- Migrants, like Mina Hamid, send remittances to support families
- Remittances surged due to COVID-19 and fintech advances
- Conflicts, disasters challenge remittance flows; informal networks persist
Mina Hamid*, from Kabul, Afghanistan, who relocated to the Netherlands at 11, says she will never forget the first time she sent money to aid her family members back home.
“I was in my late teens, and Afghanistan was reeling from natural catastrophes and conflicts, making it difficult for my extended family to acquire basic essentials. So I began giving between 20 and 30 euros [$21 to $32] on occasion, money earned from my student job, in order to help them.”
The 36-year-old, who now lives and works for the European Union in Brussels, sends money to her extended family in Afghanistan every three months.
“The family’s male works as a security guard, and his wife is a teacher, but working circumstances are complex, and the pay is low. Each month, they make from 200 to 300 euros [$217 to $325]. So the money I provide covers their flat rent in Kabul, which is around 150 euros [$163], and allows them to spend their earnings on food, clothing, and other necessities for their two children, Hamid explained.
Millions of migrants worldwide, including Hamid, send money or in-kind transfers known as remittances to family members or communities in their home countries.
According to the World Bank, remittances have increased significantly over the previous two decades, from approximately $128 billion in 2000 to $831 billion in 2022.
The World Bank said in June that remittances to poor and middle-income nations alone reached an estimated $656 billion last year, surpassing foreign direct investment and development aid from other countries.
The World Bank predicts remittances to low and middle-income countries will increase 2.3% in 2024.
Where is money being sent from and to?
Many remittances to low and middle-income countries come from the United States, Western European countries, and Gulf Cooperation Council member countries such as Saudi Arabia, Qatar, and the United Arab Emirates.
According to the World Bank, the United States will remain the leading source of remittances in 2023. The bank said that solid labor markets in the United States have made it a popular destination for migrants, resulting in increased remittances from the country. The Gulf is likewise a significant migration hub, but in 2023, the World Bank reported that lower oil prices influenced external remittances.
Remittance outflows to East Asia and the Pacific, excluding China, increased to $85 billion last year. China alone received $50 billion, and remittances to South Asia increased by 5.2 percent to $186 billion. India was the largest beneficiary of remittances, at $125 billion. Strong employment markets in the United States are one of the primary factors for the increase in outflows.
Remittances to the Middle East and North Africa declined to $55 billion, while Sub-Saharan Africa and Latin America suffered reductions, getting $54 billion and $156 billion, respectively. Remittances to Europe and Central Asia declined by 10.3 percent, reaching $71 billion. The World Bank reports that lower oil prices in the Gulf and hostilities in these regions have impacted remittances.
Why has there been an increase in remittances?
Killian Clifford, who focuses on migrant financial and economic empowerment at the International Organisation for Migration (IOM), stated that while remittances have generally increased over the last 20 years, a recent surge is the result of the COVID-19 pandemic and the development of fintech (financial technology) platforms, which enable faster and cheaper money transfers.
During the COVID outbreak, we saw that because borders were closed, informal money transfers would not work because people could not travel or pay in person. So there was an increase in formal remittance figures – payments made through regular banks or money transfer agencies – which can be easily accounted for.”
He said fintech and other digital payment platforms have effectively entered the remittance business, lowering the average cost of remittances by 30% over the last decade while significantly increasing the number of money transfers made.
Clifford stated that governments and financial regulatory organizations worldwide have been establishing an environment to facilitate remittance flows, such as permitting people who had previously been excluded from the financial system to open bank payment accounts, making it easier to transfer money.
What do remittances signify for migrants?
Manasse Massuama, whose family came to Belgium from the Democratic Republic of the Congo (DRC) in 1990, sees remittances as “a bridge that binds diaspora communities with the people living in their homelands.
“It’s a way of working together, helping, and changing situations for friends and family,” said Massuama, a financial expert who has been sending money to his parents in the Democratic Republic of the Congo for the past eight years.
He explained that because of the assistance, his family could purchase land and become financially secure in the Democratic Republic of the Congo, which has been plagued by conflict and poverty for decades.
Maria del Socorro Tejeda, who emigrated to the United States from Mexico with her three children in 2002, is pleased that she has supported her family members back home.
I moved to this nation when I was 52 years old, and I’d been sending money to my mother every month since 2003. When she died, I began sending money to my brother and sister.”
She noted that, although recently retired, she contributes a small monthly sum to help her family pay medical costs and other requirements.
According to Bram Frouws, chairman of the Geneva-based Mixed Migration Centre, sending remittances can benefit migrants, but it is not always easy.
Some must work incredibly hard, often at numerous jobs, to save enough money to send remittances to their families despite sometimes living in expensive countries and earning poor incomes.
How are remittances transmitted?
Migrants send remittances using cash, cheques, money orders, credit and debit cards, or money transfer services accessible via phones or the Internet. Traditional banks, banking services like Western Union or MoneyGram, and fintech applications like PayPal and Remitly are all common money transfer channels.
The United Nations’ Sustainable Development Goals urge governments to reduce remittance transaction costs to less than 3% of the amount sent. According to the World Bank, remittance expenses remained high as of the fourth quarter of 2023, with an average of 6.4 percent for sending $200.
Meanwhile, the World Bank reported that digital technological methods cost 5 percent less than non-digital methods due to technological differences, compared to 7 percent for the latter.
I use Western Union to send money to my relatives in Mexico and pay a modest fee each time. It is a rapid process, and my family receives the money within 24 hours. They can also get cash at a Bancoppel bank, which works with Western Union.
Hamid initially sent money to Afghanistan through informal money transfer networks known as “hawala.” The hawala system is an ancient money transfer technique that relies on trust. Large sums of money are exchanged by hand, and no record of the transfer is kept.
In recent years, she has also used money transfer services such as Western Union or Moneygram because the process is simple and allows her to send money to her relatives using her smartphone.
However, Massuama advocated for more efficient banking systems to make money transactions more straightforward and accessible.
“Online solutions like Remitly and World Remit, which allow you to transmit money with a single tap on your smartphone, are more efficient options. But not everyone owns a smartphone, so we need a more efficient banking system.”
How do remittances function in conflict zones or during natural disasters?
After the Taliban retook control of Afghanistan in 2021, the country was cut off from global banking institutions due to international sanctions. Western Union and Moneygram also briefly suspended services. According to the IOM, in 2021, remittances were sent through informal routes such as the hawala system.
According to Frouws, sending and receiving remittances during conflicts or natural disasters is generally tricky. Still, people usually find a way, even through informal ways not included in official remittance statistics.
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According to the IOM, even before the Taliban took over, the hawala system dominated Afghanistan, accounting for an estimated 90% of financial transactions and functioning with over 900 providers across the nation.
While the legality of Afghanistan’s hawala system is questionable, people continue to use it to send money.
Meanwhile, in war-torn Ukraine, mobile money transfer apps such as PayPal have proven extremely useful, according to Dorin Banar, a software tester who works in Belgium and sends money to his mother and some front-line volunteers.
“In PayPal, we have a feature called Xoom that allows you to send money to both other PayPal accounts and bank accounts. This makes it easier for my mother to access the money from her bank account, as she is unfamiliar with such mobile applications,” Banar explained. He also stated that PayPal had eliminated transaction fees to help Ukrainians since Russia’s war began in 2022.
According to the IOM’s Clifford, countries that rely heavily on remittances for a considerable portion of their GDP, such as Lebanon (54%), Tonga (44%), and Tajikistan (34%), are vulnerable to crises during conflicts or natural disasters.
Some Pacific island countries, such as Tonga [or] Central Asian countries, have incredibly high remittance reliance rates, which account for a significant amount of their GDP. So, if a shock occurs, such as a natural disaster, and remittance flows dry up, these countries may struggle to cope, he said.
