Opinion

How ease of remittance is driving financial inclusion

Rashmi Satpute | Updated on: Jan 15, 2022
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The digital shift in remittances has potential to be truly inclusive for economic and social growth

The role of foreign remittances in a nation’s development can hardly be exaggerated with over a billion people involved in the remittance economy. According to UN estimates, close to 800 million people worldwide are recipients of these flows of money sent by their family members who have migrated for work. Of these, over 200 million foreign workers send money home to help pay for basic needs such as food, housing, education, and healthcare.   These international money transfers have traditionally tended to be costly and cumbersome affairs. Cash-based transfer services charge phenomenal sums as transfer charges. On average, globally, currency conversions and fees amount to a whopping 6.3 per cent of the total amounts sent. This is a large sum by any standards.

Thus, migrant workers risk losing more of their hard-earned money, while economically vulnerable families, with little or no access to banks or transfer agencies, are continually excluded in more ways than one. Covid-19 proved a further major setback to the already marginalised families of migrants in developing nations. Nonetheless, despite the economic slump, the money sent home by migrants that was predicted to fall by 20 per cent by the World Bank and IMF stayed stable, registering a smaller decline than previously projected. 

Even so, little relief came in the form of hidden charges and transaction fees. The panacea has come in the form of tech startups that are enabling bank-free, digital transfers of foreign funds that tend to be cost-effective, fast and transparent. These digital remittance solutions are proving to be a real succour to millions of immigrant workers. Digital transmissions are particularly beneficial to emerging economies, where digital growth has received a fillip following the pandemic. 

This digital shift in the remittances landscape has potential to be truly inclusive for economic and social growth for several reasons:

First: If remittance money becomes easily accessible and the transaction cost is affordable--families can start looking beyond survival, into saving and investing in asset building or income-generating activities.

Secondly, it addresses the question of limited access to remittance services in sending and receiving countries. The post-Covid digital push in emerging economies is enabling regulatory innovation that encourages positive change in the payment ecosystem, creating the conditions for digital payments to take-off. The uptake of these new forms of remittances holds the potential to bridge important gaps in digital financial services that many marginalized families who survive on remittances now face.

Thirdly, remittances sent by migrant workers are often a major part of their families’ total income and, as such, represents a lifeline for them. Often suffering acute medical emergencies’ or crop failures in rural areas, the families’ survival hinges on every penny they receive.

Fourthly, according to the UN, remittances can help achieve at least seven of the 17 Sustainable Development Agenda goals and are three times more important than international aid.

All in all, the benefits offered by fast, easy means of remittance, at low costs go far beyond offering mere convenience. Transparent, cheap, digital channels are proving truly inclusive in ensuring that the benefits of remittance fully reach the hitherto financially overlooked and underserved segments.   Given the manifold benefits of easy remittance solutions, it is no wonder that there is a serious rethink on global banking systems to enable them to serve individual needs.

Nonetheless, with enabling regulatory frameworks, improved mobile technological solutions, and digitalization, fast, cheap and easy remittance solutions will soon become the standard — and have an even larger potential to fundamentally impact developing economies in a positive manner.

The author is the Country Manager of Wise India

Published on January 15, 2022

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