Over the past two decades, the volume of remittances sent globally has increased fivefold. Despite this remarkable growth, there remains a pressing need to reduce transaction costs and improve access to financial services for the 1.4 billion adults worldwide who remain unbanked. This issue is underscored by the International Day of Family Remittances (IDFR), an initiative established by the UN’s International Fund for Agricultural Development (IFAD) in 2015.
Economic Impact of Remittances
The IDFR highlights the significant economic impact of remittances on receiving households, communities, and nations. By 2030, migrants are projected to send over US$5 trillion to low- and middle-income countries (LMICs). Much of this money will be directed to rural areas, where 80% of the world’s poor live, often facing food shortages and the impacts of climate change.
Alvaro Lario, President of IFAD, emphasized the importance of these remittances, noting that they serve as a lifeline for hundreds of millions of people, half of whom reside in rural areas. However, Lario also pointed out the ongoing challenge: despite the large sums being sent, over 1.4 billion adults remain unbanked. Many find the costs of sending remittances prohibitively high due to steep transfer fees.
Gender and Financial Inclusion
The majority of unbanked adults worldwide are women, highlighting significant gender, income, age, education, and workforce gaps in every region. Although remittance costs have decreased from 9.7% of the sent amount in 2009 to 6.2% today, they are still above the 3% target set by the UN’s Sustainable Development Goals (SDGs).
Digitalization and Its Impact
The digitalization of remittance services over the last decade has significantly improved access for millions of the world’s poorest rural people. However, in some countries, such as Kenya, the costs remain prohibitive. Despite reaching a record US$4.2 billion in remittances in 2023, which accounts for 3.9% of Kenya’s GDP, the region still faces higher charges for sending money compared to other parts of the world.
Celebrating Contributions and Addressing Issues
The IDFR celebrates the contributions of migrants and the efforts of financial service providers, governments, and international organizations. Public-private partnerships have been pivotal in driving the digital transformation of remittance services. This year’s events leading up to IDFR, including one in Nairobi, Kenya, have focused on these themes.
IFAD’s Commitment
The IDFR, universally recognized and adopted by IFAD’s Governing Council on 16 February 2015, is a key initiative in implementing the Global Compact for Safe, Orderly, and Regular Migration (Objective 20). This initiative calls for reducing remittance transfer costs and enhancing financial inclusion through remittances.
The continued focus on lowering transaction costs and improving financial access is essential for maximizing the benefits of remittances. By addressing these challenges, the international community can help ensure that remittances truly serve as a growing lifeline for the unbanked.
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