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How remittances help more people than all the international aid in the world

Boris Dzhingarov

As of 2018, there were nearly 272 million international migrants globally. They collectively sent more than $689 billion in remittances. Most migrants originate from developing countries. Consequently, a majority of remittances flow to these countries. The United Nations wants to increase worldwide awareness about the importance of family remittances, and the far-reaching impacts they have on entire nations. According to UN Secretary-General António Guterres, “Family remittances have a direct impact on the lives of 1 billion people — one out of seven individuals on earth. Added together, remittances are three times greater than Official Development Assistance and surpass Foreign Direct Investment.”

Targeted impact

Remittances enable human progress in the poorest parts of the world. Two-thirds of the world’s 272 million migrants work as laborers. They perform some of the lowest-paid jobs in the economies where they live and work. Their motivation to migrate is twofold – poverty, and unavailability of employment locally. These migrants lack the skills and qualifications to seek jobs in higher-paid sectors. When they send remittances to their families, the money reaches some of the world’s poorest regions. These remittances give access to education to the children of labor migrants. First-generation migrants from low-income countries pave the way for their future generations to live better lives. Education enables the children of labor migrants to level up. With education, they can eventually seek higher skill jobs or become entrepreneurs. In this way, remittances are instrumental in enabling human development where it’s most needed.

Remittances vs. aid

Remittances reach the needy sections of society year after year, month after month, with unmatched reliability. In contrast, the consistency of humanitarian aid, both in terms of size and regularity, leaves much to be desired. Consider the example of Ghana, a country with 31 million people and more than 10,000 refugees. According to the United Nations Population Fund (UNFPA) Ghana received $70,000 in humanitarian aid in 2016. That amounted to less than $2 per year for each person in need. The amount of aid received in 2017 declined to $20,000, and in 2018 further dwindled to $15,000, even as the inflow of refugees continued. Contrast this with the number of remittances sent to the country:

  • In 2016: $2,980 million

  • In 2017: $3,536 million

  • In 2018: $3,536 million

The numbers speak for themselves. Ghana is just one of a multitude of countries which receive dismal amounts of aid, but consistent annual remittances in the millions.

Remittances vs. FDIs

Foreign direct investment (FDI) is even more unreliable than international aid. Regions with unpredictable governments and political instability often suffer from high unemployment. These are the countries that would benefit most from foreign investment. Unfortunately, these are the very geographies of which foreign investors steer clear.

Remittances to beat corruption

A look at the Corruption Perceptions Index (CPI) reveals a high inverse correlation between poverty and corruption score. In other words, corruption indicators are worse in poorer countries. One of the effects of corruption is that the percentage of aid funds that actually reaches the needy tends to decline. Because of this, sending aid to poorer nations has limited effectiveness. However, corruption has no bearing on remittances sent through the right channels. For example, the largest share of remittances flowing out of the UK goes to Nigeria. This small African country receives $4.1 billion in annual remittances from the UK, surpassing even India. Nigerian ex-pats love Ria Money Transfer UK. This service enables them to calculate in advance exactly how much money their families will receive. Money transfer services such as RIA make family remittances reliable.

Remittances without banks

Many regions in Sub Saharan Africa and other parts of the world do not have access to formal banking. This is owed to remoteness and poor infrastructure. The absence of banking makes it difficult for people to receive money. However, this is no challenge for a service like Ria Money Transfer, which has 389,000 agent locations in more than 160 countries. Millions of remittance recipients worldwide collect money from RIA’s agent locations, even in regions where there are no banks for miles around.

In summary, remittances have a much broader and more meaningful impact on human lives than other sources of finance. However, the cost of sending remittances remains higher than the UNs strategic goal. Instead of sending aid to developing nations, UN member states should consider ways of making remittances cheaper.