Introduction
You’ve heard it so many times already: Lebanon’s economy has been significantly impacted by financial challenges in recent years.
Amidst these difficulties, remittances (money transfers) from the Lebanese diaspora have become an essential lifeline. And now that it’s so important, we think you should know more about it.
In this blog, we explore an overview of the remittances landscape in Lebanon, highlight its importance, and the evolving digital trends in this sector.
Human Impact and Crisis Response
Remittances are not just financial transactions but vital support during crises:
- They provide immediate aid during emergencies, such as the 2021 earthquake in Haiti and the invasion of Ukraine in 2022, where remittance platforms eliminated fees to facilitate quick transfers.
- The majority of remittances to Lebanon are now used for basic living expenses, helping families cover essential needs like rent, utilities, food, and medical care.
The Scale of Remittances to Lebanon
Lebanon receives substantial remittances that play a critical role in the economy:
- In 2023, net remittances amounted to $5 billion, accounting for 31% of the country’s GDP.
This net resulted from incoming remittances to Lebanon amounting to $6.69 billion, against outgoing remittances of $1.7 billion. - HOWEVER, annual remittance inflows are actually estimated between $20 to $22 billion, which is significantly higher than the World Bank’s estimate of $6 to $7 billion.
So, why this discrepancy?
Due to a lack of trust in the banking sector, many Lebanese expats prefer carrying cash when visiting Lebanon. This accounts for many unofficial money transfers – noting that anyone entering the country, whether Lebanese or not, can carry up to $15,000 without declaration.
(Amounts between $15,000 and $50,000 require a simple declaration at the airport. Larger amounts are allowed, but individuals need to complete additional procedures and declare the source of the funds.)
Remittances through one of the largest financial transfer companies, OMT, amount to about $1.5 billion annually. Additionally, remittances through banks have significantly declined from about 35% previously. The most noticeable increase has been in cash remittances through the airport.
Lebanon is Now A Cash Economy
Remittance funds are crucial for covering high import bills and sustaining the country’s foreign currency supply, with over 70% of market transactions conducted in USD.
However, alongside the collapse of Lebanon’s financial sector, this situation has bolstered the cash economy, which now constitutes about 60% of the overall economy. This highlights the crucial role of remittances in forming Lebanon’s real capital. Previously, remittances were deposited in banks.
Today, they primarily support households and consumption, making them the backbone of the Lebanese economy. Although their value hasn’t increased since the crisis, remittances remain the sole capital source as other sources have evaporated.
Cash economy comes with its disadvantages though. These include limited traceability of transactions, potential for tax evasion, and vulnerability to theft or loss.
Challenges and the Way Forward
Despite the benefits, there are challenges that different parties need to address to optimize the remittance landscape:
- The cost of sending remittances to Lebanon is notably high, averaging 11%, compared to the global average of 6%.
- Carrying cash when visiting Lebanon as opposed to sending them digitally or through a bank/agent imposes various security risks on the short-term and long-term.
Digital Transformation in Remittances
A ray of hope! The Covid-19 pandemic accelerated the adoption of digital remittance platforms, leading to reduced costs and increased efficiency:
- Digital remittances increased by about 20% after the 2019 crisis.
- Costs of digital remittances have dropped significantly, with card-funded remittance costs decreasing by 21% between 2018 and 2020.
- Digital platforms are making remittances faster and cheaper, benefiting both senders and receivers. For instance, cross-border mobile money transfers save remitters nearly 3% compared to cash transactions.
Purpl has joined these forces by offering lower-cost digital remittance solutions and enhancing financial security through reliable and transparent banking alternatives, ensuring safer and more affordable money transfers for Lebanese expats and anyone receiving money from abroad.
Conclusion
Remittances are a vital component of Lebanon’s economy, providing essential financial support to families and sustaining economic activity. The shift towards digital platforms is making the process more efficient and cost-effective, ensuring that remittances continue to be a lifeline for the Lebanese people. As the country navigates its financial challenges, the role of remittances will remain crucial in supporting the livelihoods of millions – and Purpl is here to make the process easier and safer!
Written by: Maria Sawaya
