22 Nov, 2021

"Italy's G20 Presidency reiterated its commitment to remittances, which are key for development and growth"

by Food&Migration, Ilaria Mereni

Interview with Mauro Martini, Migration, Remittances and Development Officer at the UN International Fund for Agricultural Development (IFAD). Mr Martini provided technical advice to the Italian Presidency of the G20 as IFAD’s expert in the framework of the Global Partnership for Financial Inclusion. Before joining IFAD in 2013, he served the European Commission as Programme Manager on migration and asylum. He then joined the International Organization for Migration as Policy and Programme Analyst. Martini holds a Bachelor’s Degree on Contemporary History and a Master’s degree on Development Cooperation and Humanitarian Aid from the University of Bologna, Italy.

Food&Migration: Remittances are an important part of migration processes and it is well we known that many rural families in developing countries rely mainly on these funds to meet their basic needs. Moreover, remittances significantly contribute to the GDP of several countries, which makes them an essential determinant of their socio-economic growth. How would you describe and comment this relation between remittance flows, migration and development?

MARTINI Remittances are a vital source of income for millions across the world, especially in rural areas, and are the most visible act of migrants’ contribution to the development of their communities and countries of origin.
Remittances directly touch the lives of 1 billion people on earth, both at the sending side and receiving end. Through remittances, migrants support their families back home in putting food on the table, and enable access to health services, education, housing, water and sanitation. Remittances are often the first entry point for the un(der)banked population into the formal financial system, thus promoting financial inclusion for the most vulnerable groups. They also represent an important safety net in times of crisis and function as a risk management tool, improving poor people’s resilience to shocks. 
In general terms, remittances represent on average about 60 per cent of the receiving households’ total annual income. In turn, it is estimated that around 25 per cent of remittances are saved and invested in assets and income-generating activities, thereby increasing productivity, promoting employment and generating income, acting as an engine for local development. Of particular interest for an institution like IFAD is the fact that, when it comes to rural areas, much of this amount is used for agricultural purposes.
In recent years, we have witnessed an increasing recognition by the international community of the crucial role that remittances play on both socio-economic development and growth. In 2020, the United Nations Secretary-General, António Guterres, in his global call to action to address the COVID-19 pandemic, highlighted that “remittances are a lifeline for millions of people in the world”. The Global Compact for Safe, Orderly and Regular Migration, adopted in 2018, dedicates Objective 20 (out of 23 objectives) on the importance to promote safer, cheaper and faster remittances, and the financial inclusion of migrants and their families back home. The same year, the UN General Assembly unanimously proclaimed the International Day of Family Remittances. Observed every year on 16 June, the Day recognizes the transformative impact that migrants, through remittances, have on millions of households, but also on communities, countries, and entire regions, supporting their long-term development strategies, particularly on poverty reduction and access to basic services at the household level.
These person-to-person private financial flows can therefore be considered the social contract that binds migrants to their families back home. During the recent COVID-19 pandemic, migrants demonstrated once again their commitment towards their loved ones left behind in their countries of origin. Through the well-known hardships caused by the pandemic, they found alternative means to keep sending remittances home. They reduced their own consumption, drew down on savings, and found alternative jobs to the ones they lost. They kept sending regular amounts during the critical months in the aftermath of the first wave of the pandemic, thus preventing millions of low-income households in low- and middle-income countries from falling into extreme poverty.
At IFAD we firmly believe that leveraging remittances further, through financial access, education and investment, will substantially contribute to strengthen households’ economic development, highly benefitting entire communities.

F&M: In your opinion, considering the importance of remittances in rural areas and for agriculture, how should governments and international institutions act in order to take full advantage of remittances’ potential and promote a sustainable development of receiving countries?

MARTINI Remittances are indeed of crucial importance for rural people. Almost half of the US$ 500 billion remitted annually to developing countries goes to rural areas, where 75 per cent of the world’s poor and food insecure live. This well reflects the rural origins of a large share of international migrants. Furthermore, remittances invested in agriculture represent indicatively over three times ODA in agriculture.
In order to take full advantage of the potential of remittances potential to spur development, first and foremost it is essential to have a better understanding of the needs of both migrants and their families. Only with a comprehensive knowledge of the market reality from a customers’ standpoint can policy makers, the industry, and the development community develop effective strategies and policies, and make informed decisions to the benefit of the end customers. Furthermore, a fully coordinated approach by the international community and national governments will result in policies designed to best support remittance families in achieving their own SDGs and the remittance service industry in ensuring that these flows are safely, quickly and cheaply transferred across borders.
Every two years, IFAD invites hundreds of key actors of the global remittance arena to meet at its Global Forum on Remittances, Investment and Development (GFRID), a recognized international platform to discuss challenges, opportunities and new trends in the remittance market. Here, public and private sectors and the civil society, from the local level up to national and international levels, meet to coordinate and implement strategies, policies and actions, and evaluate implementation efforts on a regular basis.
There is an increasing general consensus on the most critical actions to take in order to maximize the impact of remittances for the development of migrants’ communities and countries of origin. A consensus that has been recently further strengthened in the immediate aftermath of the first wave of the COVID-19 pandemic, when it was clear that urgent action needed to be taken in order to mitigate the impact of the pandemic on the global remittance market. 
Almost immediately, the international community joined forces to address the new reality. In March 2020, in response to the call by the United Nations Secretary-General for global solidarity, IFAD set up the Remittance Community Task Force (RCTF), with representatives from 41 key international organizations from the public sector, the industry, and academia, as well as renowned international experts. The RCTF developed a set of concrete measures and recommendations for governments and the industry to tackle the challenges at both national and international levels. A few months later, Switzerland and the United Kingdom also joined forces in a Call to Action to keep remittances flowing, creating awareness of the critical importance of the funds for the achievement of the SDGs.
In general, the main recommendations can be summarized around the aspects of the need to expand and strengthen the collection, analysis and application of remittance-related data; continue improving the enabling environment through sound regulatory frameworks and promote harmonization across jurisdictions; spur competition, innovation, and digitalization, leading to greater market efficiency and lower costs; and support improved access to remittances, especially in rural areas, matched with the development of remittance-linked financial products to enhance financial inclusion of recipients.
For over a decade IFAD has been at the forefront of this intervention. Through the work of its Financing Facility for Remittances (FFR), IFAD is promoting innovative models worldwide in supporting of financially inclusive mechanisms to provide access to and use of remittances and investment, aimed to empower migrants and their families back home through financial education, inclusion and entrepreneurship.
By leveraging the contribution that remittances bring to development, governments have the opportunity to substantially increase their impact in the poorest (rural) areas, mitigating the negative effects of migration, and enabling poor remittance-receiving households to advance on the road to financial independence.

F&M: In this context, how did the COVID-19 pandemic affect remittance flows? Did statistics register a reduction, as predicted at the beginning of the pandemic, or have remittances proven to be resilient? And which is the current trend of flows?

MARTINI When, at beginning of 2020, the first wave of the COVID-19 pandemic hit the world, there was widespread concern that remittance flows would plummet, leaving millions of people in low- and middle-income countries more vulnerable and without access to their major source of income. Initial estimates by the World Bank predicted a decrease above 20 per cent, as the situation appeared tragic. However, as official data from central banks around the world started to be released, it became clearer that migrants, as in the case of previous economic crisis, were using all their resources to continue sending remittances to their loved ones back home to help them cope with their income difficulties and the new challenges posed by the pandemic.
It was a real relief reading the World Bank data released this year on 2020 flows. The new data indicated that remittances totalled U$540 billion in 2020, declining only 1.6 per cent compared to 2019 figures, and are expected to grow by 2.6 per cent in 2021. With the benefit of hindsight, it can be affirmed that remittances represented the sole large financial flow to developing countries remaining relatively stable during the economic crisis spurred by the pandemic. This demonstrated, once again, the incredible resilience of millions of migrant workers in times of crisis, doing all in their power to take care for their families back home. 
Italy is the perfect example of it. Data released quarterly by the Central Bank (Banca d’Italia) have initially shown a small but still very relevant increase at the beginning of 2020 with respect to the same period of 2019, and then a remarkable acceleration, up to the very recent released data indicating a 26 per cent increased in the second quarter of 2021 with respect to the same period of the previous year. 
This year, the G20 Italian Presidency, through the Global Partnership for Financial Inclusion (GPFI), commissioned IFAD and the World Bank a report on the resilience in the market of international remittances during the COVID-19 crisis. The report examines the factors that have contributed to the resilience of remittances during the pandemic. It further extracts key lessons learned on consumer behaviour and market performance, and analyses measures taken by governments and regulators in facilitating enabling environments.
The COVID-19 pandemic has strongly impacted the remittance market, involving all stakeholders – migrants and their families, government and the industry alike – which, despite enormous challenges posed by the pandemic, played a crucial role to keep remittances flowing during these times of crisis. There has been a notable switch from informal to formal remittances, mainly through an increased adoption of digital technologies. Migrants demonstrated their resilience in maintaining the volumes of remittance flows; private sector operators adapted their business models; policy makers provided the necessary enabling environment. 
The main takeaway from this crisis is that sound cooperation and coordination between the public and private sectors is crucial to facilitate the necessary innovative reforms and promote new appropriate business models, which in turn will build stronger resilience for the remittance sector, ultimately benefitting migrants and their families. 

F&M: Did the change of channels used by migrants to send money home, for example the increase of digital transfer services, influence the trend?

MARTINI Even if the trend towards digital was already under way before COVID-19 struck, the pandemic accelerated the digitalization of remittances it in an unprecedented way, as it forced both consumer behaviour and business models to change fast and adapt to the new reality, 
As described in the recent IFAD-World Bank report for the G20 GPFI under the 2021 Italian Presidency, border closures and business lockdowns in the early days of the crisis greatly hindered the use of cash-based, over-the-counter and informal systems. Under such conditions, the cost, convenience, and security of digitally-enabled remittances became apparent, thus increasing the attractiveness of digital channels as well as their uptake. This, in turn, has facilitated the development of linkages with other digital financial services, building longer term financial resilience for remittance users.
However, it is worth mentioning that not all migrants were either able or willing to switch to digital. The majority of remittance flows have traditionally been cash-to-cash, and this trend has continued during the pandemic and will continue in the years to come. A number of barriers to a full adoption of digital tools include the lack of financial and digital literacy of a large segment of senders and receivers and low trust in the regulated channels, coupled with lack of adequate infrastructure, especially in rural areas of the receiving countries, reinforced by supply-side factors as well as regulatory barriers that often make the digital customer journey too disruptive or complex.
It is therefore crucial that more attention be given to targeted strategies and coordination of activities at both at public and industry levels to unblock some of the barriers to digitalization, including the promotion of measures to improve the enabling environment, as well as financial and digital education programmes aimed at migrants and their families.

F&M: You provided technical advice to the Italian Presidency of the G20 as IFAD’s expert in the framework of the Global Partnership for Financial Inclusion (GPFI). Has the issue of remittances been discussed? If so, which are the aspects analyzed and the main outcomes?

MARTINI Remittances have always been an important topic for Italy. At the G8 Summit in L’Aquila in 2009, Italy promoted the first ever commitment on the reduction of remittance costs through the 5x5 Initiative (reducing the cost of remittances from 10 per cent to 5 per cent over five years), which was then adopted by the G20. Since then, remittances have remained an ongoing agenda item of the G20 Roadmap on cross-border payments, and the commitment to reduce the cost of remittances has been taken up by many international processes - not least the target 10.c of the United Nations Sustainable Development Goals (SDGs), which aims to reduce the cost of remittances to 3 per cent by 2030, subsequently also adopted by the G20.
This year, thanks to its G20 Presidency, Italy took the opportunity to promote with even greater vigour the discussions around the impact of remittances, not only as an indicator linked to the reduction of their costs, but also as a tool for accessing the formal economy, savings, credit, and as a driver for small businesses, in order to promote the financial inclusion of the most vulnerable segments of the population.
Remittances was one of the priorities discussed at the Global Partnership for Financial Inclusion, the G20 working group co-chaired by Italy (Bank of Italy) and Russia, mandated by G20 Leaders with the leading role in supporting country-led actions to reduce average remittance transfer costs and facilitate their flow. The G20 Leaders’ Declaration contains several commitments that can be linked directly or indirectly to international remittances. In particular paragraph 49, dedicated to financial inclusion, extensively reports on the work undertaken on remittances during the Italian Presidency, and reiterates the G20’s commitment to “continue facilitation of the flow of remittances and the reduction of average remittance transfer costs”[1].
In the framework of the GPFI, G20 member countries adopted a new template for their National Remittance Plans Update, addressing the new market realities and including particular focus on the impact of the crisis on remittance markets and related actions taken by the G20 countries. Among others, the G20 agreed to plan and report on better data, provide more information on competition in the market, current and new regulations, consumer protection, level of access to remittance service providers, and proposed actions in various fields, such as interoperability, promotion of competition and transparency, reduction of the impact of de-risking, fostering financial inclusion and innovation, as well as concrete actions to promote financial inclusion and maximize the impact of remittances in the receiving countries.
Lastly, as previously mentioned, the GPFI produced a stand-alone report, jointly authored by IFAD and the World Bank, aimed at shedding light on the impact of the COVID-19 pandemic on the remittance market amid an unprecedented switch to digital channels. Relying on a broad set of country-level experiences and on the recommendations of the Remittance Community Task Force, the report distils the main lessons learned on ensuring continued resilience of remittance flows in times future adverse shocks. The report was presented at the GPFI Workshop “Remittances in times of crisis and beyond”, in July 2021 prior to validation by G20 Ministers of Finance, which highlighted the importance to deep dive into the impactful contribution of remittances in achieving universal financial access and inclusion, and the need for G20 member states to continue in their efforts to reduce remittance costs and create enabling environments to maximize their impact for development.

F&M: In light of the above, which are your expectations and projections on remittances for the forthcoming years?

MARTINI Despite the economic crisis caused by the COVID-19 pandemic, international remittance volumes held firm through 2020 and 2021. This was mainly due to the efforts of hundreds of millions of migrants, who demonstrated commitment, resourcefulness and great resilience in continuing to send remittances regularly; the industry, adapting its business models to the new reality, thereby accelerating the trend towards digitalization; and the public sector – governments and regulators – taking appropriate measures and providing the necessary enabling environment to facilitate remittance flows. 
Digitalization of remittances emerged as a common theme and priority for all. The governments adopted measures to facilitate these flows and many service providers promoted and enabled international digital transactions, including reducing fees, creating awareness campaigns and supporting their agent networks. Maintaining this public-private dialogue going forward can provide enormous benefits for the sector and will be imperative to ensure the continued digitalization of remittances. 
The World Bank estimates an increase of remittance flows to low- and middle-income countries by 2.6 per cent per year, to U$553 billion in 2021, and by 2.2 per cent to U$565 billion in 2022 (World Bank estimates, May 2021). These are expected to grow twice as fast in Latin America and the Caribbean, and in South Asia.
At the same time, according to recent data from GSMA, the switch from traditional cash-based channels to digital channels continued and even accelerated during 2020, with an increase of 65 per cent in cross-border remittances processed via mobile money, up from U$7.7 billion in 2019 to U$12 billion in 2020 (State of the industry report on Mobile Money 2021, GSMA). 
All conditions seem to be in place for these trends to continue and even accelerate in the coming years. However, to boost this trend even further, more attention should be given to coordinating activities at an industry level to unblock some of the barriers to digitalization, and targeted strategies should be developed to reduce the imbalances that vulnerable and underserved groups are facing in order for them to take advantage of digitalization. At the same time, it is crucial that governments create regulatory environments that reduce the costs of transferring remittances, promote digitalization, and allow competitive channels for transferring remittances while increasing their productive use. 
Digital and financial literacy of both migrants and their family members receiving remittances is essential to foster informed choices on the use of remittances and remittance-linked services, and to leverage these flows for development purposes. The current financial ecosystem should encourage migrants and their families to send, receive and use remittances in ways that promote their financial inclusion and allow them to invest in productive sectors of the economy. 
At IFAD we be firmly believe that we can achieve this, one family at a time, so that millions of people will be able to consider migration just as an option, rather than a necessity. 

[1] G20 Leaders’ Declaration, Rome 31 October 2021: “49. Financial inclusion. We reaffirm our commitment to enhancing digital financial inclusion of vulnerable and underserved segments of society, including micro, small and medium-sized enterprises (MSMEs), carrying forward the work of the Global Partnership for Financial Inclusion (GPFI) and implementing the G20 2020 Financial Inclusion Action Plan. We endorse the G20 Menu of Policy Options for digital financial literacy and financial consumer and MSME protection “Enhancing digital financial inclusion beyond the COVID-19 crisis”, with the aim to provide a guide for policymakers in their efforts to lay the ground for new financial inclusion strategies in the post-pandemic world. We welcome the 2021 GPFI Progress Report to G20 Leaders and the 2021 Update to Leaders on Progress Towards the G20 Remittance Target. We support the GPFI in bringing forward the monitoring of National Remittances Plans, also gathering more granular data, and strongly encourage the continued facilitation of the flow of remittances and the reduction of average remittance transfer costs” (https://www.g20.org/wp-content/uploads/2021/10/G20-ROME-LEADERS-DECLARATION.pdf) .