Remittances, that is, the funds that migrants send to their families, are a lifeline for countless people. According to various estimates, remittances sent to low- and middle-income countries in 2022 amounted to US$647 billion.Millions of families receive around US$200 a month in remittances, and it is estimated that approximately half of international transfers go to rural populations.It may seem like a small amount, but taken together, remittances have enormous potential to transform development. In fact, these flows triple official development assistance.As an IFAD expert on remittances, I am convinced that they are essential to achieving the Sustainable Development Goals, as they allow recipients to feed their families, children to go to school, women to be empowered and can find green solutions. Over the past 16 years, I have seen how these transfers can lift rural people out of poverty and help build their resilience.
I have also seen how international remittances have been transformed in recent years. Before they were complicated to make and they were expensive. However, in the last 20 years, transaction costs have decreased considerably, mainly due to the increase in access to digital technology.“In the Philippines, almost everyone has a mobile phone,” says Jan Manglo, Director of Marketing at Gcash, one of the country's leading financial services providers. "Wherever you go, at any time of the day, you can receive a remittance."One of the positive aspects of the pandemic was that more rural households became familiar with digital remittances, making it easier and cheaper to receive these essential funds, since it is no longer necessary to travel to the cash withdrawal points.
The indirect benefits of digital money
Wire transfers also encourage countries to invest in digital infrastructure.Thanks to improved connectivity, migrants can keep in touch with their loved ones, whom they left behind in their country of origin in the hope of creating a better life for themselves and their families.Strengthening infrastructure can also boost financial inclusion, making it easier for rural people without bank accounts to access other financial services, such as insurance and loans.As a result, they can invest in their businesses and increase their resilience to all kinds of shocks.
Reduce the gender gap
Digital remittances are especially hopeful for women, who may have a harder time finding time to go to the bank due to family responsibilities or cultural norms. They are also more likely to be excluded from conventional financial systems. Digital banking empowers them because it allows them to access their money quickly and safely.
“I show them my identification number, they look at my mobile phone to see if the reference number matches the one they have, and they give me the money,” says Remedios Valdesco, a woman from the Philippines. "I get my money immediately."
Towards a digital future
Even though the fee is less than $4 per $100 sent, digital transfers are still underused. In 2022, remittances made via mobile only accounted for 3.5% of all global flows.
To get more out of remittances for rural development, we need to make sending and receiving digital money an easier and more attractive process. Currently, more and more providers have financial services and products for people in rural areas and are reaching vulnerable groups, such as women and young people. However, there are still huge untapped opportunities for the private sector, which could enhance and monetize digital remittances.
However, digital technology is not a good solution in all situations. Products and services should be designed in such a way as to accommodate users' digital access and literacy. To this end, for example, text messages could be used where the penetration rate of smartphones is low, or short number codes for people who do not know the local language, as well as initiatives aimed at promote digital and financial literacy.
Through the Platform for Remittances, Investment and Entrepreneurship of Migrants in Africa (PRIME Africa) programme, IFAD and the European Commission are promoting new digital solutions. For example, IFAD is supporting the creation of a network of agents to send remittances via mobile phone from France to rural Senegal at low cost.
Just a few years ago, coins rattled in our pockets. These days, many people pay simply by scanning a QR code.However, this small advantage of the digital age is just the tip of the iceberg. With money flowing from Rome to Rabat at the flick of a finger, we can transform the future of rural areas.Digital remittances represent real change for rural people in Africa thanks to the PRIME Africa programme, supported by IFAD.
by Pedro de Vasconcelos