The money transfer industry is undergoing a profound transformation. Long reserved for banks and a small handful of companies, today we are witnessing the emergence of new players.
Today, it is possible to transfer money almost instantly to the other side of the world with just a few clicks on the phone.
However, the significance of these technological advances goes beyond an improved and faster money transfer experience: in many countries, the money transfer industry has also become an important driver of social and economic development.
Meet the needs of families
Transfers from the diaspora community represent more than $ 554 billion in 2019 and are vital to many developing countries and their peoples, such as India, sub-Saharan Africa, and countries in South Asia.
Transfers from these migrants to their countries of origin represent a crucial means of helping their families back home to cover various expenses, from daily living expenses to family parties and holidays or major expenses such as tuition. In low- and middle-income countries, remittances make a significant contribution to reducing poverty, improving food conditions and combating malnutrition.
One of the proofs of the importance of its remittances can be found in the fact that despite the COVID-19 pandemic, remittances from migrants remained stable in 2020, reaching $ 540 billion, a decrease of only 1.6% compared to 2019.
Promote the development of the local economy
While remittances from migrants provide significant support to their families, they are also crucial to the economy of their country of origin and may even represent a third of the economy of some developing countries. In 2019, a KNOMAD briefing noted that the flow of remittances to low- and middle-income countries other than China now exceeded foreign direct investment and development aid. In 2020 in Haiti and Nepal, money transfers from the diaspora accounted for 23.2% and 24.1% of GDP, respectively.
Given the fundamental impact of remittances on economic development, it is safe to say that remittances go far beyond family support and are likely to also support local entrepreneurship, trade, philanthropic foundations, and investment to develop these nations as a whole.
A tool in the fight against poverty?
In some countries that may lack infrastructure and developed financial institutions, these cash flows can help compensate for an underdeveloped banking system and be used to fund local initiatives, agricultural cooperatives and education. This in turn leads to the development of new skills and growth in certain economic sectors.
Some countries, such as Rwanda and Ethiopia, already recognize the important role that remittances play in the economic development of their countries and are developing initiatives at national level to further promote this funding. The Ethiopian Diaspora Agency, which now informs diaspora members about various investment and business opportunities, as well as development projects in Ethiopia, is just one example.
In addition to the significant economic contribution to the economy, remittances from the diaspora also contribute to social development, poverty reduction and skills development through education support. More than a simple financial transaction, these cash flows are one of the cornerstones of the growth and emergence of many developing countries.