Transaction costs cut into $500 billion global remittances transfers
July 3—Workers remittances from abroad remain a vital source of foreign exchange for many developing countries, but the frequently high cost in transferring this money home is a source of continued concern.
During 2018, the total figure reached $529 billion, but projected to hit $550 billion by the end of 2019. Ugandans sent back $1.2 billion in 2018.
If China is excluded from the analysis, remittances have already overtaken FDI as the biggest source of external financing for these countries.
But according to a new report published by the World Bank Group and KNOMAD, the benefits of remittances are being reduced by the generally high cost of sending the money, which averages 7 percent on a money transfer of $200.
“Remittances are on track to become the most important game in town when it comes to financing development,” said Dilip Ratha, lead economist in Macro Economics and Fiscal Management at the Bank and the head of KNOMAD. KNOMAD is an acronym for the Global Knowledge Partnership on Migration and Development.
In Migration and Remittances Brief 31, it is also shown that commercial banks were the costliest channel for transferring remittances, at 10.9%. In Sub-Saharan Africa the cost of sending money is higher than the average at 9.3%.
For the five most expensive remittances-sending corridors, the average cost is dramatically higher — 18.7%. That’s almost three times higher than the global average and six times higher than the SDG target.
The SDGs call for reducing the cost of sending remittances to 3% of the value of the money transfer.
However, proponents of digital currency or cryptocurrency say this format could expand access to credit and eliminate many fees. New research estimates that international digital remittances will exceed $300 billion by 2021 $300 billion about 44 pc of total formal international remittances.