- Remittance recognized as a valuable aid in reducing poverty.
- Currently some 7.4% of remittances are swallowed up by fees
Remittances play a significant role in reducing poverty around the world. However, challenges remain, and the cost of sending money back home currently swallows up some 7.4 percent of the money to be tansferred.
Crypto reducing fees
Technological advancement in the financial world such as Bitcoin and its altcoin descendants are creating multiple avenues to modernizing the way vital remittances are moved across borders. But then, it has endured setbacks due to strict banking regulations and their unwillingness to work in “risky” sectors. This in essence is curtailing many from sending money home.
According to the World Bank, money sent by migrants back to developing countries totals close to $440 billion annually which is approximately three times more than the official aid flow. Experts actually laud this and say that it could be worth far much more considering the amount of money that goes via unrecorded means.
This, however, is being undermined by high transaction fees coined on sending and receiving money, which has resulted in close to $32 billion in remittances that currently fails to reach recipients. Remittance delivered either formally or informally is continually being seen as a way of reducing poverty and acts as insurance for the poor in developing countries. It has been observed that remittances are the first form of aid to reach disaster prone countries.
Remittances are also being viewed as a way of encouraging financial inclusion in that it calls for people to have bank accounts and the tendency of linking consumer and small business loans to remittance.
Basically formal remittance gets into the country via official banking channels and money transfer companies like Western Union. Post office, Commercial banks, Credit unions, and niche transfer companies form a basis for formal money transfer methods. Informal remittance on the other hand refers to transfers that occurs via private, unrecorded channels for instance money brought home by friends and relatives.
However, even though technological advances and virtual currencies such as bitcoins offers solutions that are geared towards reducing remittance fees, the major challenges revolve around regulation and identification issues. Some of the challenges include threats posed by De-risking in the industry.
De-risking or De-banking refers to financial institutions exiting or terminating relationships with clients that are perceived to be “high risk”. Research has established that money transfer operators and other remittance companies are the worst hit by de-risking activities. De-risking is mostly employed to curb money laundering and terrorism.
Regulators and banks still hold conservative views
Socio-economic profiles of immigrants have gradually changed and are being paid more and as a result are demanding more services beyond simply sending cash home. These services range from transfer bank credits and manage money in more than one country. Banks have fallen back in keeping up with those demands because of regulations and technology challenges.