Press release number: IFAD 15/06

Rome, 16 March 2006 - The European Commission (EC) and the International Fund for Agricultural Development (IFAD) have launched a new initiative to alleviate rural poverty in developing countries. The two organizations have established a funding facility for innovative remittance services. They announced the initiative today at the Conference on Migration and Development in Brussels.

Remittances are the sums of money that migrant workers send home to their families, which help fight rural poverty in some of the poorest parts of the world. Poor families use remittances to pay for food, housing, healthcare and education. Although the individual amounts sent are often small, remittances put money directly in the hands of rural poor people.

According to the World Bank, in 2005 global migrant remittances sent by formal financial institutions totalled more than US$160 billion. The actual size of remittance flows may be as much as 50 per cent higher, if unrecorded flows through informal channels are included. Today remittances represent the second largest inflow of foreign capital to developing countries, just behind foreign direct investment. 

Acknowledging the UN agency's experience in bringing financial services to rural poor people, the EC has contributed Euro 4 million to IFAD. The money will be used to establish a Funding Facility on Remittances and to support the second phase of IFAD's programme to promote savings and investments in poor rural areas in Latin America and the Caribbean that receive remittances from migrants.

'The EC and IFAD recognize that in order for remittances to have the greatest impact on rural poverty, they must be easily accessible, cost effective, and whenever possible, linked to other financial services such as savings, loans and insurance. These are services that are often not readily available in rural areas,” said Henri Dommel, IFAD's Senior Technical Advisor for Rural Finance.

More than 75 per cent of the 1.2 billion extremely poor people in the world live in rural areas. They have very limited access to remittance and other financial services, which are also prohibitively costly. This prevents rural poor people from managing their cash flow and from alleviating the risks associated with agricultural activities. 

Through a competitive process, the Funding Facility on Remittances will call for proposals and then select and finance innovative projects. Successful proposals will increase rural poor people's access to remittance services by enabling local financial institutions to provide these services, either directly or as agents of commercial banks and remittance operators.

The Funding Facility will also support projects that promote the development of strategic partnerships between formal financial institutions and other institutions with experience in remittances, including NGOs, hometown associations, international money transfer organizations and credit unions. The Facility will also support initiatives that link remittances to other financial services such as savings, insurance and lending. The first call for proposals will take place before the end of 2006.

---

IFAD is a specialized agency of the United Nations dedicated to eradicating poverty and hunger in rural areas of developing countries. Through low-interest loans and grants, it develops and finances programmes and projects that enable rural poor people to overcome poverty themselves. There are 184 ongoing IFAD-supported rural poverty eradication programmes and projects, totalling US$6.1 billion. IFAD has invested nearly US$2.9 billion in these initiatives. Cofinancing has been provided by governments, beneficiaries, multilateral and bilateral donors and other partners. At full development, these programmes will help nearly 80 million rural poor women and men to achieve better lives for themselves and their families. Since starting operations in 1978, IFAD has invested US$9.0 billion in 707 programmes and projects that have helped nearly 300 million poor rural men and women achieve better lives for themselves and their families. Governments and other financing sources in the recipient countries, including project participants, have contributed almost US$8.8 billion, and multilateral, bilateral and other donors have provided another US$7.0 billion in cofinancing.