Around 1.5 million Sri Lankans work abroad, mainly in the Middle East and also in other countries such as South Korea and Italy. They send or remit around US$ 7.2 billion to their families back home, a sum that beats the forex earnings from apparels and tourism. This does not include monies remitted by Sri Lankans who are permanently domiciled abroad, which is also substantial.
Remittances have become a crucial component of the economy for countries such as Sri Lanka, India and the Philippines. Many countries have created independent government agencies to assist migrant workers and to oversee recruitment agencies. Examples include the Philippines’ Commission on Filipinos Overseas; the Bureau of Manpower, Employment and Training in Bangladesh; and the Sri Lanka Bureau of Foreign Employment.
The United Nations has recognised the significance of remittances and declared June 16 (today) as the International Day of Family Remittances (IDFR). The day recognizes the contribution of over 260 million migrants worldwide to improve the lives of their 800 million family members back home, and to create a future of hope for their children. Through this observance, the United Nations aims to bring greater awareness of the impact that these contributions have on millions of households, and also on communities, countries, and entire regions.
Half of the remittance flows go to rural areas in each country, where poverty and hunger are concentrated, and where remittances count the most. Remittances help meet day-to-day needs and improve health, education and housing, raising the standard of living in what are mostly rural and underdeveloped communities. The extra income can help families to save towards long-term goals and boosts domestic consumption — a fundamental for economic growth.
Last month, the World Bank reported that remittances to low- and middle-income countries reached a record high of US$ 529 billion last year, an increase of 9.6 percent over the previous record high of US$ 483 billion in 2017. A closer look at remittance flows to Asia reveal that in terms of value, India has the highest inflows, with the World Bank recording US$ 79 billion in 2018, followed by China (US$ 67 billion). Other Asian countries like the Philippines (US$ 36 billion), Pakistan (US$ 21 billion), Vietnam (US$ 16 billion) and Bangladesh (US$ 15.5 billion) rank among the top 10 global remittance recipients in 2018.
This year, the figure is expected to reach US$ 550 billion to become these nations’ largest source of external financing. Note that these figures may not be exact since tracking remittance payments worldwide is difficult as many countries do not properly track funds that are sent or received.
But a major problem that hinders the flow of remittances is the transaction fee (or commission) charged by banks and specialist money transfer companies. Banks are the most expensive channels, charging an average fee of 11 percent in the first quarter of 2019, the World Bank said. Post offices were the next most expensive, at over seven percent. The global average is generally about seven percent. Given that the average transaction is around US$ 500, even seven percent can mean a lot of money to a relatively poor family. But transaction fees are not surprising, since the global money transfer market is worth around US$ 700 billion per year and everyone is interested in having a slice of that pie. But if these fees can be eliminated or reduced, there will be more funds available to the recipient countries. Remittance costs have a long way to go to be aligned to the World Bank’s aim of achieving a global average of 3% by 2030. The Philippines, Indonesia and India have launched national strategies to improve the financial literacy of their migrants so that they know the best way to send money.
However, high costs have led many migrants to send cash home through friends or intermediaries, although this is not a very viable solution. Lost or stolen cash cannot be replaced easily. Many banks now offer value added services such as SMS notifications and special apps so that both sender and recipient know about the transaction immediately – and it is much safer than sending cash, notwithstanding the commissions.
There is a solution in the form of digital remittances where the sender himself or herself will be able to send monies using a Smartphone or similar device. New data from Juniper Research has found that international digital remittances will reach US$ 525 billion by 2024, up from an estimated US$ 332 billion in 2019.
According to the new research, Digital Money Transfer & Remittances: Domestic & International Markets 2019-2024, the mobile wallet channel will become increasingly popular; accounting for 41% of international digital money transfers by volume in 2024, up from 33% in 2019. Blockchain-based payments have the potential to increase digital payments further, as the technology has a high possibility of disrupting existing business models. Obviously, the digital channel is pretty fast – the recipient will have money in his or her account in just 10 seconds.
Migrants have also been hit by certain measures designed at preventing money laundering. Under pressure from their governments over concerns about money laundering, financial institutions in developed nations have engaged in so-called de-risking practices in certain regions that have involved the closure of the bank accounts of some remittance service providers, driving up remittance costs further. In effect, a measure meant to put the brakes on the financing of terrorism and the flow of Black Money has hurt ordinary migrant workers simply trying to help their families back home. This is one of the concerns that should be addressed by the world finance ministers and monetary authorities at their regular meetings. It is important to prevent money laundering and terrorism financing, but this should not adversely affect genuine expatriate workers.
Certain developments in the payment technology realm may also ease these worries. For example, Visa and Western Union recently teamed up to offer money transfers via the secure Visa Direct platform. Under the terms of the agreement, Western Union will leverage Visa Direct, the card giant’s real-time push payments platform, to offer end users — consumers and businesses — expedited global, push-to-card transfers. The companies said in a release that the pact helps scale real-time, cross-border payments across more than 200 countries and territories, and 130 currencies. Such technologies have the potential to eliminate any possibility of monies being used for other purposes. It is an evolving field and there is plenty of scope for more Financial Technology (FinTech) companies to get involved.
As more people move overseas for employment and permanent residency (migration), remittances will grow worldwide. Technology should keep pace with these developments and devise more secure ways of transferring and delivering money to the recipients without the high costs involved. That would be a win-win situation for all concerned and lead to faster development of the recipient countries.