The effects of the global lockdown necessitated by Covid-19 continue to be felt by migrants and remittance providers alike. It’s encouraging to see public and private sectors coming together to work towards innovative new solutions, but more needs to be done – and done at a pace that emerging markets are comfortable with.
The global remittance industry provides a crucial function that enables millions of economic migrants to move their money seamlessly, offering convenience, trust, speed and reliability.
It’s a tough time, especially for economic migrants, who are having to leave other jurisdictions, such as the GCC countries, as infrastructure projects are cancelled. There’s questions to be answered about the long-term impact of Covid-19 on migration patterns. Amidst the disruption created by Covid-19, many remittance providers have also had to close locations because they’re not classed as essential services. Those lucky enough to remain open have had to restrict operations to ensure the safety of customers and staff.
As Osama Hamza Al Rahma, CEO of Al Fardan Exchange, highlighted in May’s IAMTN webinar, this disruption is truly unprecedented because it affects all commercial and economic activities, regardless of industry, sector or geography. It has added to the other challenges that the remittance industry was already facing, such as mass derisking and stretched liquidity.
Collaboration amidst the disruption
The severe disruption of remittance flows is disproportionally affecting migrants, diaspora communities, and the families, communities and economies that rely on receiving remittances in low- and middle-income countries.
On 16 June 2020, the annual International Day of Family Remittances (IDFR), the International Organization for Migration (IOM), Switzerland and the UK, in partnership with World Bank/KNOMAD, UNCDF, UNDP, the International Chamber of Commerce and IAMTN, launched a call to action: ‘Remittances in crisis: how to keep them flowing’. We have also joined the accompanying Remittance Community Task Force as its industry representative.
Speaking at the virtual launch event for the call to action, IAMTN Chairman Mohit Davar said: “It’s important to note that these people are economic migrants and have travelled thousands of miles with the sole purpose of earning money and sending most of it back home to make their families’ lives better and their future brighter. As such, these people tend to be extremely entrepreneurial and resilient, and have been receptive to the new channels that have been made available to them.”
He outlined how industry leaders have stepped up to the plate. Given the ongoing lockdown measures, remittance providers are rethinking ways in which to expand their agent network. Some are planning partnerships with businesses that remain open as essential locations so that they can provide new access points for migrants and families. Many have introduced fee-free services – Azimo, for example, is offering both new and existing customers three free transactions. Others are providing food, protective equipment and pharmacy services alongside the usual remittance services.
A responsible approach to digitisation is needed
They’ve also focused on, and promoted, digital channels much more. Those who didn’t already have a digital offering have accelerated their efforts. In fact, IAMTN’s recent report, based on a survey of more than 150 money transfer operators (MTOs) and other remittance service providers, revealed that scaling up digital channels was the top priority for providers, fuelled by physical closures and staff isolation.
MoneyGram reported 100% year-on-year digital transaction growth in May 2020 – a significant acceleration from the first quarter where the company reported 57% growth. Western Union, meanwhile, has said that its May digital business set a 10-year record high.
However, there are a couple of important points to make. The first is that while digital innovation is to be encouraged, we can’t forget about the important role that cash still plays for many. In Senegal, for example, even though 70% of adults had a mobile phone in 2017, there is still a widespread dependence on cash to send and collect remittances.
Speaking at IAMTN’s June webinar, Nium Co-Founder and CEO Prajit Nanu highlighted that some people are on “a forced journey”, stuck at home and so forced into exploring apps and e-wallets. When restrictions lift, many will seek a return to cash. Another panellist, MoneyGram’s CFO Larry Angelilli, added that “for us, if someone uses their app to send but the recipient picks it up in cash, that’s a digital transaction. So digital doesn’t alleviate the need for existing agent networks.”
Alonzo Venegas, Ria Money Transfer’s Chief Revenue Officer, was also a speaker at the webinar, and further emphasised the continued role that cash will play. “We’re not in any way moving away from bricks and mortar branches. Digital is a complement to traditional services, as we see in other industries, such as retail. Many people don’t like buying shoes online, for example, because they can’t return them!”
This all explains the results in the polls that we’ve conducted throughout our recent webinars. A poll in May’s webinar found that over a third (37%) of attendees expected more than 60% of their transactions to be digital over the next six months. This reduced to 20% in the June webinar as some restrictions started to lift. Perhaps most likely is that digital transactions will represent somewhere between 20% and 40% for most providers – 37% of attendees in May and 41% in June selected this range.
The second point is that transitioning migrants and their families to e-wallets, apps and other digital solutions can’t be realised by remittance providers alone. There needs to be a coordinated effort between public sector organisations and remittance providers to reach out and engage with migrants. People in emerging markets need better awareness of the digital platforms available to them and there needs to be initiatives that quickly increase levels of trust in these platforms.
The IOM’s Deepali Fernandes has been amongst those to highlight the need for education programmes. “Our priority is financial inclusion,” she said. “So whether it happens digitally or physically that’s ok; we know that migrants use both. There’s a growing need for digital and financial literacy projects though, and perhaps this is something that IAMTN and its members can help drive.”
Governments in host countries must act now to ensure that workers are appropriately documented in the first instance and then make it possible for their ID to be linked digitally to electronic KYC (e-KYC) systems. Digital remittances from migrant workers could then be linked to savings or pension contributions. One good example is Bangladesh, which has provided guidance on e-KYC systems for banks and mobile money providers and is making efforts to ensure interoperability between mobile financial services.
There’s much more to be done
Such public-private collaboration is vital in terms of both facing short-term challenges and mitigating the long-term impact of Covid-19 on the remittance industry.
We must remember that some countries have been hit much harder than others and work together to help them. Our report highlighted that South Asia, East Asia and the Pacific region have been most affected by outbound remittance changes, whilst nations in Sub-Saharan Africa have been heavily impacted by the drop in inbound remittances.
The fate of South Asia’s millions of economic migrants in the Gulf and elsewhere has long been a humanitarian issue but the Covid-19 pandemic has now pushed the world into a recession, and their uncertain employment status amidst lockdown has become a major economic headache for countries such as Bangladesh and Nepal that depend on the earnings these workers send home. The World Bank has estimated that remittances to Nepal will drop by 14% this year – a big problem when you consider that remittances represent more than a quarter of the country’s economic output.
Figures released by Bangladesh Bank in June show that year-on-year remittances for the month fell by 25%. This drop in payments, which have tended to average between $300 and $600 per month, will be a significant loss to millions of households across the country.
It’s become imperative that Bangladesh mobilises its diplomatic corps to ensure greater migration cooperation during the Covid-19 recovery phase. Shahidul Haque, the country’s former foreign secretary, has called for strategies that emphasise “inclusiveness, courage and collaboration, without distinction or discrimination.” He added that a “holistic, nuanced approach that acknowledges migrants’ economic contributions is optimal.”
To help finance its efforts, Bangladesh has been looking to its development partners. An initial financing of $150 million from the Asian Development Bank has been supplemented by a subsequent $500 million loan. Bangladesh Bank is also introducing stimulus to ensure liquidity in the market while keeping the foreign exchange rate stable.
Senegal, like much of Sub-Saharan Africa, is another market that is struggling. The pandemic has caused remittances back into the country to dry up following strict lockdowns in European countries such as France, Italy and Spain. The Sub-Saharan region as a whole is expected to experience a 23% fall in remittances in 2020 – greater than the 20% the World Bank anticipates globally.
MTOs and fintechs are doing their part, with many actively working on inclusion initiatives. Nick Day, CEO of the omni-channel Small World Financial Services, told attendees at May’s IAMTN webinar that, as well as a big surge in digital, his team were hitting the phones to engage with agents and customers who didn’t have access to government and regulatory updates. The industry is pulling together.
Ecobank, InTouch, Orange Money, Ria and Wizall Money are all part of the digital financial services working group organised by the UNCDF and co-chaired by the ministry of finance and Senegal’s central bank. The group is catalysing investment in digital finance, and notable progress includes a number of the country’s banks bringing in mobile banking solutions, and money transfer operators delivering e-wallet services. There are good examples for other countries and companies to follow.
To read IAMTN’s report on the implications of the COVID pandemic, please visit www.iamtn.org/impact-of-covid19. We will be running more webinars throughout the year, so stay tuned to our website.