Importance of Remittances in Developing Countries

Every tenth person in Europe and Central Asia is an emigrant, either permanently or temporarily. This region is an important source of migration both within and outside its borders. At least 10% of the population of about 250 million individuals are emigrants. People leave their homes for a variety of reasons, including economic and social reasons, as well as conflict-related and political reasons. While many migrate to Europe, 80 percent of ECIS migrants choose to stay in the area, with Turkey, Kazakhstan, and Russia being popular destinations. The region also has the biggest percentage of remittances as a proportion of GDP, with a historic high of US$74 billion in 2021. This means that over 25 million migrant workers send money home each year to approximately 100 million people who benefit from these flows.

Remittances are unquestionably an important source of income as well as a means of alleviating poverty in rural regions. Yet there is much more meaning beyond this statement; here are ten reasons why:

  1. Remittances affect one billion people worldwide, or around one in every seven people. Every year, 200 million migrant workers send money home, and 800 million people (on average, in four-person households) profit from these transfers. 
  1. Despite the COVID-19 issue and political turmoil, total remittance flows have increased. Remittances to low- and middle-income countries will exceed US$605 billion in 2021, according to the most recent World Bank Data. This is an increase of more than 8% over 2020, much above earlier projections. 
  1. Every one to two months, migrant laborers send $200-$300 home. This is only 15% of their total earnings (the rest stays in their host countries). However, what they send can account for up to 60% of a household’s overall income, providing a lifeline for millions of families. 
  1. Remittance flows have increased fivefold in value over the previous 20 years. These flows frequently serve a counter-cyclical function, that is, they are maintained in the face of adversity in recipient nations. 
  1. Even in difficult times, remittances can reach the last mile. This is made feasible, among other things, by migratory workers and their families’ use of digital technologies. In example, the amount of money transmitted by mobile transfer—a service that allows users to send and receive modest quantities via mobile phone without the use of a bank account—surged by 67% in 2020 to US$12.7 billion and is expected to increase again to US$16 billion in 2021. 
  1. Over half of all remittances are transferred to rural homes, which house 75% of the world’s poor and food-insecure people. Rural households rely on these flows to improve their livelihoods, build resilience, and achieve the SDGs. Over the next five years, global accumulated flows to rural areas are estimated to surpass US$3 trillion. 
  1. Approximately 75% of remittances are used to put food on the table and cover medical, school, or housing needs. Migrant workers may send more money home during times of crisis to offset agricultural losses or family emergencies. The remaining 25% of remittances, totaling more than $150 billion per year, can be saved or invested in asset-building or income-generating enterprises. 
  1. Remittances account for at least 4% of the GDP in more than 70 nations. Remittances, as demonstrated by these countries, are a driver of socioeconomic progress and transformation, particularly in rural areas. [1]
  1. Remittances can be expensive to send, and technological advances such as blockchain and mobile money may be the answer to lowering costs. Currency conversions and fees currently account for over 6% of the amounts sent, which is more than double the SDG objective of 3%. In this context, novel financial services such as mobile money and blockchain have huge potential to radically disrupt markets. 
  1. Between 2022 and 2030 (our target year for attaining the SDGs), an estimated US$5.4 trillion will be sent back to developing-country communities by migrant workers. Around US$1.5 trillion of the total will be saved or invested. [2]