The Power of Remittances: How Migrants' Money Transfers are Changing Lives

Every year, millions of migrants like Carlos Hernández Mejía send billions of dollars back to their families and communities, making a significant impact on their lives. These remittances have quietly become a major force in helping families pay for essential needs like school fees, home repairs, and medical bills.

The Scale of Remittances

The World Bank estimates that migrants send around $781 billion back to their families and communities each year, which is more than three times the amount of global foreign aid. These transfers reach around 800 million people globally, which is more than the combined populations of the United States and the European Union.

From Rich Countries to Poorer Ones

Most of the money sent back by migrants flows from high-income countries to poorer ones. In 2021, high-income countries sent $680 billion but only received $195 billion. Middle-income countries are the main beneficiaries, with upper-middle-income countries sending 7% but receiving 30%, and lower-middle-income countries sending only 4% but receiving 44%.

The Impact on Recipient Countries

Remittances have a significant impact on recipient countries, accounting for a large share of their GDP. In over thirty countries, remittances account for more than 10% of the value of their entire economies. In Central American countries like Nicaragua, El Salvador, and Honduras, remittances account for up to 20% to 30% of GDP.

Improving Living Conditions

The money sent back by migrants improves living conditions in several ways:

Reduces child malnutrition and helps children grow healthier and stronger
Covers healthcare costs, including doctor visits, medicine, and treatments
Helps families afford basic needs like food, shelter, and education

The Problem of Transaction Costs

However, a significant share of the money sent back by migrants is lost to banks and money-transfer companies in the form of transaction costs. These costs reduce the amount of money received by families and also discourage migrants from sending more money. The median fee for sending money has dropped from 8% in 2011 to 6% in 2020, but it still exceeds the UN's target of 3%.

Solutions to Reduce Transaction Costs

Governments can make it cheaper for migrants to send money back by:

Requiring money transfer companies to clearly show all fees and exchange rates
Creating shared payment networks that connect banking systems across countries
Launching official remittance cost comparison websites

By reducing transaction costs, governments can help migrants send more money back to their families and communities, making a significant difference in their lives.