How working migrants and their families can shape development at home
IFAD Asset Request Portlet
How working migrants and their families can shape development at home13 June 2016
Addelatif Bennay, supervisor of ARDI credit centre receives payment and negotiates a second loan with vegetable farmer Mohamed Igouzoulen, 64, from the village of Tijghachte, Morocco.
Financing the ambitious post-2015 development agenda is a challenge that will require innovative approaches that go beyond traditional sources of development funding. Remittances – the money migrant workers send home to their families – along with migrants' savings, have enormous potential for financing development in the years ahead.
The Third International Conference on Financing for Development,taking place in Addis Ababa in July, offers an opportunity to raise awareness of the need for innovative solutions and make migrants' remittances and savings an effective financing tool in the hands of families.
Remittances for development
Today, 250 million people live outside their home country. But no matter how far they travel, most migrants remain emotionally connected to their families and communities. And importantly, they send money home.
Last year remittances to developing countries reached US$436 billion, exceeding official development aid by at least three times. And migrants' savings are even higher, at US$500 billion every year for diaspora communities from developing countries.
These impressive figures are the result of hard work and sacrifice by millions of people who must leave their loved ones in order to offer them a better life.
It is estimated that about 80 per cent of remittances are spent on essential goods such as food, housing or education. The remaining 20 per cent – about US$80 billion – could be used for investments if families were given the opportunity to use their money productively. Of that amount, about US$34 billion could be available in rural areas.
The IFAD Financing Facility for Remittances (FFR) has ten years of experience in harnessing remittances for development. Evidence shows that when given the opportunity, families are keen to invest even a small amount in an activity that generates additional income, improves their lives, and ultimately contributes to the development of their communities.
Overcoming the barriers together
However, today there are too many barriers that prevent remittances reaching their full development potential.
Chief among these is the cost for transferring money. The average cost has actually fallen from 10 to below 8 per cent over the last five years, but it is still too high. In many places such as Africa, costs are actually much higher. Reducing costs to 3 per cent would give families an additional US$20 billion annually.
The potential of technology such as mobile and online technologies needs to be unleashed, not only to bring costs down but also to help remote communities receive their money. Often, people have to walk miles to reach the closest receiving point.
But the most formidable barrier is lack of access to basic financial services that would give families more options on how to use these funds. Access to savings and credit is key if families want to invest. In rural areas, only about 10 per cent of poor rural people have access to the most basic financial services.
And migrants living abroad also need opportunities and adequate investment channels to participate in development at home. Many migrants would like to do more to help their home communities, but are held back by lack of opportunity or good investment mechanisms.