Tag: Remittance

The Impact of the COVID-19 Crisis on Remittance Flow to Cuba: A Glance at the Use of Digital Platforms

Denisse Delgado

Public Policy Ph.D. student UMass Boston

During the COVID-19 crisis, Mexico and the Dominican Republic have been experiencing an unexpected increase in the remittance transactions. However, most of the countries in Latin America and the Caribbean saw a sharp decline in their remittance receipts in April, before they began to rebound in June of this year. The remittance flow to Cuba has been decreasing this year, and it is still expected to continue to drop.

Remittance Flow to Cuba

The number of remittances to Cuba have been affected due to the COVID-19 impact on the countries of reception’s economy. Florida is home to the largest Cuban community of emigrants living abroad. As unemployment has increased in Florida, it has directly affected the Cuban community living there. Additionally, the number of remittances to Cuba have also been affected for two other reasons.  First, the current Donald Trump administration has imposed restrictions on remittances setting a limitation of $1,000 per calendar quarter to an immediate family member in Cuba. Second, the lower remittance flow is also aggravated by travel restrictions imposed by the Trump administration, as well as the limitation of international flights to Cuba by the Cuban government as a measure to control the spread of the pandemic on the island. A significant part of remittances —be it money or products— enters Cuba through informal channels or the so-called mulas —people who bring money and goods to the island. Travel limitations decrease the number of remittances that enter Cuba through these channels.

During the quarantine, however, Cubans are exploring new ways to send remittances. A source highlights that it has become trendy among Cubans living abroad to send cryptocurrencies to a trusted contact in Cuba. The contact in Cuba delivers the equivalent in the local currency, either in cash or through bank transfers to the recipient’s Cuban bank account. This method favors not only families that receive remittances, but also entrepreneurs and enthusiasts of the cryptocurrency community in Cuba who access cryptocurrencies regularly.

In Latin America and the Caribbean, the impact of digital remittances is relevant, as the digital payment system is becoming popular among the entire immigrant population in the U.S. Digital remittances are now frequently used to pay bills for services such as electricity, water, gas, the home phone line, the monthly rent. Therefore, by sending digital remittances, family members living abroad from their home countries directly contribute to the payment of essential services necessary for their families. But the development of digital technology must go hand in hand with training in digital and financial education. Having a well-developed digital platform to send remittances to Cuba would help Cubans living abroad to keep supporting their families during this challenging time and fund businesses that foment development.

About the Author

Denisse Delgado is a Ph.D. student in the Public Policy at the University of Massachusetts, Boston. Her research focus has been on Cuban migration, remittances, and development. She is an active member of the International Organization for Remittances and Migration (IOREM) and a principal collaborator for Cuban Horizon at Columbia Law School. Denisse has been a visiting scholar at various universities, including the David Rockefeller Center for Latin American Studies at Harvard University and the Cuban Research Institute, Florida International University, where she was a visiting fellow last summer. This summer, Denisse was an intern in the Migration, Remittances, and Development Program at the Inter-American Dialogue, a think tank located in Washington DC. Before that, she was a researcher affiliated with the Havana think tank CIPS (the Research Center on Psychology and Sociology). Denisse earned a BA in Sociology from Universidad de la Habana and an MA in Social Development from Universidad Católica de Murcia. Delgado is currently exploring the impacts of COVID-19 on remittance flows to Cuba, exploring the significant contributions of digital remittances. She also studies Cuba’s diaspora economic and political participation in the process of change on the island.

Coronavirus: How can we keep remittances flowing?

The World Bank is projecting the largest decline in remittances in history, due to COVID-19. On April 23, 2020, The World Bank hosted a webinar with Dr. Dilip Ratha, Chief Economist Remittances unit at the bank on how we could keep remittances flowing. Here is an abridged version of the webinar.

remittances flowing

Q: Can you give a broad overview of what’s going on?

Dilip: Globally $554 bn were sent last year, in remittances and we are expected this to drop to $445  bn – reduction by 20—30%. Rupture to poor countries. The human aspect is not to be underestimated. FDI, companies are sending it. The amounts sent are $100-$200 being sent in remittances. Perhaps a billion people are being impacted.

The main impetus for decline comes from the COVID crisis. Lockdown and social distancing. The main impact is coming when people don’t get jobs. Their incomes will fall and the inability to send money is impacted. There are other spillover effects that come from the fact that as economic activity comes down, there are ripple effects.

Q: Why is this decline so significant?

Dilip: There are about 270 million migrants around the world and most of them are in cities. In some cities, they maybe 40% of the population – NY, London, Paris, etc. These people sending these billions, are sending it to their families. This is used for consumption – food, education, healthcare, etc. The migrants who are sending money are poor, migrants. It has a huge poverty reduction impact. Nepal, South Sudan, Haiti, etc. sometimes remittances are 40%-50% of the income of the country and they are the lifeline for many people.

Given the shortage of food etc. that is being felt the impact could be severe, for food security as well.

Q: How’s pandemic impacting migration and labor?

Dilip: I don’t think migration has shifted significantly. There are travel bans, new migration is going to fall, but those who are here will stay. The stock of international migrants wont change much. In terms of internal migration, they are not able to go home, perhaps they’ll walk home – like in India. Villages have barricaded people.

There will be an impact over 6 months to a year.

Q: How are certain sectors going to be hit?

Dilip: In different countries, it may play out differently. There are two kinds of migrants. We see just one kind and not the other. The ones who are visible are doctors, white-collared professionals. NHS has a lot of doctors etc. The health sector is doing a little better. The agriculture sector is also in the news as there is a shortage of farm workers. That has huge implications for food security as agriculture season can be disrupted. Food prices are going up. What we don’t notice is the hospitality, retail sector, etc. they have been impacted as well.

Directly related to us is the money transfer industry. This is not considered an essential sector and we forget is that most of the people in the world don’t have access to digital services to send money. Most of the money sent it cash-to-cash (80%). Informal migrants send money through a store. Both the sending and receiving side of the stores are closed. This is a big impact on them.

Q: What’s the regional impact?

Dilip: The impact is global and declines in remittances may be historic, since the 1980s. In 2009, there was a drop of remittances of 5% and flow was above the pre-crisis.

The 2008 recession impacted just parts of the world. This crisis is impacting everyone, even in remote villages. That’s the context in which everything is impacted. Some will be impacted more than others.

Also, oil prices have fallen. Gulf and Russia are key for remittances. South Asia and North Africa receive a lot of remittances. The oil price issue is true in Russia. Rouble, the currency in Russia is also weakening in comparison to the US dollar. We are expecting the largest decline and global by about 20%.

Q: The bank is making $160 bn available over the next 15 months. What are some of the solutions?

Dilip: The policy response can be to think that a large number of migrants are human beings and are concentrated in urban economic centers. Like humans, they need to be included in part of our healthcare, social transfer responses. Also, the most urgent. Also, remittance is a lifeline, and making them ‘essential services’ is key. Finally, we know that the only way for us to send money is digital, and yet, we know that poor people who work in the informal sector, are unbanked. Having access to a bank account is critical to use digital means to send money. Yet, there is an urgent need to bring them to the banking sector so they can use digital means. Some barriers include regulation: Know your customer, ID checks. And some suspicion that small amounts are money laundering etc. We need to decriminalize this.

Q: What about stranded migrants?

Dilip: Some of the migrants are in labor camps, etc. and there are refugee camps. They don’t receive the attention they deserve. Migrants are ignored or discriminated against. Countries of origin can play a big role in bringing them back to their home communities. When they are in different places, they need cash transfer programs.

Q: How can we help migrants who may be facing discrimination?

Dilip: Migrants are also being seen as vectors. We need to reduce discrimination against migrants too. Some education program is also key.

How do you reach out to folks without IDs is the problem. There needs to be a mindset that we need to help people.