Poverty Alleviation and the Role of Remittances

Poverty remains one of the most pressing global challenges, affecting billions of people worldwide. Governments, international organizations, and non-governmental entities have implemented numerous strategies to address poverty, including social welfare programs, economic development initiatives, and microfinance schemes. However, one of the most significant yet often overlooked factors in poverty alleviation is remittances which can be defined as the financial transfers made by migrants works abroad to look after their families in their home countries. These funds, often sent regularly, serve as a crucial source of income for many households, helping to cover essential needs such as food, education, healthcare, and housing.

The Economic Impact of Remittances

Officially recorded remittances to low- and middle-income countries (LMICs) are expected to reach $685 billion in 2024. According to the World Bank, global remittances are projected to reach $913 billion by 2025, growing at an estimated rate of 2.8% per year from previous levels (World Bank, 2024), with a significant portion flowing to developing countries. In many LMICs remittances now surpass foreign direct investment (FDI) and official development assistance (ODA), making them one of the most important sources of external financial support.

The top five recipient countries for remittances in 2024 are India, with an estimated inflow of $129 billion, followed by Mexico ($68 billion), China ($48 billion), the Philippines ($40 billion), and Pakistan ($33 billion). overall population has certain effect over this lists. On the other hand, for countries like Tajikistan and Tonga remittances account for over 35% of GDP, playing a vital role in sustaining their economies.

These funds not only provide households with essential financial support but also contribute to economic resilience, enabling families to invest in education, healthcare, and business ventures. Unlike other forms of financial aid, which can be entangled in bureaucratic processes, remittances go directly to recipients, ensuring immediate and impactful economic relief. This direct support ensures a broader and more equitable distribution of wealth within the recipient country, helping to reduce economic disparities. By providing a steady income for their families, immigrant workers also help recipients invest in small businesses, further stimulating local economies.

Remittances and Financial Inclusion

One of the critical ways remittances contribute to poverty alleviation is by promoting financial inclusion. Many families receiving remittances lack access to traditional banking services, relying instead on informal channels like hawala to manage their funds. Yet, in recent years, together with the rise of digital payment platforms and mobile banking has facilitated easier, faster, and safer transactions. Encouraging financial literacy and expanding access to banking for remittance recipients certainly will lead to long-term economic benefits, such as increased savings and investments in productive assets.

The United Nations Conference on Trade and Development (UNCTAD) recommends five key consumer protection measures to enhance the poverty-reducing impact of remittances:

• Regulate transfer fees and exchange rates to reduce costs and ensure more funds reach the intended recipients.

• Promote financial literacy through educational programs to help consumers make informed decisions.

• Encourage digital remittance services to provide more affordable and accessible money transfer options.

• Enhance transparency and combat fraud to protect consumers from hidden fees and deceptive practices.

• Develop effective dispute resolution mechanisms to provide recourse for issues like delayed transfers or discrepancies in amounts received.

  
  

These measures align with the 2015 United Nations Sustainable Development Goals (SDGs) and aim to create a more efficient, secure, and impactful remittance system. Even after 10 years the list is still valid, so…

Despite their benefits, remittances face several challenges. High transaction fees, particularly for cross-border money transfers, remain a major obstacle. Globally, sending remittances costs an average of 6.65 percent of the amount sent. Reducing these costs through policy reforms, financial technology innovations, and increased competition in the remittance market can maximize the impact of these financial inflows.

Additionally, economic volatility in migrant-hosting countries can affect remittance flows. During global crises, such as the COVID-19 pandemic, remittances declined sharply, aggravating economic hardship in many recipient countries. Country leaders should implement strategies like reducing tax on remittance that can support stable and secure remittance channels for vulnerable populations.

Remittances are very important for improved quality of life for millions of people worldwide. Recognizing the critical role of migrant workers and facilitating smoother remittance flows for a more equitable and prosperous global economy should not be overlooked.

by Merve Kara