30/ 06/ 21
The importance of remittances in developing economies
The majority of us know how the remittance industry functions but are not familiar with its impact and benefits to our daily lives or as an economy. Remittance refers to private money transfers sent by foreign workers to their loved ones in their home countries. Over the years, the remittance industry has gone through a rapid evolution thus giving the sector a huge growth potential within the Kenyan economy. It is important to note that remittance flows through formal channels are a huge contribution to financial inclusion and financial development in developing countries.
According to the World Bank, global remittances were estimated to reach US$ 715 billion by the end of 2019. It is estimated that 272 million people have moved to work outside their home country and over 800 million people are solely dependent on the remittance income sent back home by their loved ones. This hence means that these remittances directly affect incomes and livelihoods of households at a micro-level.
The CBK conducts a survey on remittance inflows every month through formal channels that include commercial banks and other authorized international remittances service providers in Kenya such as UPESI. It is evident that from January to July 2020, Kenya has received a total of USD1.7 billion in remittance with every month recording over $200 million.
The industry’s rapid change over time could be attributed to the acceptance of digitized money transfers worldwide with remittances to Africa steadily increasing over the last decade. Other attributes also include cross-border transactions and mobile-based payment channels, lowered costs, and faster transfer time. The industry has undoubtedly shown its importance to the growth of developing economies with its market size estimated to grow by $930.44 billion globally from 2019 to 2026 at a compounded annual growth (CAGR) of 3.9%.
What does this mean for individuals and households who receive these remittances? From a micro-level standpoint, remittances provide a lot of support to those who receive them. These include factors such as an increase in individual well-being, human capital accumulation through better access to healthcare and higher educational attainment, savings, investments, and even financial literacy.
Looking at the 2019 IMF Working Paper on the Impact of Remittances on Economic Activities, several studies found that there is a positive relationship between remittances and economic growth.
Upesi Money Transfer aims to be a catalyst for change by impacting the lives of millions in providing financial inclusivity through efficient, fast, and reliable money transfer services.