When Abdalla Sabdow made his way through Mogadishu to check on the US$200 that his cousin Yusuf Ahmed sends him every month from the United States, the money was not there. Ahmed, who is a taxi driver, had been unable to work in the previous weeks because of the lockdown imposed to prevent the spread of COVID-19. Without the money, as Sabdow relayed to the AP, he would not be able to pay his rent.
Sabdow’s cash-crunch is shared by millions of families across the globe, especially in regions whose lifeblood relies on the flow of remittances across borders. The World Bank projects a 20 percent decline in remittances in 2020. This drop, which amounts to roughly US$110 billion less in cash flows, could deny 800 million people access to basic needs such as housing, education, food, and healthcare.
Countries dependent on remittances are especially vulnerable to the socioeconomic impacts of COVID-19. Remittances account for over 10 percent of the gross domestic product (GDP) in 30 countries, according to the UN Secretary-General’s Policy Brief COVID-19 and People on the Move. Without this money, investments and consumption drop, while poverty and inequality become more deeply entrenched.
In order to prevent further damage, we must do everything to keep remittances flowing in times of COVID-19 and beyond. Here are five ideas on HOW:
1) Deem remittances as an essential financial service: A call to action Remittances in Crisis – How to Keep them Flowing, spearheaded by the governments of Switzerland and the United Kingdom supported by UNDP, the UN Capital Development Fund (UNCDF), and other organizations, is based on this straightforward idea. We call on policymakers, regulators, and service providers to deem money transfer agents as an essential finance service, so that they can continue operations amidst the pandemic, allowing migrants to continue sending funds. Given the health risks, hygiene and social distancing measures must be in place at agent outlets to ensure that safety is not compromised in this time of crisis.
2) Foster a conducive remittance policy and regulatory environment: Remittance services should be supported by a sound, predictable, and non-discriminatory legal and regulatory framework that will lower remittance costs, improve formal channels of cross-border transactions, mitigate the decline in remittances, and expand the use of digital solutions. An effective regulatory framework should balance innovation and risk during the transition. As providers struggle to maintain operations and sustain business costs, governments could provide concessional lines of credit, and consider temporary tax breaks or waivers on their operating expenses and fees. Governments could become more vocal in advocating the digitization of wage payments, which would avoid precarious in-person transactions and result in time and cost savings.
3) Invest in digital solutions: To encourage the use of digital remittance channels, a number of critical access issues must be addressed first - the most critical of which is the issue of ‘know-your-customer’. Today, in order to open a digital account such as a mobile wallet, regulations in many countries require physical IDs and customer signatures. In times of social distancing, these present health and safety risks. Allowing electronic signatures for low-value transaction accounts, would not only reduce compliance costs but would enable migrants to use the service more easily.
A digital business model, already making a great difference now. Through a partnership between UNDP, UNCDF, and Vodafone in Fiji, users of the M-PAiSA platform can send and receive remittances at no cost for two months. This system has been introduced to Fijians in the aftermath of the Severe Tropical Cyclone Harold. While pre-COVID remittances averaged around 6,500 transactions per month with a value of a bit over US$900,000, with the fee-free initiative, transaction volumes in April 2020 topped around 12,500, with a value of over US$1.8 million. In May, this has increased to more than 22,000 transactions worth more than US$3.1 million. If this trend continues, it is expected that by the end of June, incoming remittances to Fiji though M-PAiSA will exceed 25,000 transactions in volume and close to US$3.7 million.
4) Enable access to formal remittances channels: Remittances pose a lifeline for many countries, particularly in Africa. In Lesotho and Gambia, for example, they account for 17.5 percent and 15 percent of their respective GDPs. UNDP’s Finance Sector Hub in Africa is partnering with a regional FinTech hub to introduce digital solutions that can support migrants and their families to access formal remittances channels at low transaction costs. We are engaging commercial banks to include remittances as a documented and reliable income flow to enhance creditworthiness of small businesses establishing crowdfunding platforms. UNCDF recently launched a call for applications on inclusive digital solutions to support migrants and remittances. UNDP and UNCDF are supporting innovative digital remittance products that also pave the way for migrants and their families to get savings and insurance, which are critical to build their resilience.
5) Strengthen the digital capacity of users: Ensuring senders and receivers access to digital channels is critical to keep remittances flowing during lockdowns and limited mobility. Those with limited digital access are often the ones who rely on remittances the most. These people often depend on informal remittances, carried back by migrants when they travel. To counter this, UNDP and UNCDF are investing in building digital and financial literacy skills of migrants and their families in both sending and receiving countries.
Reimagining Human Mobility
Migrants represent 3.5 percent of the world's population but contribute an equivalent of nearly 10 percent of gross domestic product. Integrating migrants in destination countries in a safe, orderly and regular manner could add between US$800 billion to US$1 trillion to the global economy every year. As the pandemic reshapes the future of mobility and migration, it is imperative that we mobilize the international community along with the public and private sectors to “reimagine human mobility,” as suggested by the UN Secretary-General António Guterres. Together we can create systems that will not only keep remittances flowing during this pandemic, but also build the resilience of countries and communities to future crises. The opportunity must not be missed.