Could blockchain-based payment systems make financial access easier for migrant workers sending remittance payments from abroad, make the transfer cheaper, faster and more secure?
Citizens of Tajikistan rely heavily on remittances. A lack of job opportunities means that up to 1 million (out of a population of 8 billion) migrate elsewhere for work, mostly Russia. Until 2014, the share of remittances made up around 43 percent of the national GDP, roughly US$4 billion a year,The global recession and the depreciation of the Russian and Tajik currencies against the US dollar has since caused a sharp decline in remittances. But its share is still significant at 20-25 percent, as labor migration continues to be attractive.
When we visited Tajikistan to speak to the people who provide and use remittance services, we found that Tajikistan it an underbanked country with an estimated 70 percent of the population doesn't have formal banking accounts and instead relies on non-bank services like MTO's (money transfer operators; money transfer shops) for domestic and international payments.
Also, findings from the IFC report from the "Electronic and digital financial services" project suggest that:
- 19% of people often use Domestic remittance services and 40% of households receive international remittances;
- Remittances, Bill payments and Airtime top-ups are the top 3 requests for digital finance applications to address.
- 20% of users unsatisfied with international remittance services and spend on average 39 minutes to collect their money
- 69% of respondents wants to use digital finance immediately for everything.
Therefore there is a large potential for new services that can improve access to finance for everyone in Tajikistan. On our minds was the blockchain technology, which is a type of distributed ledger or decentralized database that keeps records of digital transactions without having a central administrator (think banks, governments & accountants) and visible to anyone within the network.
This is what we wanted to find out with our partner BitSpark company, the world's first cash in, cash out blockchain remittance platform.
Some of the fees in the traditional methods of remittance come in many forms and can vary from (a very competitive) 1-3% in fees and a variable fee on the exchange rates of around 0-2%. Often this can result in the common migrant worker paying the equivalent of about $5 per transaction (on an average $250 remittance) but this also does not factor in the last mile costs. To pick up the money, the family may need to travel to the nearest town, call a taxi and hand over a bag of cash or the money transfer shop may have run out of cash for the day to pay over the counter at collection. This adds additional unseen costs to an average transaction when the payment system is not digitised. Comparatively, Bitspark's fees are decided by our customers, the money transfer shops, and are approximately 1% with the possibility to receive payment digitally, eliminating 'last mile' costs - meaning the average migrant worker can save 50% on their transfer fees which over time, adds up to a lot and means more money in the local economy.
By using a Blockchain based system for money transfers would enable businesses to reduce their capital requirements, improve their oversight of payments, enable regulators a more detailed oversight over KYC (know your customer) information and for the end user this ultimately results in lower costs, faster payments and more coverage to unbanked areas of the country.
With this pilot project UNDP AltFinLab hopes to make leapfrog in financial sector in a country where 70% of the people doesn't even have a bank account. Can money transfer using blockchain be that change for good?
UNDP Altfin Lab is encouraging businesses and individuals in Tajikistan to innovate in the financial sector. We've also been helping to improve digital banking in the country
Authors: Marina Petrovic, George