“IFAD” STARTS A GLOBAL INITIATIVE TO REDUCE THE COST OF REMITTANCES SERVICES

Sarid, March 24, 2007

Remittances are transfers of money by foreign workers and expatriates to their home countries; to their parents, reltives, friends. While the amounts are often small, remittances put money into the hands of millions of poor people and help fight rural poverty in developing counties.

The World Bank estimates that migrants from developing countries who work in developed countries send home more than $250 billion each year. Thus, remittances are the largest source of external capital in many countries, beating any financial aid and cash influx from foreign investment.

Competition and improved technology have greatly enhanced access to remittance services and significantly reduced the fees for it. But while competition has driven down the cost of remittances services between major cities, it remains more expensive to send money to rural areas, which often lack formal financial services. For instance, the World Bank argues that for most people in Nepal access to financial services remains limited and has declined in recent years. In other areas, the hefty fees are preventing even more money being sent back.

The International Fund for Agricultural Development (IFAD), in cooperation with the European Commission, Luxembourg, the UN Capital Development Fund, the Consultative Group to Assist the Poor and the Inter-American Development Bank, has launched a global initiative to try to reduce the cost of remittances services, where workers living in foreign countries send money back to their families, to rural households.

“Remittances are a vital lifeline for rural families around the world,” says Pedro de Vasconcelos, the coordinator of IFAD’s new funding scheme. “These transfers go directly to improve the living standards of millions and millions of poor households.”

IFAD notes that the new financing facility will give funding priority to those projects or proposals which link remittances with the provision of other financial services, such as savings, insurance and loans. It will assist financial institutions that either want to provide remittances services directly or as agents of banks or money transfer companies.