On paper, Ally starts his school year in Tanzania in January. However, his aunt Susan, an engineer living in Sweden, has been preparing for this day for months, working hard to send money home to pay his school fees. For many school-age children like Ally living in Africa, Asia and Latin America, the journey to the classroom doesn’t begin when the sun rises. It starts with the efforts of family and friends, from Australia to Austria and the UK to the US, sending home nearly $528 billion to developing countries in 2018 in Tanzania – a figure more than triple official development aid.
With 220 million children out of school in low- and middle-income countries, it is vital that governments and businesses come together to tackle the first and last mile in the remittance journey, to ensure even more children complete their education. This matters because, as we learned in the most recent edition of UNESCO’s Global Education Monitoring Report, out of all spending on education, one in four dollars in middle-income countries and one in three dollars in low-income countries comes from families, not governments. To put it into context, the report found that lowering remittance costs to 3% from the current average of 7% would allow households to spend an additional $1 billion on education per year. Families can also make their funds go further by switching to low-cost digital transfers – WorldRemit estimates that this could unlock $825m for education in developing countries.
Improving the first mile
So how can we do things better? Digital disruption is shaking up the industry, but sending remittances is all too often a slow, costly and opaque experience.
For starters, the financial literacy of migrants needs to be improved. While newly arrived families in host countries often find the education of their children is catered for, the education of adults is frequently overlooked, despite the importance it carries for their household decisions, including how to best navigate new welfare systems and avenues for remittances.
Companies catering for migrants must also offer products that meet their needs. The shift towards digital, for example, saves on time as well as cost. If you work as a taxi driver, nurse or care assistant, you can send from your smartphone instead of having the inconvenience and expense of taking time out of work to find a bureau to send cash.
Technology also empowers customers with more information about their transfers. Regular updates on foreign exchange rates and transparency on fees help the customer to make more informed choices. Equally important is knowing the speed of transfer and confirmation that funds have arrived. Experience shows that remittance senders are often responding to last-minute requests – e.g. a child’s school fees and equipment – that must be paid in a day not a month.
Digitizing the last mile
The GEM Report shows that remittances increased education spending by over 35% in 18 countries in Africa and Asia and by over 50% in Latin America. Complementary research by WorldRemit finds that remittances kept 3.5 million children in school worldwide in 2018.
For the hardest to reach groups, like girls and rural communities, technology is also making a difference in the form of mobile money accounts. Take lawyer Joy Kyakwita, for example: her education was supported by her sister living in Europe, who put her through school and university back home in Uganda. At that time, to receive the funds, Joy had to travel into town to a bureau or to wait for the cash to arrive with someone travelling home. Now working in the UK, she has supported nine children in Uganda. But instead of the cumbersome and risky options she faced, Joy sends mobile money transfers to the children or pays fees directly to their schools’ mobile money accounts. Technology has eliminated the last mile of the remittance journey, which allows these children to focus on their education.
This trend is set to continue. The mobile telecoms industry body GSMA records that mobile money accounts have doubled in 2017, and more than half of Sub-Saharan Africa is projected to be connected by 2025. However, for this potential to be fully realized, governments in remittance-receiving countries must be careful about how they tackle the taxation of mobile money services, cognizant of the wider effects on families. As an example, Uganda’s newly introduced excise duty of 0.5% on mobile money transactions translates into two years’ worth of school books, based on an average year of school fees sent via mobile money.
The cost of expensive remittances
In some ways, we are just at the beginning of this transformation. Remittances are projected to have grown globally by 10.3% to a record $689 billion in 2018. But transaction costs for many remain far too high, and the vast majority of remittances are still offline. The money that migrants send home is vital to the education of millions of children. But to enable more children to benefit, businesses and governments must leverage the benefits of technology to make the journey of remittances from senders to recipients simpler and faster.