Helping remittances reach rural areas in Moldova

Almost one quarter of Moldovans do not live in Moldova.

For some time now, it has been difficult to find well-paid work in Moldova. Most of the good jobs available are concentrated in the cities, resulting in significant migration out of the country’s rural areas. Nationwide, unemployment rates have been surging, especially among youth. Many Moldovans, especially young Moldovans, have thus left the country entirely, and many of their loved ones are dependent on the remittances they send home. These remittance flows made up a full 15 per cent of the country’s GDP in 2020, making Moldova the most remittance-reliant country in Europe.

But for many who live in remote areas, accessing these remittance transfers is not easy. Most of the formal access points are concentrated in big cities, and those who live and work in the countryside – especially those involved in agriculture – often cannot afford to take enough time off work to access them.

In light of these challenges, IFAD’s Near East, North Africa and Europe (NEN) Division and its Financing Facility for Remittances, in partnership with Moldova’s National Commission for Financial Markets, have begun a project designed to strengthen the country’s Savings and Credit Associations (SCAs) so that they can manage remittance transfers. For over 20 years, SCAs have been Moldova’s main network of local grassroots financial service providers. They are well distributed throughout the country, and in some rural areas are the only financial service providers available. Because of their long history and localized nature, SCAs are considered trustworthy.

Remittances as a path to financial inclusion

The project was designed to complement the ongoing IFAD-financed Rural Resilience Project (RRP) active in the area, an effort to provide credit for small and medium enterprises and youth entrepreneurs. It expects that enabling SCAs to process international remittance transfers will enhance the competition among existing service providers and give rural families a reliable alternative to formal access points, such as the cash-based money transfer operators. It also hopes that channelling remittances through localized financial institutions like the SCAs, which can offer services tailored to the specific rural populations they serve, will inspire participants to save some of the money they receive and use it for income-generating activities and longer-term investments. Linking remittances with affordable financial services in this way should allow development activities in the area to reach an even greater potential.

The project began by conducting a survey of over 1,000 Moldovan families with relatives in one of the country’s main remittance corridors (i.e., France, Germany, Italy and Russia). The survey results revealed that, for the majority of receiving households, remittances account for at least half of the total household income. A substantial 43 per cent of respondents receive their remittances informally, either directly from a family member or friend, or through bus drivers who carry cash into the country on the relatives’ behalf (i.e., the “bus service”).

The survey results also show that the majority of receiving families do not use a formal savings account; they keep their remittances at home, “under the mattress.” Most of the money is used to cover immediate basic expenses, such as food, health care, and education. Of those who reported investing some of their remittances, the most common investments were crops (17 per cent of respondents), clothing for trade (15 per cent), and the manufacturing of agricultural products and food (12 per cent each).

A boost for the SCAs – and for rural families

Since 2009, IFAD has supported over 117 SCAs through various investment programmes reaching out to more than 3,000 borrowers, with the goal of extending access to financial services to the country’s economically active, but lower-income families.

There are about 230 SCAs throughout Moldova, 64 of which are able to process deposits for 86 per cent of the entire SCA network’s assets. Out of these, 35 SCAs were selected to pilot this initiative. The selection criteria included an in-depth assessment of each SCA’s capacities, its adherence to financial regulations, and its alignment with the requirements of the RRP. The process continued despite the difficulties posed by the COVID-19 pandemic, with assessments being conducted remotely whenever necessary. The project then helped qualifying SCAs become licensed as official remittance transfer agents by the National Bank of Moldova.

On the International Day of Family Remittances (16 June) 2020, the project reached its first milestone: the first international transfer was successfully channelled through an SCA. Vangheli Ludmila, a schoolteacher in the rural northern town of Ștefănești, received a transfer from her son Mihai, who works in the United States as a truck driver.

With international remittance transfers under way, the project now plans to help all 35 participating SCAs adapt their existing credit and savings products to the needs of remittance recipients. They hope to focus their efforts on products for young people, particularly returning migrants and their families, as they are the most likely customers to apply for financing to launch a new venture.

In total, the project is expected to benefit 4,000 new remittance users and to see savings account balances increase by 10 per cent annually. This would help these families feel more included in local and regional economies – and help increase their incomes and improve their day-to-day lives.

To date, many people living in rural Moldova have benefited from the new remittance services being offered through the SCAs. For farmers like Valeriu, the service helped them weather an especially difficult 2020. See below for more on his story.

Learn more about IFAD's work in Moldova.

Publication date: 24 March 2021