It has been established that remittances sent back home by migrant workers are a crucial, direct lifeline for many of the world’s developing populations and communities.
And global organizations like the UN, FAO, and IFAD have continually emphasized the extent to which these remittances matter.
In fact, the UN Department of Economic and Social Affairs (UN DESA) reports that over 800 million people around the world are supported
by remittances. Nearly 50% of remittances go straight to rural areas, and the recipients spend about 75% of the money received on healthcare, education, and housing.
IFAD points out that in the past 10 years, migrants sent over $5 trillion to low- and middle-income countries, accounting for up to 50% of external development finance flowing into fragile countries.
Notably, there’s been a significant increase in the amount of remittances flowing into rural regions in recent times, thanks to technological innovations and modern financial inclusion initiatives championed by remittance providers globally.
Throughout the years leading up to the mid-2010s, remittance senders and receivers in rural areas faced numerous challenges in getting money across, including cost, distance, limited banking infrastructure, and low connectivity.
Today, providers use a mix of physical networks, digital innovation, and local partnerships to ensure money reliably reaches even the most remote communities.
To understand how these factors help improve the state of remittance flows to rural regions, it’s important to first dissect the challenges they address.
Rural Delivery Challenges
All the challenges limiting the seamless delivery of remittances to rural areas can be summarized by one word: inaccessibility.
Inaccessibility, or limited access, in this regard, can be identified in three key areas, including financial infrastructure gaps, geographic barriers, and technological limitations.
Financial Infrastructure Gaps
Lack of adequate financial infrastructure is a problem that plagues rural areas all over the world, even in well-developed countries like the US.
Given that rural areas are typically characterized by low population density and economic flow, financial institutions usually don’t consider them as an ideal market. As a result, there is a dearth of financial infrastructure and services in rural communities.
Even when they exist, they are often unreliable or slow.
In a
survey conducted by the U.S. Federal Deposit Insurance Corporation (FDIC) in 2023, the results revealed that over 5.6 million (accounting for 4.2% of the population) households in rural America are unbanked. In Sub-Saharan Africa, the situation is even
more dire, as close to
51% of adults in rural regions didn’t have financial accounts in 2022.
Fewer bank branches/ATMS and distance to existing ones, alongside lack of money and cost of financial services, are some of the numerous reasons leading to this problem.
Consequently, underbanked rural populations tend to rely more on cash transactions, inadvertently severing themselves from global finance.
Geographic Barriers
Remote terrains, long travel distances, and a lack of transportation options make rural areas hard to reach.
On the part of financial institutions, these challenges don’t help the business case (if any) to provide financial services in rural areas. The situation is further exacerbated by extreme seasonal/weather events, which acutely reduce accessibility to rural
areas. Even in cases where some level of financial services exists, many financial institutions won’t want to risk the lives of their staff or their assets in such cases.
On the part of remittance receivers, receiving money from relatives abroad could mean having to wait for weeks for it to be delivered.
Technological Limitations
As at 2022, less than 40% of people living in lower-middle-income countries and low-income countries could make payments using cards, mobiles, or the internet, according to the World Bank’s
Digital Progress and Trends Report 2023.
Additionally, smartphone and computer penetration are significantly lower in these countries compared to developed countries. Only about 17% of the sub-Saharan Africa population owns a 4G/5G-enabled smartphone, but in high-income countries, smartphone ownership
is as high as 78%.
Where the internet exists in these countries, the average speed is often low, hovering around or below 20mbps.
Diving further into the state of technology in these countries, urban-rural gaps across multiple fronts showcase a stark difference in accessibility to internet and tech devices.
In Nicaragua, for instance, less than 10% of the rural households own a computer or tablet; a sharp contrast to about 40% in urban regions.
Despite remarkable global efforts towards digitalization, rural areas often end up getting the short end of the stick, limiting direct access between remittance senders abroad and the recipients in these regions.
Although all these accessibility challenges still persist today, they are gradually becoming a thing of the past.
Global remittance providers, like BOSS Money, are creating workarounds that include an extensive network of local payout agents and different delivery options to ensure that recipients get their money irrespective
of location.
How Local Payout Networks Help Solve These Challenges
Even in rural areas that are nearly or totally deprived of mainstream financial services, some degree of localized cash or hybrid transactions still thrive.
Bearing this in mind, remittance providers leverage the existing market by partnering with local retailers, community-based financial organizations, POS vendors, and mobile money agents to deliver money directly to the recipients.
In sub-Saharan Africa, especially East Africa, local mobile money service providers act as mini-banks, capturing the larger portion of rural populations. For example, as at 2021, about
45% of Tanzanian adults owned mobile money accounts, with bank account ownership standing at around 23%.
By partnering with local mobile money providers, remittance providers enable migrant workers to send money directly to their folks back home, which they can then cash out at mobile money agents close to them.
In cases where the recipient doesn’t have any form of account, mobile money agents receive remittances on their behalf.
This simple, yet effective partnership between global remittance providers and local payout networks seamlessly overcomes the challenges posed by geographic barriers, technological limitations, and financial infrastructure gaps.
Technology for Better Reach
Compared to scenarios two decades ago, there’s a significant improvement in the state of remittance delivery in rural regions today.
However, there is still room for more improvement:
Offline-Capable Mobile Solutions
USSD technology has been available for local mobile money transactions since the late 2000s, allowing users to send and receive money even when offline.
As a crucial driver of financial inclusion in rural areas with low connectivity, remittance-focused innovations around USSD technology, alongside SMS technology, could go a long way in improving remittance delivery for recipients without smartphones.
Real-Time Tracking and Notifications
Still on offline-capable mobile solutions, SMS and USSD technologies present opportunities for fortifying reliability and transparency in remittance delivery to rural regions.
SMS notifications can help senders and recipients get immediate updates. Similarly, a unique USSD code can help the senders and receivers know the status of the transaction in real-time.
Keeping both parties constantly in the loop about a given transaction can help reduce failed pickups and hasten resolutions when issues arise.
Integration With Local Payment Systems
Adapting to country-specific rails, such as India’s Unified Payments Interface, greatly reduces costs, increases speed, and enhances the accessibility of remittances. The same goes for tapping into existing infrastructure and services provided by dominant
mobile money operators in rural regions.
Remittance providers already leveraging local payment systems clear transactions faster, further reducing rural wait times.
Services Tailored to Rural Customer Needs
Embracing technology and local payment networks lays the foundation for remittance providers to further tailor their services to meet the needs of rural customers across multiple fronts:
Flexible Delivery Options
The success of most deliveries to rural areas relies on a mix of both digital and cash transactions. Reputable remittance providers blend both types of transactions to create flexible delivery options that address different levels of customer needs, depending
on the varying degree of accessibility in a given region.
When a migrant worker sends money to Mexico, for instance, the intended recipient can pick up the cash at the nearest pickup location at their convenience. No bank account needed.
Besides cash pickup, other flexible delivery options for rural areas include home delivery, workplace delivery, and mobile agents.
Remittance providers also allow extended hours (unaffected by banking hours) to match rural work schedules.
Local Language Customer Support
Multilingual support helps remittance providers and their delivery partners build trust and clarity with customers.
The use of culturally relevant communication styles helps customers fully understand what their transaction entails, allowing them to take appropriate actions to maximize the payment system.
Affordable and Transparent Fees
Some remittance providers and mobile money operators do a lot towards reducing the cost of sending and receiving money abroad. Accordingly, the World Bank recognizes these channels as the cheapest way for migrant workers to send money back home.
Their cost-effective approach and the consequent customer retention that comes with it reemphasize the need for other service providers to:
Efforts in these directions are instrumental for global financial inclusion, which in turn creates a bigger market for the service providers.
Conclusion
By combining digital innovation with strong physical networks, remittance providers have proven that they can reach and support rural communities in more ways than traditional banks can, while keeping costs down.
The providers that have taken necessary steps to build trust and reliability in rural payouts have made indelible marks as champions of global financial inclusion.
However, there’s still more to be done to bring everyone onboard. To an extent, it’s all about doing the same things better, including better and more extensive financial infrastructure, more mobile money, and closer collaboration with local partners.
