Remittances are defined as the transfer of money by a person who lives in a foreign country to his or her home country. The Remittance industry contributes to the economic growth of the countries participating in the practice as well as to the livelihood of the individuals involved. The remittance system is comprised of the Remittance Service Providers (RSP), Remittance Corridors, the Remittance Network and the Money transfer system.
The Remittance industry continues to grow as a result of several factors. These factors include the increase in the labour force, increase in the number of migrants, increase in the urban population, as well as global economic development.
According to information from the World Bank, migrants are now sending US$441 billion back to their families in developing countries — three times the amount spent on official aid. These inflows of cash constitute more than 10% of GDP in over 25 developing countries and lead to increased investments in health, education, and small businesses in various communities.
- The loss/benefit picture of this reality is twofold: while the migration of highly skilled people from small, poor countries can affect basic service delivery, it can generate numerous benefits, including increased trade, investment, knowledge, and technology transfers from diaspora contributions.
- More than 247 million people, or 3.4% of the world’s population, live outside their countries of birth.
- Although the number of international migrants rose from 175 million in 2000 to more than 247 million in 2013 and will surpass 251 million in 2015, the share of migrants has remained just above 3% since the turn of the Century.
- The top migrant destination country is the United States, followed by Saudi Arabia, Germany, the Russian Federation, the United Arab Emirates, the United Kingdom, France, Canada, Spain, and Australia.
- The top six immigration countries, relative to population, are outside the high-income OECD countries: Qatar (91 percent), United Arab Emirates (88 percent), Kuwait (72 percent), Jordan (56 percent), and Bahrain (54 percent).
- According to available official data, the Mexico–United States corridor is the largest migration corridor in the world, accounting for 13 million migrants in 2013.
- Russia–Ukraine is the second largest corridor, followed by Bangladesh-India. For the former Soviet Union corridors, many natives became migrants without moving when new international boundaries were drawn.
- In 2015, worldwide remittance flows are estimated to have exceeded $601 billion, according to the World Bank. Of that amount, developing countries are estimated to receive about $441 billion, nearly three times the amount of official development assistance. The true size of remittances, including unrecorded flows through formal and informal channels, is believed to be significantly larger.
While remittances rates are decreasing – inequality grows
The world’s inequality has grown tremendously during these years, and some of the developing countries’ currencies have declined. The exact split between different remittances providers is unknown, but it is clear Western Union and Moneygram have the biggest market share, which is slowly eaten away by new providers like Transferwise, Currencyfair, World Remit, and Azimo.
The top 10 recipients of remittances in 2016 were:
There are several different methods by which funds may be transferred. The best ways to send money abroad are:
- Cash to cash
- Bank account to bank account
- Via cellular/mobile phone
- Via credit and debit cards
- Via prepaid debit cards
The most costly corridors in USD are South Africa to Malawi, South Africa to Botswana, South Africa to Angola, South Africa to Mozambique, and South Africa to Zimbabwe. The least costly corridors are Singapore to Thailand, Singapore to Bangladesh, UAE to Pakistan, Saudi Arabia to Pakistan and Spain to the Dominican Republic.
Value of Funds Transferred by Transfer Method
The value of funds transferred varies greatly based on the method used to transfer the funds. The Bank of International Settlement Statistics (BIS) published a comprehensive report for payment volumes sent and received during 2011. The data indicates that by far, credit transfer is the most widely used method of sending funds abroad. Card payments are also very popular. However, payments sent via cell phones are also increasing in popularity. While mobile payments are growing, they still only account for only 7% of mobile phone subscribers (2013).
It is estimated that the value of mobile payments will increase to as much as $450 million by 2017. Great opportunities exist in this area for money transfer services which we have covered on our Best Money Transfer Apps page and below:
Mobile Money Transfer Apps Are Becoming The New Normal For Sending Remittances To Countries In Africa
The remittance market in Africa accounts for almost $40 billion of the continent’s gross income every year. That number is only getting bigger, but up until recently there have been few easy and cheap ways to transfer that money into the respective countries. Banks charged high fees, up to 29% when transferring from certain countries.
- South Africa still charges high rates for remittances to other African countries. A transfer from South Africa to Lesotho, which is the largest “corridor” in Africa, typically costs a migrant 16% of the sum.
- Burkina Faso is another country where one can expect to pay 16% on remittances, usually to Nigeria.
- It costs to send money from Nigeria itself, with fees between 10% and 13%.
Remittances have been a major part of the economies of many African countries. So much so, that the continent was deeply impacted by the 2008 economic crisis, despite African banks having little to do with the sources of the collapse. Therefore, the money lost in transfer fees is not insignificant in its effect on the economy.
It is understandable then that Kenya is home to the world leader in mobile money transfer capabilities. Safaricom’s M-Pesa service has for the past few years had a monopoly on the local transfer market, with extremely functional technology that can be used even on mobile phones not considered “smart”.
M-Pesa’s first competitor was recently launched in an attempt to foil the dangers of such an important monopoly. Equity and Airtel have partnered to create Equitel, a service which uses “thin SIMs” – a microchip you can slip easily over a SIM card, allowing you to switch operators easily.
- MFS Africa and
- Terra Connect are becoming big players.
- WorldRemit and Azimo has also been strengthening its hand by improving payment systems for remittances to Africa
The most important factor in the popularity of these mobile services is, of course, the huge amount saved on fees. Their significance to the economy has not gone unnoticed by the Kenyan government, who are a major shareholder in Safaricom.
But there are other factors leading to the rise of mobile transfer capabilities. The ease of the process is vitally important, especially since many residents of recipient countries do not have easy access to banks. Extra transparency in the process is also a factor, as people become less trusting in systems that have cost them so much for so long.
The general consensus is the more payment operators there are, the better, as migrants have long known the literal costs of a monopoly. Remittances will continue playing a big part in African economies for the foreseeable future, and we’ll be seeing more and more innovative mobile payments technology emerging in the next months and years.
Remittances will continue playing a big part in all economies around the globe for the foreseeable future, and we’ll be seeing more and more innovative mobile payments technology providers emerging over the coming months and years.
This article is a part of MoneyTransferComparison’s Magazine (Immigration and Social Studies):