Close to five million people leave their native countries every year in search of a better life. Sometimes, people immigrate to earn a college degree or to learn a language. Other times, to gain international experience in their field. But, more often than not, people move to lift themselves and their families from poverty.

Currently, there are around 248 million migrants across the globe. That’s one in every 30 people overcoming language barriers, uncertainty, and even discrimination. Yet, their motivation is unwavering. In the end, they must rise above so they can provide for their families and communities back home.

But how can migrant workers support their families from far away? The answer is migrant remittances. They rely on money transfer services like Ria to send remittances back home. Remittances refers to the funds migrant workers send back to their countries of origin.

In 2020 alone, migrants sent US$550 billion to low- and middle-income countries (LMICs). While these may sound like impressive numbers, they represent a lifeblood for millions.

A steady flow of funds from abroad goes a long way for recipient households. For one, their children are more likely to stay in school. Families have more options when it comes to choosing and keeping health coverage. And whole communities can also thrive thanks to GDP contributions. In countries like Haiti and Tonga, remittances can make up us as much as 37% of the national GDP.

Unfortunately, migrant workers and their families have needed to overcome an extra hurdle these past 14 months. The COVID-19 pandemic and its aftermath have impacted the livelihood of many.

Lockdowns and restrictions have halted economic activity worldwide, resulting in job losses. Aside from the economic implications, many visas depend on employment status. The possibility of forceful returns is also met with travel restrictions. With moving plans delayed, those displaced by climate change or political unrest must wait longer.

At the same time, migrant workers still employed are likely performing first-necessity tasks. This could mean they’re risking their health without proper insurance. And, if there’s one thing this pandemic has taught is, is that the most vulnerable are often the most exposed.

Now more than ever, the road to financial inclusion is not straight-forward. Curve balls like COVID-19 can derail or slow down the process. However, the livelihood of thousands of families is at stake. Bringing down the global cost of remittances can help fight poverty and encourage access to financial services.

Ria is committed to providing a service that is affordable, convenient, and safe. But we can’t do it alone. Hundreds of non-compete clauses around the world keep average prices high. If you represent an organization that can help us exact change, we encourage you to keep reading. The same goes for anyone interested in learning more about the power of remittances.

In this report, we will explore the impact of sending money and what we can do to propel and protect them.

Table of Contents:
1. Remittances today
2. Powering education through remittances
3. Improving health coverage through remittances
4. Remittances and micro investments
5. How to bring down the cost of remittances at a global scale
6. COVID-19’s impact on remittances and how to bounce back
7. Conclusions

1. Remittances today

How much money is sent in remittances worldwide every year? As of 2021, LMICs receive three times as much funding through remittances than through foreign aid. The same goes for private capital flows and foreign direct investment (FDI). While family units receive the money, spending it generates tax revenue. This boost in economic activity can be used to pay off foreign debt. It can also cover costs for building new schools and hospitals.

By increasing spending power in countries with limited cash flow, remittances help revitalize economies. The impact is so great that these funds represent over 10% of the GDP for 30 countries. For some, like Nepal and Tajikistan, the percentage is as higher than 25%.

But how much do remittances cost? It’s no surprise that the United Nations made lowering the global cost of remittances a goal for 2030. This is part of the Sustainable Development Goals for 2030 (SDGs) plan. In the next 9 years, the average cost should be 3%. Currently, the average sits at 6.38%.

There are three main channels to send money home: banks, post offices and money transfer operators (MTOs). As of March 2021, banks remain the most expensive option, averaging 10.66% in fees. On the flipside, MTOs continue leading the race at 5.43%. Mobile operators are averaging 3.12%, but they remain a small share of transactions.

Every quarter, the World Bank publishes a Remittance Prices Worldwide report. Here, they share the average prices found by regions and corridors. The latter refers to a unique transfer channel between one country and another. The report tracks 48 sending countries and 105 receiving countries. Or, in other words, a total of 367 corridors.

Thanks to the results, governments and businesses can reassess their strategies. For instance, there is a section dedicated to the average sending cost for G8 and G20 countries. G8 member countries average 5.92%, dropping for the first time below 6% this year, but the number varies between countries. While Japan averages 10.5%, the Russian Federation is already at 1%.

At the same time, global averages can be misleading as they do not represent a standard fee. While sending fees to South Asia are the cheapest (4.64%), fees to Sub-Saharan Africa remain sky-high at 8.02%. It’s clear that this African region needs the most attention.

The key takeaway is that dropping sending costs to 3% is vital. By empowering more migrant workers to send money home, we’re lifting entire communities. And, for those who can already afford to send money? We’d be unlocking a little extra for education, healthcare, and micro-investments.

2. Powering education through remittances

As we mentioned, remittances allow families to cover vital expenses. Such is the case for education, be it primary or secondary.

In global terms, the number of children out of primary school has seen a drastic decrease since 1970. At the same time, the inflow of remittances has gone from US$35.8 billion to US$689 billion in the past thirty years. Thus, it’s likely that the rise in funding correlates with the decrease in children out of school.

While these facts alone aren’t enough to establish a correlation, a recent study conducted by UNESCO (United Nations Educational, Scientific and Cultural Organization) did confirm the positive impact of remittances on education spending.

The study found families in Peru, Guatemala and the Philippines used remittances to triple their education budget. At the same time, recipient households in rural India and Morocco designated an extra 17% to education on average.

There are cases in which migration can affect family dynamics. For example, a younger child might quit school to take over for their expatriated sibling. This may include household chores or helping out with the family business.

However, the situation changes when remittances start to come in. For instance, in the Philippines, higher inflows helped cut unpaid child labor by three hours a week.

In 18 countries across Sub-Saharan Africa and Asia, remittances boost education spending by an average of 35%. In Latin America, the average is a whopping 53%.

With these education budgets in mind, what would happen if we lower the global cost of remittances to 3%? UNESCO estimates an extra US$1 billion would go to education spending. Plus, it’s not only tuition money that counts towards keeping children in school. When there are more funds to go around, families don’t need to rely on their children’s labor.

via UNESCO

3. Improving health coverage through remittances

Unlike education, health doesn’t follow a predetermined path. Medical emergencies can happen at any time and range from a broken bone to a life-or-death surgery.

In rich countries, many have access to public healthcare. Others can afford for their medical bills or private insurance. However, sanitation is not as accessible in low- and middle-income countries. For one, medical infrastructure is limited. There is little to no public healthcare system, and private insurance is expensive.

This is where migrant workers come in. Having an expatriate parent or sibling can help in three ways. The first is, of course, sending money. The second has to do with passing on health knowledge. Each country will have different health practices that the expat can learn from. The last, and by all means not least, is contributing to infrastructure and health funding.

Through hometown associations (HTAs), migrant workers can partner with fellow expatriated countryfolk. These associations, formed by expatriates from the same community, help raise funds to pay for communal needs back home. Examples include building a new hospital or donating supplies to a local school.

While money sent through HTAs has a more targeted purpose, what happens with what’s delivered to individual households? The North South University in Bangladesh surveyed recipient families in the local village of Hasanpur. The idea was to determine how these families spent funds sent from abroad. The study found over 25% of remittances are used for education and health, as can be observed in the graph below.

Health spending, as with education, will depend on each country and its public systems. But, even if health investments vary, indirect spending on food and infrastructure also benefit health. Things like keeping a balanced diet or sleeping on a better mattress can improve health.

Still, health emergencies can happen at any time. To protect the most vulnerable, the World Health Organization (WHO) is pushing for universal health coverage. The goal is to ensure every person in the world has access to medical assistance.

In the meantime, remittances continue to play an important role in health spending. Beyond providing funds for health insurance, expatriate nationals also help health information flows. Paired with the admirable work of many HTAs, migrant workers are doing more than their share. It’s up to us, the international community, to continue pushing for universal health coverage.

4. Remittances and micro investments

In the 1970s, the microcredit business boomed in Southeast Asia. These lines of credit started as small loans for poverty-stricken populations. If you couldn’t qualify for a bank account, and ergo a bank loan, microcredits were still an option. Borrowers would then use the funds to start a small business to support their families. However, microcredit institutions have faced a lot of backlash since their dawn.

Although microcredits done right can do a lot of good, they still come at a price. The borrower still needs to return the money with interest. Thus, it’s easy for them to get stuck in a constant cycle of repayment.

But what if families could receive a monetary injection without needing to return it? When families receive more than necessary through remittances, they can use the extra income to buy land or start a business. The problem is, unlike health and education, micro investments are not an urgent or vital need. This means families need to cover their basics before even thinking about investing.

But there is good news. Some data already suggests families will opt for investing if given the chance and proper education.

Considering remittances by country, one study found remittances amount to more than 25% of all capital invested in small and micro-enterprises in Mexico. In regions with the highest rates of migration to the United States, remittances amount to 40% of investment.

Still, levels of financial literacy are low in rural areas, which hinders entrepreneurship. An amateur survey in Nepal found only 5% of respondents use their savings to establish some form of enterprise. Moreover, only 8% were planning to invest in the future. Yet, while most adults live off of farming, families do focus on education spending. In the future, these children might showcase a bigger interest in starting a business.

Figure 4.4: Future Investment Plan of Respondents

Even though the effect of remittances on local investment depends on financial literacy, extra funds can only help the family. Lowering the cost of remittances can both help keep children in school and give families the financial freedom to invest.

5. How to bring down the cost of remittances at a global scale

Until recently, the remittances market was a monopoly. It was only around 35 years ago that different players began to surface, racking up their own percentages of the market share. However, many signed non-compete contracts are still in use, locking prices in at the same rate.

Through allowing the different players to bounce off of each other, the price of remittances can drop significantly, at least at an MTO level. The use of technology to facilitate transfers and agreements with banks and postal services can alleviate the costs across the board.

Regions like Sub-Saharan Africa, where sending fees are the most elevated, will need to be the main focus. But all around the world, the pressure must come from governments to follow the international goal of bringing down the cost of remittances to 3% by 2030.

As of 2021, no region has reached the proposed average sending cost.

via World Bank

There is a lot to be done and less than 10 years to do it in, but we are progressing at a commendable speed. With only 3.38% to go, it seems likely we will be able to emulate the 2009 to 2019 drop of 4% in this decade.

At Ria, we offer a global average fitting of the 2030 goal, but we continue to foster competition in the hopes of offering an even better fee within the most vulnerable regions.

6. COVID-19’s impact on remittances and how to bounce back

As we know, 2020 was marked by the coronavirus pandemic, the effects of which are still felt across the globe. This pandemic hasn’t only resulted in a sanitary crisis, but also a socioeconomic one. With major lockdowns paralyzing whole cities, many found themselves out of a job.

Complications arose both in sending and receiving countries. For migrant workers and their families, this created a two-fold problem. On the one hand, lessened job security. On the other, the inability to pick up money transfers in cash, often the only choice for many. Although vaccination and lockdowns have helped alleviate the crisis, vulnerable groups such as migrants remain the most at risk, both in regards to health and livelihood. now, as lockdowns soften and the economy begins to move again, the situation remains a precarious one.

However, the resilience of migrant workers has truly shone despite the uncertainty. In 2020, the World Bank projected a 20% decline in global remittances year over year following the crisis, yet the drop was only of 1.6% in comparison to 2019. Instead of the expected US$445 billion, low and middle-income countries (LMICs) received US$540 billion, only US$8 billion less than in 2019.

On the other hand, businesses and corporations have suffered financially, leading to a 30% drop in foreign direct investment (FDI) to LMICs, excluding flows to China. This could lead to families in needed to rely even more heavily on remittances. In other words, it’s never been more important to help migrant workers overcome this financial hurdle.

Last year, the IAMTN (International Association of Money Transfer Networks) carried out a survey among money transfer companies to determine main challenges and next steps following the COVID-19 outbreak. The results were shared in a report titled “Impact of COVID-19 on Migrants and Remittances” published in May.

The three main issues encountered by money transfer customers were:

1. Limited access to remittance services. A direct result of partial or complete closures of physical stores following lockdowns.

2. Decrease in income. Dampened economic activity in host countries led to job losses or salary cuts.

3. Limited adoption of digital channels. For one, many migrant workers aren’t eligible for bank accounts or debit cards, which are necessary to transact online. At the same time, receiving countries could lack the infrastructure to power digital remittances.

Parallel to this report, the World Bank shared a set of proposals to aid migrant workers. The key takeaway is urging local governments and policymakers to adopt measures that can ease remittance flows. Below are their main proposals.

1. Declare remittances an “essential service” to exempt money transfer operators from store closures.

2. Support the infrastructure for going digital by simplifying regulations and procedures. These could include increasing access to identification, bank accounts, and eKYC measures.

3. Incentivize money transfer companies to reduce transaction costs. This could be achieved through tax exemptions or other fiscal support agreements.

Although the situation is undoubtedly more manageable now than at the beginning of the pandemic, we must continue to look after frontline workers and the vulnerable. Migrant workers often find themselves in both of these groups, with the added challenge of needing to provide for loved ones overseas. Many of the findings and suggestions from 2020 still apply today, more so to those who continue to navigate this pandemic much in the same way despite vaccine availability.

7. Conclusions

These times may be challenging for empowering remittance senders and receivers. However, it has never been more crucial to stand by the millions of migrant workers and their families.

Economic crisis or not, migrants are often amongst the most vulnerable. They usually make up a big part of our front lines, supporting essential industries around the world. During this pandemic, they may have exposed themselves without necessary access to healthcare.

But these are sacrifices migrants are willing to make. They’ll do whatever is necessary to break free of poverty. For themselves and for their families. So, it’s our responsibility, as an international community to look out for them.

They do the heavy lifting in opening ways for a better everyday life. And that applies not more than themselves and their communities back home.

Migrant workers also help host countries thrive through their invaluable contributions. By empowering migrant workers, we help lift economies, one family and one community at a time. And isn’t a global crisis the best time to get started?

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