One in seven people has sent or received remittances, so it’s not surprising that around USD$600 billion will be transferred this year.
For those unfamiliar with the term, remittances are the monetary aid sent by migrant workers back to their families in their home countries. And how much money is sent in remittances worldwide every year? According to the World Bank, remittances to low- and middle-income countries reached a record high in 2018, with an estimate of $529 billion, 9.6% higher than the previous year’s total of $483 billion. Some countries are so dependent on remittances that a significant percentage of their GDP comes from this cash inflow, sent by people living abroad (more on this later).
In 2015, the United Nations General Assembly proposed a set of sustainable development goals to be reached by 2030. One of them was to bring down the global cost of remittances to 3%. At the time, the average sat at 8.73%. The figure has dropped to 6.94% since then, with a yearly average decrease of around 0.6%. At this pace, it will take another seven years to reach the Global Sustainable Development Goal, bringing remittance prices worldwide to more reasonable levels.
Remittance prices worldwide: The current market
To keep track of cost fluctuations and bring greater transparency to the business of money transfers, the World Bank publishes a “Remittance Prices Worldwide” report each quarter. This is a detailed review of the cost of sending remittances through 365 country corridors, representative of the transfers between the 48 sending countries and 105 receiving countries.
At present, there are three major channels for international money transfers: banks, post offices and money transfer operators (MTOs).
For the third quarter of 2018, banks remained well above the global average (10.51%), while MTOs represented the most affordable option (6.11%). The cost of remittances also varies significantly depending on the receiving region, with South Asia being the cheapest (5.40%) and Sub-Saharan Africa being the most expensive (8.96%).
When it comes to the member countries of the United Nations’ G8 council, Japan, Germany, United Kingdom and Canada have the highest average costs, whereas France, Italy, the United States and Russia have the lowest.
Nevertheless, countries like Japan are making a great effort to close the gap, dropping from 10.8% to 9.58% in one quarter in 2018.
And the sense of urgency nations and institutions might feel to make remittances more affordable is well-founded. Reaching this sustainable development goal is imperative to attaining others like ending poverty and hunger.
The importance of bringing down the global remittance cost
What is the global role of remittance in the economy? Remittances surpass foreign aid by more than 300%. For many receiving countries, remittances account for up to 25% of their GDP, as is the case for Haiti and Nepal.
However, the cost is often expensive compared to the incomes of migrant workers.
If the global cost of remittances was reduced by just 4%, the World Bank suggests that over $16 billion more could be sent to developing countries every year.
A reduction in money transfer costs would increase support to these regions and help raise the basic standard of living for thousands of families.
The Ria Promise
By fostering and encouraging competition, MTOs can continue to bring down the global cost of remittances.
At Ria Money Transfer, we help further financial inclusion by staying ahead of the curve with our competitive rates. It’s simple math.
For example, imagine a customer wants to send USD$300 to their family. If they’re charged the current global average in fees, the cost for the customer will be of USD$21. However, if the customer is charged the 3.0% average the United Nations suggests, the cost would be of USD$9 and represent a USD$12 saving that goes straight into the beneficiary’s pocket.
In essence, the more money our customers can save in fees, the more money their families can receive.
There are 2.5 billion underbanked people that depend on remittances to live. We need their global cost to reflect our dedication as an international community to do right by them.