Remittances

Remittances are the transfer of money by a person in one country to a person in another country, often used by migrant workers to send money to family who remain in their home country.

The United Nations says that remittances contribute three times as much capital to still-developing countries than international aid. “In 2018, over 200 million migrant workers sent $689 billion back home to remittance reliant countries, of which $529 billion went to developing countries.” The Financial Times attributes the increasing amount of remittances to the income disparity between developed and still-developing nations, estimated at over $42,000. In some cases, remittances can account for up to 28 percent of a nation’s gross domestic product.

In addition to providing capital to some of the poorest people in the world, remittances can make a significant difference in the lives of people affected by disaster. The money can serve as immediate and direct aid to family affected by disasters, helping to bridge the gap between the occurrence of the disaster and the arrival of official aid. A 2019 study by the Overseas Development Institute (ODI) says: “Benefits are similar to those of humanitarian cash transfers: recipients have the freedom to purchase what they actually need. This contrasts with in-kind assistance, which often needs to be resold to be useful to recipients, and voucher systems, which impose limits on purchases and so force households to buy less diverse sets of goods and services.” An article published in the January 2018 issue of Disasters Journal, also from the ODI, found that while remittances initially spiked after a disaster, the amount of money transferred annually did not change significantly. While the person working in the developed country was able to send money to the person in the still-developing country at a crucial time, they were unable to increase the amount of money sent because their overall financial position did not change. While they were able to provide support immediately after a disaster, the money served only to provide immediate support but no support for short- or long-term recovery after a disaster.

Migrants who send money home are often employed in minimum wage jobs or jobs that pay more than the minimum but less than a livable wage. As a result, their ability to remit money is disproportionately affected by cost of living increases and stagnant wages. Recent research in Canada shows that almost 90 percent of Canadians believe that food costs are rising faster than wages. This can significantly reduce the amount of money available for a person to use for remittances.

The 2019 ODI study also found a significant issue with reliance on remittances, specifically that those receiving remittances may not be the most vulnerable people affected by a humanitarian emergency. As a result, people who are already vulnerable, particularly those in rural locations without access to remittance receiving technology, along with women and children will continue to be disproportionately affected by a humanitarian emergency.

One of the biggest challenges for those sending and receiving remittances is the relatively high cost to process these transactions, both through banks and less formal services. Companies such as Western Union, MoneyGram and Xoom (part of PayPal) can charge a significant amount in fees associated with remittances. The World Bank reported that in 2018 the cost of sending $200 USD remained high, at an average cost of seven percent of the transfer. In some areas of the world, particularly in Africa and among small Pacific islands, fees can cost over 10 percent of the transfer.

Additionally, because of national and international laws regarding money laundering and the financing of terrorism, the safest ways of transferring money can also be the most expensive. The World Bank cites banks as being the most expensive, with an average fee of 11 percent, followed by national postal services at seven percent. While new technology companies are helping to reduce the cost of remittances, many people are still resorting to less secure methods such as mailing cash or relying on travelers to carry the remittance to the destination.

• About 800 million people around the world are recipients of money from family and friends who have migrated for work. This means that remittances help support approximately 11 percent of the global population.
• The vast majority of income received by people who send remittances remains in the country of origin. On average, only 15 percent of a person’s earnings are sent as remittances.
• Much of the money that is sent as remittances is sent through unofficial channels. This means it is difficult to track so the actual amount of money sent as remittances could be much higher.
• Money sent by remittances are considered to be key to helping countries achieve the 17 Sustainable Development Goals identified by the United Nations. All increases in human wealth will improve humanitarian situations.
• Remittances are much more than a form of assistance. They are often used by recipients to develop sustainable local industries that return significant benefits to their local communities.

• Invest in technology to lower transfer costs. When it costs less to transfer money, people are more likely to send more. Also, they will be more financially stable because it costs less to send the same amount of money.
• Support better tracking of how remittances travel across the globe. There are significant challenges to tracking remittances, including the use of informal and unofficial methods of transferring money. Some countries may also over-report remittances for various reasons, including poor data collection.
• Support organizations and activities that focus on equitable aid distribution. People who receive remittances may not be the ones who need the most help. Aid supplied by philanthropists is key to making sure support is equitable for everyone in an affected area.
• Invest in sustainable infrastructure and transit. The receipt of remittances through safer, official channels requires access to things such as banks and reputable money transfer agencies. Sustainable infrastructure and transit will allow more people to have easier access to these official agencies in order to receive remittances.

• The Rockefeller Foundation gave a $249,728 grant in 2015 to the Institute for Social and Environmental Transition’s work in Nepal. The group used the grant to support a rebuilding approach, using remittance flows as a lever to create a lasting resilience dividend.
• In 2016, the MoneyGram International Corporate Giving Program waived all transaction fees for monetary transfers from the U.S. and South America to Ecuador and for donations made to the American Red Cross following the earthquake.

• CDP’s Disaster Philanthropy Playbook: Immediate Relief/Individual Support
• Pew Research: Remittances
• Migration Data Portal: Remittances
• Global Knowledge Partnership on Migration and Development (KNOMAD): Remittances Data
• The World Bank: Migration and Remittances Brief

We welcome republication of our content. Please credit the Center for Disaster Philanthropy.