12 reasons why remittances are important
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12 reasons why remittances are importantEstimated reading time: 4 minutes
Every year on 16 June, the global community observes the International Day of Family Remittances (IDFR) to raise awareness of the hard work and sacrifice of the millions of migrants who support their family members and communities of origin through the money they send back home.
As the world recovers from the pandemic and confronts instability of many kinds, we want to honor the efforts of all those who continue to support their loved ones despite the challenging circumstances. We created our biennial campaign “Recovery and resilience through digital and financial inclusion” to promote dialogue and actions in support of these workers and their families.
Remittances continue to matter more than ever, particularly in rural areas where they count the most and provide further opportunities towards rural transformation. Here are 12 reasons why.
- A staggering one billion people worldwide – that’s about one in seven – are involved with remittances. Every year, 200 million migrant workers send money home, and 800 million people (in households of four, on average) benefit from these flows.
- Despite the COVID-19 crisis and political instability, the total amount of remittance flows has continued to grow. According to the latest World Bank data, remittances to low- and middle-income countries reached US$605 billion in 2021. That’s a growth of more than 8 per cent compared to 2020 – and it’s way beyond initial predictions.
- Migrant workers send on average US$200–US$300 home every one to two months. This represents only 15 per cent of what they earn (the rest stays in their host countries). But what they send can make up as much as 60 per cent of a household’s total income –representing a lifeline for millions of families.
- Over the last 20 years, remittance flows have grown in value five-fold. These flows often play a counter-cyclical role: that is, they are maintained during adverse events in recipient countries.
- Remittance flows can reach the last mile even during tough times. This is made possible by, among other factors, the adoption of digital technologies by migrant workers and their families. In particular, the amount of money sent via mobile transfer – i.e., a service that allows users to send and receive small sums via mobile phone without the use of a bank account – increased 65 per cent during 2020 to US$12.7 billion and grew again to US$16 billion in 2021.
- Over 50 per cent of remittances are sent to households in rural areas, where 75 per cent of the world's poor and food-insecure live. Rural households rely on these flows for improving their livelihoods, increasing their resilience, and achieving their SDGs. Globally, the accumulated flows to rural areas is expected to reach US$3 trillion over the next five years.
- About 75 per cent of remittances are used to put food on the table and cover medical expenses, school fees or housing expenses. In times of crisis, migrant workers may send more money home to cover crop losses or family emergencies. The remaining 25 per cent of remittances, representing over US$150 billion per year, can be either saved or invested in asset-building or activities that generate income and jobs.
- More than 70 countries rely on remittances for at least 4 per cent of their GDP. As these countries demonstrate, remittances are an engine of socio-economic growth and transformation – particularly for rural areas.
- Remittances can be costly to send – and technical innovations like blockchain and mobile money might be the solution to keeping costs down. Right now, currency conversions and fees take up (on average) about 6 per cent of the total amount sent – double the target of 3 per cent named in the SDGs. In this regard, there’s enormous potential for innovative financial services, including mobile money and blockchain, to fundamentally transform the markets.
- Between 2022 and 2030 (our target year for achieving the SDGs), an estimated US$5.4 trillion will be sent by migrant workers back to their communities of origin in developing countries. Of that amount, around US$1.5 trillion will be either saved or invested.
- Migrant workers make an invaluable contribution to the Sustainable Development Goals through remittances and investments. In particular, they contribute to ending poverty (SDG 1) and hunger (SDG 2); promoting good health (SDG3), quality education (SDG 4), clean water and sanitation (SDG 6), decent work and economic growth (SDG 8); and reducing inequalities (SDG 10). Their contributions have also been recognized in Objective 20 of the Global Compact on Safe, Orderly and Regular Migration, adopted by the United Nations General Assembly in December 2018.
- Strategic partnerships and progress on remittances go hand in hand. Partnerships among public and private sector stakeholders have paved the way for lowering the cost of remittance transfers and provided financial services for migrants and their families.
Get involved with the IDFR’s campaign to build resilience.
Learn more about IFAD’s support for migrant workers and their families.
Publication date: 15 June 2022