Remittances help microfinance survive: IFAD

Microfinance Focus, Oct. 26, 2009: African workers send home more than $40 billion to the region each year but restrictive laws and costly fees hamper the power of remittances to lift people out of poverty, according to a new report by the UN’s rural development agency, the International Fund for Agricultural Development (IFAD), stated a press release.
Remittances are sources of income for poor families, particularly in Africa and the Latin American and Caribbean regions. With the majority of poor not having access to banking facilities the potential of microsavings facilities for increasing financial stability by enabling them to plan and save for their future. Microfinance institutions (MFIs) in some countries are offering these services, but legislation in many countries does not permit MFIs to collect savings. Collecting savings can also benefit MFIs by expanding their capital base and reducing their dependence on external sources for funding.
“Sending Money Home to Africa” report was presented at the Global Forum on Remittances 2009, organized by IFAD and the African Development Bank (AfDB) in Tunis, Tunisia, on Oct. 22-23.
Globally remittances top $300 billion per year, outstripping foreign direct investment and development assistance combined. But while transfer costs have declined significantly in Latin America and in Asia, sending money home to Africa is still expensive as it costs as much as 25% of the money sent.
Access is also limited, with the number of locations where remittances can be collected for the entire African continent are the same as Mexico, which has only a tenth of Africa’s population. Furthermore, Between 30 and 40 per cent of all remittances to Africa are sent to rural areas, often requiring recipients to travel long distances.
The report finds that simply by expanding the institutions for remittance services to include microfinance institutions and post offices, the number of payment points would more than double.
The IFAD report highlights how new technologies, such as cellphones, and existing infrastructure like post offices or small retail outlets could increase the reach of remittance services. Algeria, where 95% of remittances are paid through post offices, could be a model for other African countries.
“Supporting this people-to-people money flow to rural areas of Africa is especially vital now because of the recession” noted IFAD Assistant President, Kevin Cleaver. “The power of remittances can be catalysed by easing restrictions and making it less costly for African families to collect this money.”
Most money sent home by migrants is spent on daily consumption but research shows linking remittances to financial services for the unbanked – savings accounts, loans and insurance – allows even the very poor to save and potentially invest in the development of their community.
The Global Forum on Remittances 2009 is hosted by IFAD in partnership with the Africa Development Bank (AfDB) and in collaboration with the Inter-American Dialogue. The 2009 Forum has tried to asses trends in remittances to Africa, amid the financial crisis, and identify policy solutions.
The International Fund for Agricultural Development (IFAD) is an international financial institution and a specialized UN agency based in Rome – the UN’s food and agricultural hub. It is a partnership of 165 members from the Organization of the Petroleum Exporting Countries (OPEC), other developing countries and the Organisation for Economic Co-operation and Development (OECD). Since 1978, IFAD has invested $11 billion in grants and low-interest loans to developing countries, empowering some 340 million people to break out of poverty.