European Microfinance Week 2020

Remittances are key to economic development, as they are an important source of income for many households worldwide. Due to the COVID-19 outbreak, many people thought that remittances would drop dramatically as migrant workers would lose their jobs or had fewer working hours. However, field data have shown conflicting trends. During this fireside chat, the speakers presented their points of view on the effects that the pandemic is having on migratory flows and remittances.

This fireside was moderated by Timothy N. OGDEN, from the Financial Access Initiative. The chat began with two interviews conducted among speakers who provided information on the effects of COVID-19 on the flow of remittances in two countries: El Salvador and the Philippines.

The first interview was with Rolando VICTORIA, a pioneer in the microfinance industry in the Philippines, who is also the founding CEO of Alalay Sa Kaunlaran Inc. (ASKI) and now the president and CEO of ASKI Group of Companies Inc. According to Victoria, Philippine MFIs have been heavily affected by COVID-19. There has been a significant increase in late payments due to delayed remittances. There has also been a huge impact on credit applications, as many local businesses closed and many clients withdrew their savings. According to the Philippine Labor Institute, there was a massive influx of foreign workers that meant a decrease in the volume of remittances. Besides that, Victoria commented that there has been a greater demand for microcredits because there is a lot of entrepreneurship at the micro level to face the crisis. Looking ahead, many of the returning migrant workers are thinking about finding a job abroad again and hope to go abroad as soon as borders and economic conditions allow.

The second interview was with Juan Luis MORENO, from AMC from El Salvador. Unlike the information provided by Victoria, during 2020 the flow of remittances in El Salvador has not shown a clear trend. While there has been a clear 15 percent decrease in remittance volumes during the first months after the virus outbreak, as of September 2020 there has been a strong 20 percent increase. Many ups and downs have been observed month by month since the pandemic began. According to Moreno, the most difficult moment for their clients was at the beginning of the pandemic, when many of them were unable to send remittances due to interruptions in their work. However, things have started to improve since September. El Salvador's economy is picking up and can potentially pick up even more by the end of the year due to holiday celebrations. On top of that, there has been an increase in the volume of remittances to El Salvador more recently, probably due to the temporary status of Salvadoran immigrants in the US who are beginning to prepare to send all their savings to El Salvador before they have to return due to loss of employment or visa status.

Having shared these conflicting trends, Ogden started a live chat with Joe BAVIER, from Reuters, and Leora KLAPPER, from the World Bank. Taking this contradictory data as a starting point, and considering that South Africa is an African country that is home to many immigrants, the moderator proceeded to ask Joe what the effects they observed in the country were.

BAVIER began by highlighting how strict the lockdown was in South Africa. Borders were closed and many sectors came to a complete halt. South Africa is a regional destination for migrants, where many Zimbabweans work in domestic jobs, restaurants, construction and all suffered from job and wage loss; as such, remittances were expected to decline. Although there was suffering, the immigrants did continue to try different ways of sending money. In fact, an increase in the volume of remittances was observed. More precisely, they observed an important change between informal channels for remittances such as bus drivers and formal channels such as mobile phone transfers. However, it is still unknown whether the aggregate net volume of remittances decreased or not, although it is expected to be lower than before COVID-19.

In sharing her perspective, Klapper pointed out the relevance that remittances continue to have in economic development. In countries like Bangladesh, remittances can represent up to 6 percent of the GDP. Remittances are also key to coping with crises, and this has been probably the case with the COVID-19 pandemic. Klapper agreed on the contradictory trends presented during the interviews. World Bank statistics have also observed contradictory increases and decreases in different countries. However, according to Findex data, they expect remittances to fall during 2021. In addition to that, Klapper noted that remittances are not only relevant internationally, but also within a country. This fact is illustrated by the developments in different regions of South Africa, where remittances have also shown a shift from informal channels to formal channels such as mobile phones.

Ogden subsequently asked the speakers to comment on their projections for the coming period. Bavier stated that there will be a huge effect on sovereign debt. He illustrated that on Friday 13 November 2020, Zambia went into default, due to the pandemic and its indebtedness to China. There has been a gigantic decline in production, as most of the natural resource production disappeared from the moment the blockade began. Bavier also emphasised that what will happen will depend mainly on what the developed world decides on how to trade and help underdeveloped economies. Zambia, Angola, Kenya, Ethiopia, Ghana and Nigeria are well-indebted countries and could expel many people. This will affect their livelihoods and, of course, remittances.

Klapper stressed that there will be an economic and financial crisis next year. She also noted that remittances will be greatly affected by this, as migration and paid migrant work in developed economies will be more scarce. The lowest-paying jobs in high-income countries will be lost and will likely take some time to reappear.

After Klapper's comments, Ogden concluded the session. The big story about remittances is not about the changes in their volumes, but the change in their sending channels. This change highlights that there is an enormous potential for the development of digital technology for financial services and this change is likely to continue in the mid-term. Although contradictory trends have been observed in the volumes of remittances, what will happen in the future will depend mainly on global flows and the political decisions that the developed world will take regarding its relationship with developing countries.