A Case for Affordable Remittances 2024: Supporting Families and Communities from afar

Every year, millions of people decide to leave their native countries, crossing international borders in search of a better everyday life. Sometimes, people immigrate to earn a college degree or to learn a language. Other times, to gain international experience in their field. But, more often than not, people move to lift themselves and their families out of poverty.

Currently, there are around 281 million migrants across the globe. That’s more than the entire population of Nigeria, the most populous country in Africa. For these individuals, arriving in a new country is just the beginning. Language barriers, cultural differences and access to secure employment are just some of many challenges migrants face when building a new life abroad. Yet, their motivation is unwavering. In the end, they must rise above it all to provide for their families and communities back home.

But, how do migrant workers support their families from afar? They rely on money transfer services like Ria to send remittances back home. ‘Remittances‘ refers to the funds migrant workers send back to their countries of origin.

In 2022 alone, migrants sent US$647 billion to low and middle-income countries (LMICs). While this may sound like an impressive number, these transfers represent a lifeline for millions.

A steady flow of funds from abroad goes a long way for recipient households. For one, their children are more likely to stay in school. Equally, families have more options for health coverage and entire communities can thrive thanks to GDP contributions. In countries like Tajikistan and Tonga, remittances account for more than 40% of their economies.

Unfortunately, in recent years, migrant workers have had to overcome extra hurdles in order to support their families back home. Given the fact they are statistically more likely to live in areas with a high population density and are often employed in public-facing roles, migrants suffered disproportionately throughout the COVID-19 pandemic. The subsequent lockdowns halted economic activity, hindering migrants’ ability to work and send much-needed funds home. Equally, travel restrictions prevented new migrants from reaching their destination countries as migration flows to OECD nations stumped to their lowest level in 17 years.

While the employment of migrants in most OECD countries recovered to pre-pandemic levels in late 2021, inflationary pressures have since provided them with an additional obstacle to overcome. Driven by a post-pandemic surge in demand and rising energy costs, the price of essential items like food began to rise sharply in 2022, forcing migrants to support their families on an even tighter budget. In parts of the globe, many have stated that they are struggling to afford food and pay their utility bills.

Economic shocks like these have demonstrated the vulnerability of migrants, especially those not included in the global financial system. With the livelihood of millions of families at stake, financial inclusion is now more important than ever. Bringing down the global cost of remittances will help lift more people out of poverty and encourage access to financial services.

Ria is committed to providing a service that is affordable, convenient, and safe. But we can’t do it alone. Hundreds of non-compete clauses around the world keep average prices high. This refers to agreements signed by retailers, banks, or postal services that restrict them from working with more than one money transfer service provider. In short, lack of competition results in higher or stagnant prices for customers.

If you represent an organization that can help us facilitate affordable remittances for migrant workers, we encourage you to keep reading. The same goes for anyone interested in learning more about the benefits remittances have on receiving households.

In this report, we will explore the impact of remittances and what we can do to propel and protect them.

Table of Contents:

1. Remittances at a glance
2. Enhancing education
3. Building a healthier world
4. Success stories
5. Halving remittance costs
6. Global migration landscape
7. Conclusions

1. Remittances at a glance

Despite the economic challenges of recent years, remittances have continued to grow at a steady pace, reinforcing their reputation as some of the most reliable and effective funds in existence. Since 2000, the total amount sent by international migrants has increased by a staggering 650%, reaching US$831 billion in 2022.

The majority of these remittance flows head to family members in low and middle-income countries, enabling them to meet basic household needs. Importantly, purchases made by beneficiaries boost domestic consumption which in turn generates more tax revenue for the receiving country. That extra revenue can then be used by states to pay off their foreign debt and cover costs for building new schools and hospitals.

By increasing spending power in countries with limited cash flow, remittances play a major role in supporting and revitalizing national economies. Across the globe, around 30 countries rely on the continual flow of funds from abroad for more than 10% of their GDP. For some, like Nepal, Tajikistan and many Central American states, remittances now account for more than 20% of their entire economic output.

Given their impact, it’s no surprise that the United Nations has made lowering the global cost of remittances a priority. As part of the UN’s 2030 Sustainable Development Goals, the average cost should fall below 3% within the next six years. Currently, the average cost of sending remittances sits at 6.18%.

There are three main channels to send money home: banks, post offices and money transfer operators (MTOs). As of September 2023, banks remain the most expensive option, averaging 11.48% in fees. On the flipside, MTOs continue leading the race at 5.33%. Mobile operators are averaging 4.47%, but they only account for a small share of cross-border transactions.

A key part of reducing international remittance fees is ensuring that migrants can send funds at a cost of less than five percent in every corridor. In this regard, the number of corridors with an average cost below 5% has more than doubled since 2009, reaching 37% in 2023. Focusing on specific countries and corridors will evidently play a major role in overall reduction efforts. For instance, the cost of sending funds from South Africa is notably higher than all other G20 nations at 11.62%.

Delving deeper into regions and corridors, the latest figures show that once more Sub-Saharan Africa needs the most attention to facilitate affordable remittances for working migrants. At an average cost of 7.39%, the region is nearly two percentage points above the most economical region, South Asia (5.44%). In Europe, the average remittance percentage fell only slightly with costs rising in France, Italy, and the UK.

Without question, these high costs hinder migrants’ ability to send much-needed funds home. In this sense, reaching the United Nations’ 3% target is vital as it would empower migrant workers to send more, an act that could potentially lift entire communities out of financial hardship. Ultimately, reducing the cost of sending remittances would unlock extra funds for families, enabling them to enhance their education, healthcare and make investments in activities that will generate future income and employment opportunities in low and middle-income countries.

2. Enhancing education

As mentioned, remittances allow families to cover vital expenses, including both primary and secondary education.

In global terms, the number of children who drop out of primary school has drastically decreased since 1998. At the same time, the inflow of remittances has risen more than seven-fold, from US$110.78 billion to US$831 billion. Given the fact the majority of these funds head to countries with historically higher rates of school absenteeism, remittances have undoubtedly helped children progress with their education.

Equally, recent research has also found a positive connection between remittances and education spending. Remittance-receiving households invest around 35% more on their children’s education when compared to other households in the same country. In Latin America, this figure climbs to 53%, clearly demonstrating the importance of the continent’s remittance corridors, particularly with the United States and Spain.

Typically, these remittances come from a parent or family member who has migrated abroad in search of employment opportunities. This decision often alters family dynamics, forcing younger children to play a supporting role in the wider family structure, either directly by helping maintain a family-run business or indirectly by performing household chores.

However, the situation changes dramatically when remittances start to come in. The flow of much-needed funds from abroad reduces the probability of child labor while also enabling families to spend around 10% of their income on their children’s education.

Additionally, supporting education is now more important than ever. Across the globe, children suffered disproportionately during the COVID-19 pandemic with school closures hindering their learning. This was particularly noticeable in low and middle-income countries where the learning poverty rate, measured by the number of 10-year-olds who are unable to understand a simple written text, grew from 57% to 70%.

Without doubt, reducing the global cost of remittances to 3% would have a positive impact on children’s education. In fact, UNESCO estimates that this would result in an extra US$1 billion being spent on primary and secondary education in low and middle-income countries. Even if extra remittances were not directly invested in education, the additional funds would still have a positive impact. When there are more funds to go around, families don’t need to rely on their children to help support and maintain the household.

3. Building a healthier world

Be it a broken bone, an infection or critical surgery, a medical emergency is always an unwelcome scenario.

In high-income countries, access to public healthcare and health insurance is common. However, quality healthcare is not as accessible in low and middle-income countries. For one, medical infrastructure is not as extensive, particularly in rural areas. Equally, medical facilities are often not as well equipped and, as a result, they struggle to provide equal healthcare for all citizens. Even in places where private healthcare is an option, it tends to be expensive and inaccessible for families living in poverty.

Having family members working abroad can help in a number of ways. Principally, money transfers enable beneficiaries to invest more in their health. For example, a recent study in Pakistan, a country that receives around US$30 billion a year through international remittances, revealed that beneficiaries spend 49.9% more on their health than non-remittance-receiving households. Similarly, research in Ghana found that for every extra GH₵1 sent by family members overseas, GH₵0.20 was spent on healthcare. This extra source of income allows families in low and middle-income countries to address their medical needs without enduring financial hardship.

Additionally, migrants can also purchase medicine and other important supplies in their destination country that might be difficult to obtain in their native communities. For instance, during the COVID-19 pandemic, Indian migrants sent oxygen tanks home to help relieve shortages and save lives. Acts like these are often part of hometown associations’ wider efforts to support their communities back home. Formed by expatriates from the same locality, these associations help raise funds to pay for communal needs back home. Examples include building a new hospital or donating supplies to a local school.

Even if remittances are not directly spent on healthcare, they still help families lead healthier lives. This is especially true for young children. Separate studies have shown that remittance-receiving households suffer lower rates of infant mortality, and their babies have higher birthweights.

Equally, research in Senegal, Nepal and the Kyrgyz Republic demonstrated a clear connection between increased remittances and lower levels of stunting, a term used to describe children that suffer impaired growth due to malnutrition. These findings emphasize the important role money transfers play in establishing secure livelihoods where low-income families can consume more and eat healthily.

Ultimately, for families in low and middle-income countries, remittances represent a crucial layer of protection. The continual flow of funds from abroad enables them to live healthier lives while also guarding against the worst outcomes caused by food insecurity and limited healthcare.

4. Success stories

While remittances continue to grow, supplying underprivileged communities across the globe with crucial funds, it is important to remember that statistics don’t tell the full story. Behind every money transfer is a family member with aspirations for a brighter tomorrow. And it’s precisely these long-term goals that drive migrants to build careers, often thousands of miles from their homes. Over the years, many of our customers have shared their experiences with us, enabling Ria to build up a collection of personal stories that highlight migrants’ courage, determination, and achievements.

Mercy’s transformation from cleaning hospital floors to running initiatives on behalf of the UK Ministry of Justice is a powerful reminder of how migration can shape and enhance professional lives. Born in Nigeria, Mercy now helps marginalized individuals find employment as well as running a diversity internship program to find the next generation of civil servants. Yet, despite having lived abroad for many years, Mercy hasn’t forgotten her roots. In addition to her day-to-day responsibilities, Mercy also supports food banks in her native country and sponsors local children by paying their school fees.

Imerson is a person with immense drive. At the age of 26, he left everything he knew behind to pursue a Business Management degree in London. This proved to be a decisive moment in Imerson’s life as a few years later he found himself running a hotel while, at the same time, raising three children. Imerson believes his success ultimately comes from two things; focus and self-belief. With his children now grown up, Imerson is currently laying the foundations for a new business back in his native country, Côte d’Ivoire. Having already purchased 15 acres of land, Imerson plans to set up a rubber plantation, a venture that would provide locals with employment opportunities.

For Muhammed, migration is all about providing the next generation with opportunities to pursue better everyday lives. Back in India, Muhammed has four children, two daughters and two sons. His remittances have already helped his two daughters obtain qualifications in Aviation Technology and Information Technology; capabilities that should help them find stable employment in the near future. As a devout Muslim, his next challenge is to help finance their marriages, providing dowries to secure their futures. Once achieved, Muhammed is looking to return to his native province, Tamil Nadu, and open a Biryani restaurant on the coast.

5. Halving remittance costs

Originally, the money transfer industry was a monopoly. Then, around 35 years ago, different players began to emerge, creating a slightly more competitive environment. However, many small businesses and financial institutions had already signed non-compete contracts, locking prices in at the same rate.

Allowing these different players to compete against each other would undoubtedly reduce remittance prices, particularly benefiting migrants who send funds through MTOs. On a broader scale, increased use of technology alongside new agreements with banks and post offices would streamline services, reducing costs further.

As of yet, no region has reached the United Nations’ three percent target. Sub-Saharan Africa, in particular, needs to make considerable progress in forthcoming years to help migrant workers remit affordably. Some intra-African money transfers still command a price of 15%, a fee that has not been seen in other corridors for some time. The pressure to bring down these costs must come from governments, especially in countries with notably high fees compared to neighboring states.

Statistically, there is a lot to be done in the next six years. With a global average cost of 6.18%, remittances fees would need to more than halve in that time to achieve the UN’s goal. For context, in the last six years, the average cost of sending US$200 fell by only 1.02%.

At Ria, our remittance prices are close to reaching the 2030 goal globally, but we continue to promote competition in the hopes of offering an even better fee for our customers, many of whom live in the world’s most vulnerable regions.

6. Global migration landscape

Another factor that could help facilitate the reduction of global remittance costs is increased levels of international migration. Since the turn of the century, more than 100 million people have left their native communities in search of better everyday lives, increasing remittances more than six-fold.

This considerable rise in the number of international migrants can be somewhat explained by the technological advancements during the period. Enhanced transport connections and improved methods of communication have increasingly made migration more feasible for millions of families in low and middle-income countries.

The sudden emergence of COVID-19 temporarily curtailed this long-term tendency, hindering migrants’ ability to travel and work in destination countries. Yet, despite the difficulty of the period, most corridors have since rebounded with remarkable speed. In 2022, a record number of migrants settled in OECD countries, clearly demonstrating the resilience of international migration.

For a variety of reasons, Ria expects remittances to rise as migrants continue to play an even greater role in the global economy in the years to come.

One of the lingering effects of the COVID-19 pandemic is the widening gap between high-income countries and the developing world. Low-income nations were slower to recover from the pandemic and most have suffered disproportionately from the subsequent inflationary pressures. In April 2024, the World Bank revealed that nearly 60% of low-income countries are currently tackling food inflation of more than five percent. Rising food costs threaten those closest to the poverty line most as they spend a larger portion of their overall income on food consumption. Given, on average, food crises increase involuntary migration by 75%, these conditions will likely spur more migrants to seek economic opportunities and improved living standards abroad.

With food insecurity rising globally, extreme weather and the continued disruption of livelihoods is becoming more and more significant. Notably, the frequency of natural disasters has increased five-fold in the last 50 years, resulting in a higher loss of crops and agricultural land. For instance, in 2022, 7.1 million Bangladeshis were displaced by flash floods and landslides. Unfortunately, future climate-related disasters are likely to have a similar impact as around 56% of the population live in high-risk areas. The consistent nature of these disasters has seen a significant portion of those displaced migrate to neighboring India.

Another significant factor that cannot be overlooked is the aging demographics of most advanced economies. The birth rate in many high-income nations has long fallen below the replenishment ratio of 2.1 births per woman, reducing the size of future working-age populations. At the same time, older citizens in these countries are increasingly living longer with the number of people aged over 65 set to nearly double by 2040. The combination of these two realities means developed countries will almost certainly need more migrant workers in the decades to come. One of the clearest examples of this scenario is Canada. With more than 300,000 Canadians retiring in 2022, the country has stated plainly that it “needs more people” to fill shortages in the workforce, support the elderly and maintain the current standard of living. Recognizing that, Canada’s immigration ministry recently put forward plans to grow the population by nearly a million in the next 18 months.

Heightened geopolitical tensions are also contributing toward higher levels of international migration. As of December 2023, there were 183 conflicts across the globe, the highest figure for three decades. This upsurge in violence has resulted in a record number of displaced individuals, 117 million. While many remain in their native countries, recent conflicts in Europe, Africa and the Middle East have also seen migrants seek security across international borders.

Additionally, the conflict in Ukraine appears to be influencing migration patterns in Central Asia. In previous decades, the vast majority of migrants from this region would head to either Russia or Ukraine in search of employment opportunities. However, in recent years, many Central Asian nations have instead sought labor migration agreements with other countries. For instance, in 2022, both the Kyrgyz Republic and Tajikistan signed agreements with South Korea to establish thousands of employment opportunities in the country’s private sector. Equally, in 2023, Uzbekistan established new labor arrangements with both Germany and Saudi Arabia to support their hospitality and manufacturing industries.

7. Conclusions

Recent years have been particularly challenging for international migrants. Having weathered the COVID 19 storm, many migrants found themselves struggling with higher costs of living due to post-pandemic inflationary pressures.

Yet, despite these obstacles, they have continued to send funds home in large volumes, enabling families, particularly in low and middle-income countries, to purchase essential goods, support their children’s education and live healthier lives.

Additionally, migrants are also playing an increasingly greater role in the global economy, staffing vital sectors from healthcare and the services industry to information technology and agriculture. In many cases, migrants perform these roles thousands of miles from their homes, often overcoming language barriers, cultural differences, and bureaucratic hurdles to do so.

These sacrifices highlight their unwavering determination to do whatever is necessary to help their families break free of poverty. Consequently, migrants are often amongst the most vulnerable in society and it’s our responsibility as an international community to look out for them.

In this sense, there has never been a more crucial time to stand by international migrants and their families. Reducing remittance fees would empower migrants to further support their native communities while simultaneously enabling them to play an even stronger role in host nations’ economies. By increasing migrants’ disposable income, we can help lift millions out of financial hardship, one family and one community at a time.

For more info: comms@riamoneytransfer.com