How remittance services contribute to developing countries

Money transfer services, such as SafariRemit, can have substantial impacts on the communities in which we operate. In this blog post, we will investigate these benefits to the communities, as well as the larger benefits of remittance in the economies of developing countries.

Income and remittance

The impacts of remittances to households in developing countries depends on their income level. Poorer households may require remittances to reduce poverty and will therefore use any received funds for essentials such as food or healthcare expenses. Other low-income households, who may have irregular income, may utilise remittances to cover unexpected expenses. For example, if a member of the family became unexpectedly ill. This will reduce the vulnerability of the household, as they will continue to be able to afford essentials such as food. Finally, a more resilient household in a developing economy may utilise remittances to invest in their local community. Such as by purchasing livestock, education, and higher quality healthcare. They may also invest in developing small businesses, to the benefit of local communities.

Protection from instability

Remittance services can play a crucial role to stabilise the finances of households during instability, such as during natural disasters or political instability. This is compounded by the fact that foreign investment is likely to be reduced in these periods, as they may be deemed too risky. As a result, migrants may be able to increase their contributions during these periods and act as protection for families from poverty.

Direct investments

Wealthier migrants can also use remittance to directly benefit the communities of developing countries. These individuals can send larger sums to benefit the whole community in addition to the household of their family. For example, contributing to building new schools. This would increase levels of education in the region, in addition to employing local people to build and teach in the school.

Financial inclusion

Financial inclusion is still a crucial issue in developing countries, especially in more rural areas. Those who are excluded may instead use unregulated financial services, which exposes them to more risk and result in getting bad deals from providers. Remittance may be one of their primary ways of linking with the financial system of the country. As a result of greater wealth from remittance, they will have access to better deals from regulated entities, therefore giving them access to the wide-ranging benefits of financial services.

Remittance and GDP

Many economies around the world are highly reliant on remittance as a major contributor to their GDP. In fact, according to the WorldBank, 25 countries receive 10% of more of their GDP, with remittance accounting for as much as 50% of Somalia’s GDP. This shows the crucial role that remittance can have in these economies to reallocate wealth in developed countries to developing economies. The contribution also highlights the importance of using low-cost transfer services, such as SafariRemit. Bill Gates has highlighted this in the G20 2011 summit, in which he said, “If the transaction costs on remittances worldwide were cut from where they are today at around 10% to an average of 5%…it would unlock $15bn a year in poor countries”. At SafariRemit, we are always looking for new ways to reduce our costs and pass these savings onto our customers, to maximise our positive impact on the communities in which we serve.

As remittance goes directly to households within a country, there is also less risk of waste or corruption. Unlike with other direct help, such as overseas aid, which has great potential for corruption and waste, as there are often many intermediaries. This has been demonstrated as a 1% rise in remittances has been shown to drive a 22% reduction in poverty in Asian countries, measured from 1981 to 2014. This is likely as a result of cash changing hands regularly in these communities and encourages further positive economic growth in the future.

The future of remittance

The largest decline of remittances in recent history has been predicted by the World Bank due to the COVID-19 pandemic and subsequent shutdowns of large parts of the world’s economies. This is due to the fall of wages of migrant workers, who are often more vulnerable to loss of employment in host countries. However, this is expected to recover, with a 5.6% increase predicted in 2021, and likely sustained growth beyond that. This further highlights the importance of low-cost transfers, to ensure that migrants can send money back home, especially in times when they may have fewer resources to pay for high transfer fees. This is why we created SafariRemit, to be the gold standard in money transfer services, with fast, low-cost, and hassle-free money transfers worldwide. Watch our how it works video to learn more about our service.