Trickles of gold

Covid-19 has squeezed migrants’ remittances to their families

A new report highlights the potential gains from digitisation

FIVE YEARS ago the UN proclaimed June 16th the International Day of Family Remittances. Since then money sent home by migrant workers has only become more important. In 2019 remittances amounted to $554bn, beating all other forms of cross-border financial flows to poor countries (see chart). Some 200m expatriate workers worldwide help four times as many relatives meet basic needs, set up businesses or pay school fees. These flows, on average, make up 60% of recipients’ family income; in the eight largest receiving countries, they are the sole source of cash for about a fifth of households.

This year, on June 16th, a task-force led by the UN, World Bank and other multilateral bodies released a report assessing the impact of covid-19 on remittances. The pandemic has taken a heavy toll on the flow of money. The World Bank estimates that total remittances to developing countries could drop by a record 20% this year, to $445bn. In El Salvador and Nepal, where remittances typically amount to more than a fifth of GDP, flows fell by 40% and 51% in April, compared with the same month last year. At the same time—a small consolation of potentially great long-term importance—the pandemic has shown the potential benefits, to both workers and their families, of the digitisation of payments.

Remittances tend to be resilient to natural disasters and financial meltdowns, dropping by less and bouncing back faster than other flows. Unlike flighty foreign investors, migrant workers are immune to herd behaviour, says Dilip Ratha of the World Bank. They would rather share rent or skip meals than not send money; and when they hear of trouble back home, they stump up even more. Usually sent in hard currency, remittances are also worth more when economic difficulties at home send currencies tumbling.

This time is different. The pandemic has hit both senders and recipients. Most immediately, it has made the commonest way of sending and receiving money more difficult. Before the coronavirus struck, 80-85% of transactions still involved cash. With lockdowns in place, visiting banks and post offices to deposit or collect banknotes became trickier and riskier. Many “mobile-money” agents, small traders who serve many times more people than bank branches, struggled to stay open because governments did not deem their services “essential”, says Pedro de Vasconcelos of the International Fund for Agricultural Development, a UN agency.

For a lot of migrants, work has dried up. Many are employed in construction, tourism and transport, where activity has stalled, and have been laid off. Workers in the Gulf, a major destination for migrant labour, have been hit by the slump in the oil industry; and the terms of their visas often prevent them from finding a new job. The troubles of Finablr, the region’s once-dominant payments firm, which has warned of possible insolvency, have made things worse. Few migrants (except in some European countries) are eligible for government benefits.

The dip in remittances seems likely to last. Migrants in France confess to tapping into savings in order to send money home. As state support for the economies of rich countries is rolled back, more jobs may go. Stingier support in emerging economies means that migrants will see even more of a squeeze on earnings. Travel bans have disrupted unofficial transfers—chiefly, people going home with bags of cash—that are not picked up in the World Bank’s data. Some families may still receive their usual packet. But many may get nothing at all.

As the report notes, though, the pandemic may also have positive effects in the longer term. The crisis has pushed many senders towards digital providers, which could mean cheaper cash transfers. At Azimo, based in London, the tally of new customers doubled in May, compared with a year earlier; at Remitly, in Seattle, it tripled. Khalid Fellahi, head of consumer transfers at Western Union, the world’s largest money-transfer firm, says the proportion of transactions that its customers send from digital accounts has jumped from 20% to 30%. In March and April, according to analysis for The Economist by FXC Intelligence, a data firm, some payments firms raised prices to make up for lost volume, while others cut them to increase market share. But prices have since converged, and fallen. Further reduction in cash use would yield yet more efficiency gains, making transfers cheaper, faster and more secure.

There are still barriers to digitisation. At the sending end, the least skilled migrants, especially when illegal and based outside Europe, often lack bank accounts. Recipients also generally need access to a bank. But the digital firms are trying to work around these obstacles, too. In February, for instance, Remitly launched a new bank in America aimed at immigrants, which lets them use a wider range of picture IDs to sign up than other banks do. Such innovation could prove a long-term boon for migrant workers and their families.