unctad.org | Cutting the Costs of Remittances: The Role of Mobile Money - Opening Remarks
Statement by Mr. Mukhisa Kituyi, Secretary-General of UNCTAD
Cutting the Costs of Remittances: The Role of Mobile Money - Opening Remarks
Geneva
20 Jun 2014

 

[AS PREPARED FOR DELIVERY]

 

Ambassador Hannan,
Director-General Hussein
Excellencies,
Distinguished Panelists,
Ladies and Gentlemen,

I would like to start by expressing my warm welcome to all of you attending this Special Event, here in Geneva or from a distant location via the Internet. On the last day of this week of celebrations of UNCTAD's 50-year anniversary, it is most appropriate to focus on a topic that is of high relevance for UNCTAD's future agenda.

Remittances are an important source of finance for developing countries with large migrant populations. In many of them, and particularly in those with lower GDP per capita, remittances represent a significant part of their income. In almost 20 developing countries, remittances account for over 10 per cent of GDP and in another 5 countries they correspond to more than 20 per cent of GDP.

The role of remittances as a source of finance is particularly notorious in Least Developed Countries (LDCs) where, on average in the last two decades, remittances have been the second most importance source of finance, after official development assistance (ODA). In 2010, remittances to LDCs accounted, on average, for 4.4% of their aggregate GDP, 3 times higher than for other developing countries and 14 times higher than for developed economies.

Remittances represent a source of finance for micro and small enterprises that are inadequately serviced by the formal capital markets. In urban Mexico, for example, 6000 micro enterprises have financed nearly 20% of their invested capital with remittances. In the Philippines, households that received remittances were more likely to start capital-intensive entrepreneurial activities. Furthermore, the growth impact of remittances has been found to be stronger when the level of financial development is relatively weak.

Remittances are not a substitute for coherent economic development strategies, but they can certainly contribute to address housing, healthcare and education needs, as well as contribute to reduce poverty and extreme poverty.

Increasing the amount of remittances is an important goal. One of the ways to achieve it is by reducing the cost of sending remittances, while also ensuring security in the transaction.

The high cost associated with international remittances reduces the amounts transmitted as well as their development impact. While the global average cost for sending remittances is currently 8.6 per cent of the amount being transferred, excluding possible additional fees on beneficiaries receiving remittances, this cost can be significantly higher in poorer countries. For example, the cost of sending money to sub-Saharan Africa was as high as 12.6 per cent at the end of 2013. Reducing the cost of remittances remains and important challenge and, in fact, the G-20 has committed to reduce that cost to 5 per cent in the near future.

However, reducing such costs in the poorest countries is particularly difficult because it can be the result of various factors, such as exclusivity agreements between banks or post offices and international money transfer providers, low levels of financial market development, deficient infrastructure or lack of competition between service providers. These factors are especially exerting for least developed countries.

In this context, innovative, mobile-based solutions can be an attractive option to facilitate remittance flows and greater development gains in developing countries.

But mobile money is not only about transferring money from one side to the other. It goes beyond that, it is about inclusion financial inclusion. In a world where 2.5 billion adults, mostly in developing countries, do not have a formal bank account, mobile money could make a big difference, especially for the poor. Two factors underpin the potential of mobile money to enhance financial inclusion.

First, in all the countries where remittances account for at least 10 per cent of GDP, mobile use is widespread with penetration rates of at least 50 subscriptions per 100 people.

Second, in many low-income countries - especially in rural areas - the banking infrastructure is weak. In fact, in ten of the economies that rely heavily on remittances, more than 75 per cent of the population is "unbanked". While banks often lack sufficient incentives to serve these areas, mobile phone providers are present.

Looking at my own country, remittances from Kenyans working abroad are the fourth-largest source of foreign exchange after revenue from tea, horticulture and tourism.The country currently receives more than $110 million per month from the diaspora and it continues to grow.

Mobile money is already used. The biggest mobile operator, Safaricom, has taken various steps to facilitate remittances flows to its mobile money system, M-Pesa. In 2013, it announced a partnership with Western Union, allowing the diaspora in Europe to send money to M-Pesa accounts. And a few months ago, a deal was announced with the UK company, Skrill, to facilitate remittances straight into M-Pesa accounts.

Although the potential for leveraging mobile technologies appears to be present, it is still far from being fully exploited. As shown by the GSM Association, there are well over two hundred known mobile money deployments, the vast majority of which in low- and middle-income countries. However, research by the Consultative Group to Assist the Poor (CGAP) and the Dalberg Global Development Advisors suggests that as at this year only about 40 mobile money deployments were involved in transferring remittances, and transaction volumes and revenues generally remained low.

It is against this background that I hope this Special Event will provide an opportunity to shed new light on three main issues: 1) how to reduce the cost of remittances and maximize their development impact; 2) what is the role mobile technology can play in this process; and 3) what policies and regulations are needed to harness the potential of mobile money to financial inclusion.

The outcome of our deliberations will be valuable for UNCTAD's ongoing work on trade in services. It will also feed into our work on enhancing the benefits from ICTs, such as developing better legal and regulatory systems to create trust in online and mobile transactions.

Before closing, I would like to thank all panelists for having come to Geneva to share their knowledge and engage in this interactive dialogue. And last but not least, Mr. Chair, I greatly appreciate your commitment to the work of UNCTAD and for finding the time in your busy schedule to guide us through this session.

I look forward to a stimulating and useful discussion.

Thank you very much.



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