Published on Voices

Remittances: A Gateway to Financial Inclusion for Poor People

As the United Nations marks International Migrants Day, it’s worth remembering that over 230 million people in the world are migrants. Whether they’re mothers or fathers, daughters or sons, wives or  husbands,  they left home to look for work elsewhere, usually abroad, to support families left behind.

Regardless of how meagre their wages are, they regularly send remittances, back home. In many cases, these remittances are a significant source of  income for their families. Remittance beneficiaries exceed 450 million people.

International remittances can be an invaluable source of foreign exchange inflows  in countries where the economy is at a standstill, due to conflict or in an aftermath of a disaster, and can account for a significant portion of GDP. In Haiti, for example, remittances have been instrumental in helping the country get back on its feet since the 2010 earthquake devastated the country. They accounted for 21% of GDP in 2013Also, a few central banks of Ebola-affected countries reported a significant increase of remittance flows together with official assistance after the outbreak.

The amount of international remittances has been rising each year. By the end of 2014, these global flows are expected to reach US$582 billion. 

In the last decade, the international development community has started paying attention to remittance transfers– where the money is being sent from and to, how much it costs to send it, and what channels are used to send it. 

Methods used to send money can range from sophisticated electronic payment services to unregulated bargaining with bus drivers and friends. Each of these channels carries a cost, which can be high, considering how small the sums of transacted payments are. The amount of money individual migrants usually remit is in the range of a few hundred US dollars per transfer.

The cost of money transfers has been an important issue on the financial agenda of the G8 and G20 as well as the World Bank and standard-setters like the Committee on Payment and Settlement Systems (CPSS ) for the past decade. A lot progress has been made in helping migrants save money by making remittance-sending services  more efficient and cheaper.

Our research shows that since 2009 the global average cost of sending US$200 has fallen from 10% to 7.9%. Since the global effort for the reduction of remittance prices started, we estimate migrants saved up to US$54 billion.

Innovations in technology have opened a world of opportunities to create cheaper, faster and safer ways to send money.

They’ve also allowed new players to start providing remittance services, which has been driving down transaction costs. Sending or receiving remittances for many poor families is often the first and only contact with formal financial services. 

Helping people gain access to basic financial services – such as credit or a savings account – has become an important stepping stone on the path to prosperity. These services can help families afford essential services like water, electricity, housing, education and health care.

Ensuring everyone has access to financial services is now more possible than ever before thanks for innovative technologies and reforms which have allowed for low-cost accessible transactions instruments and bank accounts. 

The World Bank Group has set the year 2020 as the target date by which to achieve universal financial access (UFA). Today, there are 2.5 billion adults worldwide without such access.  

However, recent developments in the banking industry could have a negative effect on remittances. Major banks have started to “de-risk” their activities to make sure they steer clear of any potential money-laundering schemes or pathways that might allow money to reach terrorist organizations.

If banks continue to pull out of the remittances business, many money-transfer operators may be unable to continue providing services. This could make sending remittances expensive again, which would hurt those who most need access to safe, formal, affordable financial services: the poorest of the world. 

Thus, this is a real issue, affecting many countries and very important for development. The World Bank Group and its partners, such as the G20, are working with governments that seek to safeguard the integrity of their markets – even as they recognize the need for remittance-flows to continue reaching their destination in safe, lower-cost ways.


Gloria M. Grandolini

Former Senior Director for Finance and Markets Global Practice, Finance & Markets, and Chair of the Global Remittances Working Group

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