• Differing rules and regulations mean that what should be a simple act – sending one’s own money back home – is often a source of confusion and stress for migrants.
  • Sida and UNCDF are working with an array of regulators to harmonise different rules governing remittances and to create coherent frameworks to support these money flows.
  • As most migration in Africa stays on the continent, regional economic communities have a unique opportunity to rewrite the rule books in a way that makes sense for their people.

When travelling abroad, you might have encountered difficulties in withdrawing money and marvelled over how the rules and regulations differ from country to country. And if you ever tried to send money to someone outside of your country, you might have been even more exasperated.

This is the state of affairs for remittances – the money that breadwinners living abroad send to family back home. Different countries have different rules about what sort of companies can operate a money-transfer business. Fully licensed banks? Fintechs? Or the rules might differ about the maximum amount of a single transaction. Or what forms of identification for remittance senders or receivers are acceptable. Or what kind of bank account you must have in order to receive or hold foreign currency. There might even be rules regarding what you can spend your remittance money on once you receive it.

Small wonder, then, that what should be a simple act – sending one’s own money back home – can turn into a source of confusion and stress for migrants who have moved abroad to pursue a better life. Our two organizations, the Swedish International Development Cooperation Agency (Sida) and the United Nations Capital Development Fund (UNCDF), are working with a wide array of regulators to help harmonise the different rules governing remittances and to create coherent frameworks to support the flow of this finance.

Legacy system

Sida and UNCDF have chosen to start this work in Africa, one of the world’s most important remittance markets. We recently signed agreements with two of the continent’s regional economic communities: the 11-nation Economic Community of Central African States (ECCAS) and the Intergovernmental Authority on Development (IGAD), which comprises eight nations on the Horn of Africa. Official World Bank statistics indicate that the IGAD and ECCAS member states collectively received almost $9 billion in remittances in 2019. This figure almost certainly undercounts the true picture, since so many migrants resort to carrying money home personally or sending it through informal channels, rather than trying to navigate the formal system’s complex and baffling rules.

"Some 4% of the world’s people now live and work outside their countries of origin. When fluid labour markets collide with rigid financial ones, human beings suffer the consequences."

The fundamental problem is that the financial services industry remains the legacy of a world that is rapidly disappearing. Its underlying assumptions – that people earn their incomes in their home countries for their whole lives; that everyone who needs financial products already has or can easily get them; and that the job of banking is to distribute paper through local networks – simply no longer hold true.

Some 4% of the world’s people now live and work outside their countries of origin. When fluid labour markets collide with rigid financial ones, human beings suffer the consequences. The jumble of unharmonised or outdated regulations affects people personally and directly – it means they cannot use, save or send their own money without risk or overwhelming hassle. This situation demands a sense of urgency. For hundreds of millions of households throughout the developing world, remittances are both a lifeline that keeps them from falling into destitution and also the foundation for longer-term goals: educating their children, buying or improving a home, starting or expanding a business. Almost all of the Sustainable Development Goals recognize the role that remittances play in reducing poverty and advancing progress on multiple fronts, and much work is underway to make remittances more efficient.

Most of the attention seems focused on technology: on digital solutions for cross-border payments. That is important, to be sure; but it is only half the story. None of the fintech advancements matter if the policy environment is unfavourable. There are jobs that only public officials can or should do. Among them is the essential work of crafting policy frameworks that will advance the resilience of their regions’ households while safeguarding the integrity of the financial system.

Image: Original graphic by UNCDF based on data from UNDESA (for numbers of migrants), the World Bank (for remittance prices) and World Bank/KNOMAD (for remittance volumes)

Unique opportunity

Because most migration in Africa stays on the continent, between neighbouring countries, the African regional economic communities have a unique opportunity to rewrite the rule books in a way that makes sense for their people. This is not to say that such harmonisation efforts could not also be pursued for remittance corridors where the sending countries and the receiving ones are in different regions (Europe to Africa, for example, or the Gulf States to Asia). But this work will be challenging, and it must start somewhere.

We believe that the ECCAS and IGAD platforms for collaboration are ideal. They can build on past examples of African leadership, including the harmonization of the East African Payment System, the cross-border payment settlement infrastructure within Southern African Development Community, the Regional Payment and Settlement System of the Common Market for Eastern and Southern Africa, and the West African Monetary Zone Payments System Development Project of the Economic Community of West African States.

banking, blockchain

What is the Forum doing to improve the global banking system?

The World Economic Forum’s Centre for the Fourth Industrial Revolution Network has built a global community of central banks, international organizations and leading blockchain experts to identify and leverage innovations in distributed ledger technologies (DLT) that could help usher in a new age for the global banking system.

We are now helping central banks build, pilot and scale innovative policy frameworks for guiding the implementation of DLT, with a focus on central bank digital currencies (CBDCs). DLT has widespread implications for the financial and monetary systems of tomorrow, but decisions about its use require input from multiple sectors in order to realize the technology’s full potential.

“Over the next four years, we should expect to see many central banks decide whether they will use blockchain and distributed ledger technologies to improve their processes and economic welfare. Given the systemic importance of central bank processes, and the relative freshness of blockchain technology, banks must carefully consider all known and unknown risks to implementation.”

—Ashley Lannquist, Blockchain and Digital Assets Platform, World Economic Forum

Our Central Banks in the Age of Blockchain community is an initiative of the Platform for Shaping the Future of Technology Governance: Blockchain and Digital Assets.

Read more about our impact, and learn how you can join this first-of-its-kind initiative.

Through our work with the African Union, the regional economic communities, member states and the Joint Labour Migration Programme for Africa, Sweden is committed to supporting efforts to improve migration policies and governance, promote migrants’ rights, and facilitate labour mobility on the continent. The UNCDF has a long record of delivering technical assistance and financing to the world’s least developed countries, and is leading an ambitious, 360-degree global effort to reimagine remittances as the gateway product to build lasting financial resilience for migrant households.

Together we look forward to supporting ECCAS and IGAD, and we applaud them for accepting this leadership position on an issue that, perhaps more than any other single intervention, can advance the 2030 Sustainable Development agenda.