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For many of us, the ease of accessing digital financial services, such as contactless payments and electronic transactions, is often taken for granted. However, across many parts of the world, millions of people do not have access to digital bank accounts or credit and debit cards and rely instead on cash for daily transactions and savings.

by José Cabral, Managing Director, Ria Money Transfer

Jose Cabral, Ria Money Transfer
José Cabral, Managing Director, Ria Money Transfer

In the age of globalisation and interconnectedness, more people than ever before are migrating to different countries in search of better opportunities. Many of the more than 280 million migrants around the world send money to loved ones back home. These cross-border transactions, called remittances, accounted for over $600 billion in income globally in 2021 and serve as a lifeline for many. Families receiving remittances invest them in education, healthcare, and food security.

The UK as a major remittance hotspot

Some countries around the world are hotspots for both immigration and remittances, as the two often go hand-in-hand. In the UK, over 14% of the country’s population in 2021 was foreign-born, totalling over 9.6 million people and a large portion of the job force. The majority hail either from other countries in Europe or from Asian countries such as India and Pakistan. With a significant migrant population comes a significant international cash flow; the UK is the source of billions of dollars in remittances sent annually, which make a sizeable impact on many recipient countries’ GDPs.

India is the country of origin for the largest portion of migrants in the UK, representing 9% of the country’s foreign-born population. It is also a leading recipient of remittances worldwide, and nearly 15% of UK remittances go to India. In 2020, India received over $3.9 billion in remittances from the UK alone, totalling almost 7% of all remittances sent to India in that year — only the US and the UAE had higher figures.

Nigeria receives the greatest total volume of remittances from the UK. An estimated $4.1 billion in remittances was sent from the UK to Nigeria in 2021, totalling 24% of all remittances sent to Nigeria that year. Other significant remittance flows from the UK include Pakistan, where almost 5% of the UK’s foreign-born population comes from and which received over $1.68 billion in remittances from the UK in 2020, and Poland, a country of origin to 7% of migrants in the UK and recipient of $1.14 billion in 2020.

The impact this has on economies

Remittance flows to the developing world have a powerful role in shaping local economies. Both Nigeria and India are global powerhouses with enormous economies, of which 4% and 3% respectively are derived from remittances. In Pakistan, remittances represent 8.7% of GDP, and over 6% of those remittances come from the UK. Cross-border money transfers to these regions are vital to the families who use this money to pay for food, medicine, and education, as well as to fund small businesses and make investments.

The ease with which migrants in sender countries like the UK can access remittance services has a direct impact on economic development in the regions that receive them. But those sending remittances to loved ones back home do face significant barriers, among them the cost of international money transfers. Globally, about 6% of the money sent by migrants is absorbed in transaction fees, with costs differing significantly between companies and destinations. The World Bank estimates that a 5% reduction in the cost of sending remittances would increase the amount available for migrants to send to their families by up to $16 billion per year.

Financial inclusion/social angle

One way to reduce costs and make transactions more accessible is to implement mobile solutions to send and receive money digitally. By making it easier for people to receive money wherever they are, remittances have an even greater potential to impact both national economies and individuals’ financial standing, creating greater financial inclusion. This can be especially true for previously unbanked individuals, who have their first connection to digital banking services through remittances. It can also help those who previously lived paycheque to paycheque or with irregular sources of income finally begin to put money aside.

The role remittances play in developing local economies through increased cash flows goes hand-in-hand with the social benefit they provide to the families and communities that receive them. The billions of dollars sent annually to developing countries can allow recipients to improve their standard of living through education, healthcare, food security, and savings. By giving people simplified access to finance by digital means, people across the world can achieve greater financial independence.

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