As the United Nations commemorate the 2020 International Day of Family Remittances (IDFR), experts say reducing the cost of remittances would go a long way to cushion the losses many families have suffered as a result of the COVID-19 pandemic.
The IDFR, according to the UN was an opportunity to reflect on the plight of millions of migrant workers globally who play a vital role in global economies.
The enforcement of strict lockdown measures to curb the spread of the virus has directly impacted the more than 200 million migrant workers who support their 800 million family members back in their home countries, data from the UN showed.
The impact was evidenced by the sharpest decline in recent history in April predicted by the World Bank. Global remittances were projected to decline sharply by about 20 percent in 2020 due to the economic crisis induced by the COVID-19 pandemic and shutdown. This decline, from a high of $714 billion in 2019 to an estimated $572 billion in 2020, comes as the world’s largest remittance-sending nations have experienced stringent lockdowns.
Remittance flows to sub-Saharan Africa are expected to decline by 23.1 percent to reach $37 billion in 2020, while the recovery of 4 percent is expected in 2021. For families depending on remittances to fund their basic living expenses, the risk of falling below the poverty line has increased substantially.
“With the pandemic forcing people to socially distance themselves from others, the adoption of DFS (Digital Financial Services) has been increasing across countries like Nigeria, Ghana, and South Africa. In Kenya where mobile money has already made great inroads, the government has actively promoted cashless transactions as a means to limit contact spread of the virus,” says Edison Xie, Director of Media Affairs, Huawei Southern Africa Region.
In Nigeria, an account-based, online-real-time inter-bank payment solution known as the Nigeria Inter-Bank Settlement System Instant Payment (NIP) has grown to become the preferred payment option for banks and currently drives several e-payment channels such as internet banking, USSD, and others. From about 4.4 million in 2012, NIP transactions rose to 803.1 million in 2019 and recorded 366 million transactions in the first quarter of 2020.
Adoption of DFS in the rest of the world is projected as high as 67 percent post-pandemic adjusted 5-10 percent upwards from pre-pandemic estimates of 57 percent. Nevertheless, there are barriers that prevent widespread adoption and use of DFS for remittances.
The World Bank estimated a cost of around 6.7 percent on a remittance value of $200 but for Sub
Saharan Africa, this cost rose to 9 percent even though intra-regional migrants in Sub-Saharan Africa comprised over two-thirds of all international migration from the region. The United Nations estimated that between US$200-300 was spent on the costs of transfers. Banks are the costliest channel for transferring remittances, at 10.9 percent. In sub-Saharan Africa, the cost of sending money is higher than the average at 9.3 percent.
“Reducing the reliance on cash transfers and currency exchanges is thus an important way to reduce remittance costs for those sending money to Sub Saharan countries. Digital money transfer options become essential to facilitating lower costs remittances for migrant workers,” said Xie.
As DFS adoption increases and the ecosystem expands to bring in more services suited to the market it serves, the evolution of the platforms coupled with increased support from the government in the form of consumer protection, costs of remittances can be expected to gradually reduce.