Imagine working hard as a recent immigrant driving a taxi or cleaning washrooms and sending money home to your sister living in Ethiopia. Although research shows most remittances are spent effectively there is no guarantee your funds will put her kids through school, provide healthy meals and not end up as part of her husband’s beer fund. To quote one study: “Very few (overseas workers) have families who use budgets or think of saving money. They send the money back, and their family wants to show they have succeeded, so they go out and buy a new TV.” There must be a better way to incentivize transfers and improve their effectiveness.
With mobile money becoming increasingly prevalent and schools shifting to cashless systems what if you could send money directly to the education provider? If you live in Nairobi and your relatives live in a rural area this is already possible domestically but international transfers are on the horizon. While researching I found an excellent case study, the authors were specifically interested in the allocation of remittances. The authors worked with Pilipino immigrants in Italy and developed 3 control groups. Group A continued their normal practices, Group B labeled the remittance (food, school, clothing) and Group C sent the funds direct to their family members school via EduPay, a platform set up by the researchers.
The results showed that Group B transferred 15% more than Group A, and Group C transferred 2% more than Group B. In the Philippines over the last 15 years they have seen education numbers increase substantially with the increase in remittances. This research supports my assumption that sending the funds direct would increase spending on education, and my opinion is that with feedback or reports from the school to the diaspora would retain long term family support. A minor payment shift could mean the difference between a family sending the boys to school or all children. Unfortunately the reality is that girls are pulled from school far more often than boys when financial strain is an issue.
For example, Bridge International Academies the company upon which I conducted the most research charges 7 USD per month, per student. A relative could pay 77 dollars for 11 months of school fees allowing a student to complete the entire academic year in one easy payment!
The most innovative company working with money transfers is Papatel and their primary market is United States to Columbia transfers. Individuals buy items online that can be picked up locally in Columbia via a partner network. Papatel also allows long distance calling and airtime top ups for most countries, a first step into new regions. Their site also has an education section allowing family members to pay for relatives to learn English.
The fact that private schools, mobile money and diaspora communities are increasing rapidly provides a huge opportunity for education to accelerate in emerging markets, which will in turn grow their economies.
Overall multiple articles pointed towards a positive correlation between remittances and education. Remittances increase household wealth providing increased capital to spend on non-survival services, some individuals used the funds to invest in new businesses which in turn increased their income allowing their children to attend school. Interestingly enough one study based out of Nepal stated that young children (5-10 years old) benefited more from remittances than older (11-16 year olds) children. My assumption is that their labour becomes more valuable with age and there is an incentive to pull them from school. Both reading and writing on the subject has been extremely interesting and I hope to post more Bottom of the Pyramid business research on my Consulting blog.
For more information please view the references below:
Yang, Dean. “Increasing the Development Impact of Remittances among Filipino Migrants in Rome.” Innovations for Poverty Action (2013): n. pag. Web. 23 Sept. 2014.
Bansak, Cynthia. “How Do Remittances Affect Human Capital Formation of School-Age Boys and Girls?” The American Economic Review 99.2, Papers and Proceedings of the One Hundred Twenty-First Meeting of the American Economic Association (2009): 145-48. JSTOR. Web. 23 Sept. 2014.