Remittances, money sent by migrants for family support back home, are considered a significant driver of growth in developing countries. For households, they are a lifeline, improving the recipient’s standard of living; for economies, they are a source of foreign exchange, increasing spending, contributing substantially to GDP and expanding usage of financial services.
According to the World Bank, $33bn was remitted to Sub-Saharan Africa (SSA) in 2014; this figure is projected to reach $36 billion by 2017. In 2013, Nigeria, the largest inbound corridor in SSA, received $21 billion; other countries in the top bracket were Senegal ($1.7 billion), Kenya ($1.5 billion), South Africa & Uganda ($1 billion) and Mali ($800 million); these were mainly sent from USA, UK, France and Australia. Actual remittance volumes are believed to be significantly higher, if unrecorded transactions via formal and informal channels are taken into consideration.
The GSMA reported a significant growth in the volume of remittances sent via Mobile in 2014, which were the fastest growing channel. Initiatives by Mobile Network Operators (MNOs) to tap into the growing cross border remittance market include:
- MNO to MNO account to account interoperability- Intra network, within the group’s network (Airtel, MTN, Tigo, Econet, Vodacom/M-PESA, Orange), or Cross Network, involving different networks (Vodacom and MTN, Airtel Burkina Faso and MTN Côte d’Ivoire)
- MNO to Money Transfer Operator (MTO)- partnerships with World Remit, Skrill, Moneygram, or Western Union.
- MNO or MTO to Mobile Money Hub- MSF Africa, Homesend, Transferto enable cross border remittances for mobile wallets connected to their platforms.
Africa has over 30 million migrants, the majority of whom migrate in search of better economic opportunities or to escape from conflict. Intra-regional migration accounts for over 65 percent of migration in SSA, with the highest numbers coming from Southern and West Africa. Figure 1 below shows the top 10 migration destinations within SSA.
According to the International Fund for Agricultural Development (IFAD), migration to developed countries, referred to as south-to-north migration, occurs mostly amongst skilled workers. Economic opportunities, social networks, language, culture and security, are among factors that influence the choice of destination. Figure 2 below illustrates top migration destinations outside of Africa:
Accurate and consistent data on remittances, especially to and from SSA, is not readily available. Migration patterns and characteristics provide a mirror into cross border remittance trends. MNOs considering cross border interoperability partnerships can utilize this information to prioritize corridors with higher commercial viability and for existing services, where to focus customer awareness efforts.
According to a 2014 World Bank Report on global remittance prices, SSA is the most costly region to send money to, at 11.5 percent of the amount remitted compared to the global average cost of 7.9 percent.
South Africa remains the most costly country in the region to send money from, at 19.2 percent of the amount remitted; the highest fees are to Zambia, Malawi, Botswana and Mozambique.
The average cost of sending $200 via different channels to and within Africa varies as seen in Figure 3 below:
Regional mobile-to-mobile cross-border transfers cost less than banks or point-of-sale (cash-to-cash). Some MTOs have maintained their original pricing models to send to mobile, hence sending from MTO to mobile costs the same as sending from MTO to MTO. Online channels provide competitively priced fees, especially to mobile.
Several initiatives have been launched in an effort to reduce remittance fees, such as the 5x5 objective by the Global Remittances Working Group, whose aim is to reduce the global average cost of sending remittances from the current 10% to 5% in a period of 5 years through enhanced information, transparency, competition and cooperation with partners for the benefit of migrants and their families back home.
Competition amongst formal global and regional remittance service providers is increasing amongst banks and MTOs such as World Remit, Skrill, RIA and UAE Exchange offering account, point-of-sale, mobile, online, card, or a combination of channels. For north-to-south remittances, online service providers are the most common of the new entrants.
According to a World Bank report, cash via point-of-sale remains the most prevalent method of sending remittances, accounting for over 40 percent of remittance outflows.
In addition to improved technology and lower costs, increased competition provides choice for users and additional revenue streams for agents.
PAYOUTS IN RURAL AREAS
According to a 2014 report by IFAD, 30 percent of remittances to SSA are sent to recipients in rural areas, representing a total of $9.9 billion. Receipients spend additional sums of money travelling long distances to cash out. In some cases, funds are sent through multiple channels, increasing the transaction fees. Extensive mobile agent networks and availability of non-cash options such as merchant and bill payments ensure affordable, secure and convenient access to funds.
A conducive regulatory environment is integral in fostering financial inclusion. Advocacy and regulator-led initiatives continue to enhance better market conditions for remittance services. Examples include the expansion of the One Area Network initiative between Kenya, Uganda and Rwanda to include mobile money transfer; licensing and supervision of stand-alone cross-border remittance service providers in Kenya; removal of exclusivity clauses in service provider agreements in countries like Uganda, Tanzania, Kenya and Zambia; consistent and accurate remittance data capture and licensing of MNOs across Africa to offer cross border money transfers. There is more ground to cover, particularly in delicately balancing the level of control to potential risk.
In view of the price sensitive nature of remittance senders and receivers as well as the prevalence of informal services in SSA, mobile money is well placed to bridge these gaps by improving access, lowering costs, providing choice and convenience for users.
Judyth Engels is an Independent Digital Financial Services Consultant who is keen on the convergence between Remittances and Mobile Financial Services, and how better access, lower costs and user convenience can lead to increased usage of Formal remittance services.