With money sent across international borders accounting for more than 10 per cent of GDP in almost 20 countries and nearly 20 per cent of GDP in five countries – amounting to a staggering total global dollar value – the emergence of low-cost mobile technology-facilitated methods of making such remittances is rapidly raising the prospect of even greater remittance flows.
How to leverage these massive money flows for economic development in poor countries was the topic of a special roundtable meeting held by UNCTAD on the occasion of its fiftieth anniversary in June.
“The role of remittances as a source of finance is particularly important in the least developed countries (LDCs) where over the last two decades remittances have been the second most important source of finance after official development assistance,” UNCTAD Secretary-General Mukhisa Kituyi said opening the event, which was called Cutting the Cost of Remittances: The Role of Mobile Money.
The LDCs category includes many nations in sub-Saharan Africa, and some landlocked countries and small islands, which are the world’s poorest.
Mobile technologies, including mobile phones and other devices, are increasingly accessible to many poor people in developing countries, including in rural areas. It provides them with options and tools to better access funds and promotes financial inclusion. Increasing this accessibility by cutting the cost of remittances securely is a priority for the global development community.
Many of the total 230 million international migrants in the world – a total that is expected to rise considerably in coming years – send billions of dollars to their home countries. However, the high cost of international remittances reduces the amounts transmitted and their development impact.
The G-20 group of developed and developing countries has committed to reduce the cost of sending money to 5 per cent of the sum sent in the near future. This compares with a cost of more than 12 per cent of sums sent to countries in sub-Saharan Africa in 2013.
Innovative mobile technology-based solutions offer an attractive option in this context. In most countries for which inflows of remittances account for a significant share of GDP, many people do not have bank accounts but use of mobile phones is widespread. The potential to leverage this technology to enhance financial inclusion remains far from fully exploited, and as yet only a small number of mobile money services are currently used for the transmission of remittances.
The UNCTAD meeting, which was chaired by Ambassador Abdul Hannan, Permanent Representative of Bangladesh to the Union Nations in Geneva, included interventions by Dr. Kituyi, Universal Postal Union Director-General Bishar A. Hussein, and senior representatives from the International Fund for Agricultural Development, the Bank for International Settlements and such private sector entities as Global Dalberg Development Associates, the GSM Association and Ericsson.
Several concrete ideas and recommendations emerged from discussions at the meeting and some interesting developments taking place in countries in Africa, Asia and Latin America were highlighted.
Many new business models are evolving to explore the link between financial services, postal services, mobile services and other information and communications technologies (ICTs) in novel ways. It remains to be seen which of these that will flourish in the future because the phenomenon of ICT-enabled international remittances is still in its early stage. Nevertheless there was strong agreement at the meeting that technology should play a key role in bringing down the cost of remittances.
Several policy recommendations were proposed.
First, the regulatory framework needs to target people without bank accounts for international transactions. Regulations should also encourage market confidence, partnership and innovation. This may involve eliminating barriers to entry and allow non-bank “standalone” remittance providers. For example, there may be a need to limit the scope or duration of exclusivity agreements, or require more transparent pricing disclosures.
Second, remittances are just one particular type of transaction. Payment solutions being developed for remittances by mobile networks should also be leveraged for other types of cashless payments both at national and cross-border levels.
Third, beyond the communication between the user and the provider of mobile money services, clearing and settlement mechanisms have to be safe, efficient and open. Central banks need to allow a sound functioning of new schemes, their interoperability and their seamless integration with existing payment systems.
Fourth, the private sector should continue to innovate and to strengthen its services while ensuring that risks are appropriately managed. Marketing strategies that incentivize customer usage are needed.