UN agency launches scheme to drive down cost of remittances to rural families

The United Nations agency dedicated to eliminating rural poverty has launched a global initiative to try to reduce the cost of remittances services, where workers living in foreign countries send money back to their families, to rural households.

The International Fund for Agricultural Development (IFAD) unveiled the $10 million Financing Facility for Remittances in Guatemala City, Guatemala, on Sunday, with the first round of grant recipients expected to be selected and announced later this year.

More than $250 billion is sent in remittances every year, according to some estimates, easily outstripping the total amount of overseas development assistance to poor countries.

Pedro de Vasconcelos, the coordinator of IFAD’s new funding scheme, said “remittances are a vital lifeline for rural families around the world. These transfers go directly to improve the living standards of millions and millions of poor households.”

But while competition has driven down the cost of remittances services between major cities, it remains more expensive to send money to rural areas, which often lack formal financial services.

The new financing facility will give funding priority to those projects or proposals which link remittances with the provision of other financial services, such as savings, insurance and loans. It will assist financial institutions which either want to provide remittances services directly or as agents of banks or money transfer companies.

Donald F. Terry, manager of the Inter-American Development Bank’s Multilateral Investment Fund, said the positive impact of remittances rises dramatically when tied to other financial services.

“The challenge is to find mechanisms that will turn remittances from a poverty reduction plan to a development tool, benefiting millions of poor families and their communities,” he said.

The new scheme has been set up with the financial support of the European Commission, Luxembourg, the UN Capital Development Fund, the Consultative Group to Assist the Poor and the Inter-American Development Bank.