Remittances: Helping migrants combat rural poverty and hunger

Around the world, nearly 200 million people have left their homes to work in other lands. This year they are expected to send back more than US$450 billion to their families – 40 per cent of which goes to rural areas, where most of the world’s poor and hungry people live.

These remittances total more than three times the sum of official development assistance channeled from rich nations to poor. They exceed private sector foreign direct investment flows as well.

Remittances, in fact, benefit 800 million people and change their lives for the better.

Remittances are of course private funds, sent in billions of small transactions. How then are remittances to be seen as funding development? Because most remittances are used to buy food, secure housing and pay for other necessities, they have a direct impact on development goals such as reducing poverty and hunger.

Our mission, at the International Fund for Agricultural Development, is to help rural women, men and children escape from poverty and improve their foo security and nutrition.

So we see the phenomenon of remittances as a major opportunity.

Migrants show tremendous energy and determination in their efforts to better themselves and the lives of those they love. The vast majority perform difficult or dangerous jobs at the lower end of the global economy. About 85 per cent of their earnings are spent in their host countries, but the remaining 15 per cent is a lifeline for those they have left behind.

But in a world where 767 million people still live in extreme poverty – 80 per cent of them in rural areas – remittances could have an even more powerful effect on poverty reduction.

The recently published study of remittance flows around the world, Sending Money Home, bears this out.

The data now available paint a compelling picture of the role of remittances globally. Some of the data are expected, others less so. For example,  the United States comes first among sending countries as the biggest source of remittances worldwide. However, Saudi Arabia and the Russian Federation are second and  third. This is truly a global phenomenon.

On the receiving side, it is noteworthy that 100 countries receive $100 million or more in remittances. The development impact at the personal level – one family at a time – is huge. But there is also the impact on national economies, which is especially significant for poor countries. Remittances account for 35 per cent of the Gross Domestic Product in Nepal, 29 per cent in Tajikistan and 17 per cent in Samoa.

A typical migrant sends back US$200 to $300 a month. The receiving family spends three-quarters of that on basic needs such as food and shelter.

These funds are helping to keep millions of families out of poverty. The rest of these remittances – more than US$100 billion a year in aggregate – could be saved or invested in the receiving communities. But actions are needed to fulfill that potential.

For one thing, financial inclusion is a critical issue. In rural areas where financial institutions are so often lacking, poor people’s ability to save (and therefore the local supply of credit) are severely restricted.

But with the right projects and partnerships,  it is clear that remittances can be made easier using innovation and technology. For example, an IFAD-supported project is using a French crowdfunding platform to enable the Malian diaspora in France to provide finance for rural young people.

Another positive sign is the expansion of remittance service providers; among the top 23 remittance-receiving countries, the number of payment locations has increased from 350,000 to more than 1.5 million over the last decade.

Both the development community and the private sector need to focus even more on the receiving side of the remittance equation, in order to scale up financial inclusion and to free up more of remittances for development goals.

One of the challenges exposed by the report is that the average cost of sending remittances has fallen only from 9.8 per cent in 2008 to 7.5 per cent in 2016. This represents progress, but it also means that transaction costs swallowed US$33.7 billion of the money sent – and these costs are highest in rural areas where the payments infrastructure is weakest.

If the cost could be reduced to  three per cent -- the target set within the Sustainable Development Goals -- families would have another US$20 billion to invest in their futures!

Yesterday, banks, mobile phone operators, NGOs and other partners discussed important issues such as ways of delivering remittances and financial services more cheaply in rural areas, and the regulatory environment. I hope that today’s sessions will explore further the links between migration, remittances and development, and how they can contribute to the attainment of the Sustainable Development Goals.   

Given that by 2030 migrants will send home another US$6.5 trillion, no one needs to be convinced anymore of the potential of remittances. But hopefully this Forum will result in concrete progress toward helping migrants expand their role in transforming not only the lives of their families, but the future of countries and economies.

Thank you.