How Remittances Improve Social Wellbeing in Developing Nations



By Andy Jury, CEO of Mukuru


The numbers around the worldwide flow of formal remittances are remarkable. Stakeholders rely on these numbers to inform policies and decision making. Their aim; to create an environment for cross-border payments that is safe, stable and efficient. But to see the full face of remittances, we must look at the impact on the social welfare of diaspora receivers and givers.




Remittance is more than a good news story


The social impact on individuals who send and receive remittances is typically a good news story, but it is also becoming an increasingly important measurement as we navigate our way through the COVID-19 crisis.


Following 2019’s record $554 billion flow of formal remittance to low and middle-income countries (LMICs), the World Bank expects a 20 percent decline in 2020 as a result of the coronavirus pandemic. While a recovery of 5.6 percent is tentatively forecast for 2021, direct foreign investment to LMICs is expected to fall by as much as 35 percent . (1)


This will likely affect the remittance market in three key ways:

  1. A significant fall in direct foreign investment will see cross-border remittances becoming an increasingly vital source of external funding for LMICs.

  2. Its impact on the social wellbeing of receivers will serve as an important real-picture indicator and measurement for the non-profit sector, as well as governments and regional regulators when setting policies and development goals.

  3. Demand for financial services that deliver convenience to customers while also reducing transfer time and lowering remittance costs, will see digital money transfer companies drawing on the latest Fintech developments, making increasing use of collaborations and instituting robust compliance frameworks.



Measuring the impact of remittance on social wellbeing


Researching the numbers around formal remittance payments is always going to be easier than measuring its social impact on receivers, especially in more fragile and humanitarian settings. So what do we know?




Remittances reduce poverty and improve household resilience


While studies tell us that formal remittance is about four times larger than official development assistance , we can only guess at the true effect of remittance on poverty (2) alleviation while informal remittances remain unmeasured. If formal remittance impacts the lives of about one billion people, and informal remittance is estimated to be anywhere between 35 and 250 percent of formal remittances, the real-world impact of remittance on (3) poverty reduction is most likely staggering.


As the world reels from the effects of the coronavirus pandemic, and foreign investment in LMICs plummet along with workers wages, it’s hoped that stakeholders will set up a collaborative framework to ensure that those who rely on remittances are protected against its impact.


In the meantime, remittance service providers can capture data that indicates how customers are impacted by the pandemic, and develop targeted responses. This could include bringing new products to market that allow customers to send remittances to money accounts or e-wallets instead of cash pick-ups, or building an e-KYC app to help digitally onboard customers.




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