A new financial approach by IFAD is empowering some of Moldova’s poorest. By giving new powers to Saving and Credit Associations (SCAs), remittances and credit are much more accessible to the rural population. Here is information about how remittances to Moldova are helping those in poverty.

What are Remittances?

Remittances are crucial to supporting the well-being of migrants’ families, communities and loved ones back home. They are typically transfers from an emigrant to their relatives or friends in their home country. By improving and enabling access to education, health and housing remittances have lifted millions of migrant families out of poverty across the world. According to the International Fund for Agricultural Development (IFAD), in 2022, remittance made up more than three times the annual flow of official development assistance.

Remittances to Moldova

Moldova is Europe’s most remittance-dependent country, and in 2022 remittances accounted for 14.3% of the GDP. Despite a population of only 2.6 million, 1 million people relied on remittance to Moldova in 2021; for some, it was half of their total income. In the last decade, these transfers were intrinsic to Moldova’s steady economic performance, which originated on remittance-induced consumption.

However, recent economic developments, such as a surge in energy prices, inflation, the war in Ukraine and an influx of refugees, caused a steep decline in remittances as well as a decline in poverty reduction.

This change most affects rural communities and farmers in the status of remittances. Poverty is predominantly rural and agricultural, with 80% of Moldova’s poor living in rural households and depending on agriculture as the main source of income. Chris Perkins, part of the British Embassy in Chisinau, said that 30% of those living in rural areas “would fall below the poverty line if they did not receive them [remittances].” 

 In 2015, remittance to Moldova made up 19.75% of the GDP; it has dropped more than 5% since then. This decrease threatens to increase poverty in villages, areas with an already low level of population welfare. Crucially, access to remittance transfers for rural people is also very limited as most of the formal access points are concentrated in the big cities. Those who live and work in the countryside, particularly agriculturalists, cannot afford the time it takes to reach these points.

IFAD’s Efforts

Improving access to loans and remittances for rural communities is vital to staving off a rise in poverty in these places. That is why IFAD has offered a solution by strengthening the country’s Saving and Credit Associations (SCAs). Now that these localized financial institutions have the tools to manage remittance transfers, trips to big cities are no longer required. These SCAs can also now use remittances as collateral so that farmers have the necessary guarantee to obtain a loan. Businesses and livelihoods can therefore be buoyed by new financial pathways. 

The project began on June 16, 2020, in response to COVID-19 with a successful transfer to schoolteacher Vangheli Ludmila in a rural northern town of Ștefănești. She received money from her son Mihai, a truck driver in the United States.

In a country that is vulnerable to shocks from the climate, drought and war in Eastern Europe, these SCAs empower the poorest to be resilient to such shocks. The World Bank does hope that a new economic model will replace the existing one in Moldova that is less reliant on remittance-financed consumption. However, it is still possible to maximize the impact of remittances on development in Moldova and SCAs are one example of this.

This project is possible to scale up and hopes to include additional rural areas of Moldova, bringing more prosperity and security to the most vulnerable in one of Europe’s poorest countries.

– Sam Waterkeyn
Photo: Flickr