remittances are their only means of survival.”
If we expect people to be able to contribute to their local economies and communities, which has economic benefits for everyone, we believe that access to financial services and currency must be made as easy and affordable as possible.