Rapid assessment report on remittances for cost reduction, enhanced financial inclusion and increased resilience of migrants and remittance receiving families in Lesotho

Executive summary

Remittances from migrant workers in Lesotho are an important source of financial support for many of its citizens. They also form an important source of income for the national economy. As such, supporting the flow of remittances by providing safe and affordable financial products for remittance senders and recipients in turn helps to make Lesotho itself more resilient and able to cope with shocks such as natural

disasters, climate change and the COVID-19 pandemic. Despite the high importance of remittances to the Basotho, research suggests that, until recently, only a small portion of remittances into Lesotho have been carried by formal financial service providers, with the bulk of remittances still carried via informal channels.

Reasons for this include a high preference for cash, limited commercial (formal) options for transmission and limited access to formal networks in rural areas, inadequate digital infrastructure or access, and poor interoperability between banks and digital finance providers. Remitters have thus not been able to benefit from the greater reliability and security typically provided by formal financial service providers, which are also often able to offer more rapid transfer services, and may also provide ancillary financial services such as savings products.

Resolving these issues and formalising remittance markets poses a number of challenges. The first and in some ways most difficult problem is that many remitters are poor and can only afford to send small sums of money. A precondition for the establishment of any truly effective remittance system is thus to address the problem of keeping transaction costs as low as possible, to allow these small transactions to remain commercially viable – which has knock-on implications for regulatory design, as transaction monitoring systems tend to increase transaction cost. The second major set of problems in revitalising cross-border remittance markets has to do with the fact that two sets of regulatory systems and financial infrastructure are involved, in both the sending and receiving country. This makes it more difficult to identify the source of regulatory barriers, and means that time and effort need to be expended on regulatory coordination in order to resolve such issues.