15 Dec 2023
Households and the economy as a whole gain from remittances – global money transfers, in many different ways. According to available data, women are the main recipients of remittances in developing nations, which suggests that closing this gender gap in economic outcomes may be possible. Let's investigate the effect of remittances on the gender gap in financial inclusion in developing nations. Multiple sources were used to create the study's dataset. East Asia and the Pacific received the largest remittances, with Sub-Saharan Africa receiving the least amount.
Remittance inflows to various regions and globally have generally shown an upward trend, except for 2016, when they fell just short of the inflows from the previous year. This is according to the reported data, which includes the 2020 recession year. Remittances were predicted to flow at a $773 billion global rate in 2021. According to projections, this number will continue to increase in 2022 and 2023.
Financial inclusion, which includes access to digital financial services, is a crucial policy goal because it aids in improving personal financial management. Accounts give you more power over your finances and money. According to research, women who open bank accounts save more money, invest in business opportunities, and spend more on their children's education. In other words, having a bank account can give women more financial autonomy, security, and privacy.
So, for instance, a recent study of a government workfare program in India that impacted over 100 million people discovered that paying women's benefits directly into their financial institution account rather than their husband's or another male household head's account increased women's financial control over their money, influenced gender norms that prevented women from working and encouraged women to find employment compared to those women who are paid in this manner. And those women who had husbands who had been most hostile to their wives' careers felt the most impact.
Remittance inflow to LMICs and the global level both saw close to record high growth in 2021, with estimates of 605 billion USD (constituting 8.6% growth) and 773 billion USD (constituting 7.6% growth), respectively (World Bank, 2022). Remitters sent more money to their families in their home countries in 2021 to help them cope with the hardships brought on by the COVID-19 pandemic, which is the cause of the high growth in remittances in that year.
This is in line with the remittance literature, which maintains that online money transfers can serve as shock absorbers, rising during times of adversity and falling during prosperous times (IFAD and World Bank, 2015; Amuedo-Dorantes, 2014; Yang, 2008). In 2021, migrant workers will be able to send more money home thanks to the fiscal stimulus programs that many of the host nations implemented. These programs increased economic activity and employment levels, which in turn allowed for an increase in remittances.
The world economy still feels the effects of the Russian invasion of Ukraine as it struggles to escape the pandemic's grasp. The pandemic's effects on the world economy are still felt strongly, with low demand growth, supply shortages, and disruptions in international trade. The Ukraine crisis has led to an unprecedented rise in the price of commodities like crude oil and natural gas, which began to rise in 2021 and surged with Russia's invasion of Ukraine in 2022, exacerbating these devastating consequences.
The significant contributions made by Russia and Ukraine to the supply of these commodities can be used to explain why prices for food, natural gas, and crude oil have increased. Russian and Ukrainian agriculture are two of the world's top agricultural commodity producers, according to FAO (2022). Russia supplies 11% of crude oil, 20% of gas, and 18% of coal in the world energy market (FAO, 2022).
Import-dependent countries, such as those in Sub-Saharan Africa, the Middle East, and North Africa, are more vulnerable to the economic effects of the war (World Bank, 2022). Latin America and the Caribbean, East Asia and the Pacific, and South Asia are also vulnerable to the invasion's economic consequences, albeit to a lesser extent.
The projected rise in these commodities' prices in 2022 and beyond will increase the cost of living, impacting migrants who send money online to support their families at home.
Households and the economy as a whole benefit greatly from remittances. Remittances at the household level may be a low-income family's only source of support. Remittances have been cited as the largest program in the world to reduce poverty by IFAD and the World Bank (2015). Numerous studies have backed the benefit of remittances in reducing poverty (Adam et al., 2008; Adams and Page, 2005; Gupta et al., 2009).
By regulating consumption and enhancing welfare, remittances can provide financial stability to rural households with erratic incomes. Remittances are frequently a dependable safety net for households and families during times of need or crisis.
Usually, remittances arrive on time and sufficiently cover recipients' needs. This can facilitate prompt payment of loans, investments, medical bills, and school fees. Despite all the advantages remittance recipients experience, remittances also have some negative effects on households, including a decrease in labor supply as recipients grow dependent on it and conspicuous consumption, among other things.
When households receive remittances, their income is increased, and they are given access to additional resources. Remittances provide a platform from which other inclusive and sustainable financial services can be built. People or households may access savings and other financial services when they receive remittances. This is because receiving remittances can lead to a need for a secure location to store extra cash until it is needed. Remittance receivers would typically turn to the banks for this service.
Even though efforts to increase financial inclusion have made great progress, gaps still need to be filled. According to the Findex database, the percentage of men who own accounts is estimated to be 7 percentage points higher than that of women who own accounts, which in 2017 was 65 percent for women and 72 percent for men. Meanwhile, if you're looking for the best remittance ways, choose the best money transfer service provider – ACE Money Transfer.
Remittances can play a significant role in promoting financial inclusion by providing unbanked populations with access to formal financial services. It can serve as a gateway for them to open bank accounts and engage in the formal financial system.
Remittance providers often partner with local banks and financial institutions, making it easier for recipients to receive funds directly into a bank account. This enables them to access savings accounts, loans, and other financial products.
Unbanked individuals may rely on informal channels or cash-based transfers, which can be costly, risky, and less convenient. They may also lack the documentation or identification required for formal financial services.
Yes, various initiatives use mobile banking, digital wallets, and blockchain technology to make remittances more accessible to unbanked populations, reducing costs and increasing financial inclusion.
Governments can implement policies that support financial inclusion, such as simplified identification requirements and regulations that encourage the use of digital financial services. Organizations can provide financial literacy programs to educate unbanked individuals about the benefits of formal banking.
