Why aren’t remittances given the credit they deserve?
Remittances are worth billions of dollars more than global international aid. Yet it’s the money given by rich countries and wealthy people that’s accepted as the default for how poorer countries and peoples are supported. Why aren’t remittances given the credit they deserve, and how can they be leveraged to the greatest effect?
remittances, aid, development
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Why aren’t remittances given the credit they deserve?

Remittances – which are given by migrant communities across the world to support family members in their home countries – are worth billions of dollars more than global international aid. Yet it is the money given by rich countries and wealthy people that is accepted as the default for how poorer countries and peoples are supported. Why aren’t remittances given the credit and air time they deserve, and how can they be leveraged to the greatest effect?

What are remittances?

In many migrant communities across the world, money is sent ‘back home’ to support family members, communities, and people in need. These money transfers are known as remittances.

I have personal experience of this growing up in a Bangladeshi community in London. For example, when my aunt in Bangladesh experienced the loss of her husband, she faced economic hardship and needed financial assistance to support her three children. London-based friends of my mum gave money to her to send to my aunt, and this is something that has continued for many years. The World Bank has described remittances as a “critical lifeline” for many families and countries. Bangladesh alone received remittances worth a staggering $18.2billion in 2019-20 – bringing huge economic benefits to the country as a whole, and to individuals in need.

This is a tale that’s replicated in so many migrant communities. Millions of Filipinos working overseas send large portions of their salaries home – their remittances were worth $33.5billion in 2018. Then you have the Latin American diaspora sending money to family members in their home countries. For Tonga, remittances represent 43.9% of the country’s gross domestic product (GDP). And this is just the tip of the iceberg.

Remittances have grown the world economy in recent years, and are worth more than combined global aid – a fact that’s not widely known. According to the World Bank, remittances to low- and middle-income countries were worth $589billion in 2021, surpassing the sum of overseas development assistance and foreign direct investment for the second year running. Remittances are projected to grow by 2.6% this year. A recent article from The Economist confirmed that remittances have successfully cushioned the impact of Covid-19 in poor countries. Their value cannot be overlooked – particularly because, unlike with many other charitable donations, the money goes directly into the hands of the people that need it.

Why isn’t more known about the significance of remittances?

Remittances aren’t covered in the Western popular media at all. They’re just not spoken about. I only know about them myself because I’ve grown up in a family and community where they’re part of the fabric of life.

What is given space and coverage in the press is humanitarian aid from the West – whether that’s the £52million donated during Comic Relief’s 2021 Red Nose Day, or the £27million raised during a decade of Save the Children’s annual Christmas Jumper Days. But these amounts represent just 0.3% of that $18.2billion figure given to Bangladesh by fellow Bangladeshis in a single year, none of which enters the consciousness of your average Joe. And that’s just one country’s remittances – imagine all the many more.

This is what happens when the people who control conversations have no personal experience of something like remittances – the subject just doesn’t get covered, because it’s not on their radar. It’s why I want to raise awareness in this area, and why it’s critically important to diversify the leadership of the charity and international aid sectors (I’ve spoken in more detail about this in a recent blog post).

What are some of the problems and barriers with remittances?

First of all, it’s costly to send remittances. They are most frequently done via money transfer services, as the recipients are often underserved in terms of banking (for example, my mum’s family members living in a village in Bangladesh do not have bank accounts). These services are expensive, and they aren’t always transparent. In the first quarter of 2021, the cost of sending $200 across international borders averaged at 6.4% of the sum transferred – more than double the Sustainable Development Goal target of 3% by 2030.

Another issue is that remittances are not given the same tax relief as formal charitable donations. If you give some money to Save the Children, for example, the charity can claim an extra 25p for every £1 you give via GiftAid. But remittances – which, like any other humanitarian charitable donation, is money that’s being given to help people in need – are not afforded the same benefit. Think of all the extra money this could represent if they were.

Given that the communities that carry out remittances are generally quite poor to begin with, these elements are a potential barrier to even greater monetary donations. When we think about the Grand Bargain – a unique agreement between some of the largest donors and humanitarian organisations who have committed to get more means into the hands of people in need – this is surely a key area that needs to be addressed. We should be leveraging the global remittance market, removing any obstacles like reducing the costs of money transfers, and making remittances tax-efficient to provide an additional incentive to give.

The future of remittances

It’s interesting to think about remittances in the context of the global environmental crisis. It’s anticipated that the climate emergency will lead to many more humanitarian crises – whether that’s rising sea levels, or changes in weather that lead to crop damage and subsequent famine. Traditional global aid funding isn’t likely to cover what’s needed in these circumstances, and delivering funds via traditional organisations can take time and logistical wizardry. The remittance system could be utilised to great effect in these cases, bypassing the bureaucratic obstacles that are often involved in traditional charitable donations, and delivering aid at a hyper local level – often to outlying populations and hard-to-reach villages.

When looked at in the context of the United Nations’ Sustainable Development Goals (SDGs), the funds given via remittances have a part to play in many of them – from funding educational studies and learning opportunities for immediate family members, to reducing poverty (World Bank studies suggest that remittances have lowered poverty in relevant households in Bangladesh by 6%; meanwhile, it’s been said that a 1% increase in remittances as a percentage of GDP leads to a 22% drop in poverty).

Something of key importance is that we need to get away from thinking about remittances as “poor people’s money” (or, in the words of Dilip Ratha, “small change”). Because when it’s viewed in these terms, the significance of how much it’s worth (both literally and figuratively) is overlooked. Remittances are growing the world’s economy. They’re buffering countries from the effects of Covid. They’re contributing to the SDGs. This money is already worth a huge amount. But there are ways to promote and leverage it even further – and that’s what we should be exploring.

Ummul is CEO and co-founder of Capoeira4Refugees, RealtimeAid, and tech start-up Frontline Aid. She is an advocate for race, equality, female leaders and localisation.

[Photo by Pepi Stojanovski on Unsplash.]

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