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Africa: Remittances Update
Mar 10, 2010 (100310)
(Reposted from sources cited below)
A 2009 report from the International Fund for Agricultural
Development (IFAD) notes that some 30 million African workers
outside their countries send home approximately $40 billion a year
in remittances. But with only as many "payout" locations on the
continent as in one Latin American country (Mexico), the process is
expensive and dominated by two large money transfer companies which
work primarily with banks. There are large untapped opportunities
for lower costs, particularly for rural Africans, if more
governments allowed and fostered the participation of post offices
and micro-finance institutions in remittance transfers.
This AfricaFocus Bulletin contains excerpts from a press release on
the October 2009 Global Forum on Remittances, facts and figures
from IFAD, on remittances in Africa, and excerpts from the report,
Sending Money Home to Africa.
A 4-page newsletter, Financing Facility for Remittances, with a
report on the 2009 Global Forum on Remittances, is at
For statistics on remittances to and within Africa, see
For a previous AfricaFocus Bulletin on remittances, see "Africa:
Sending Money Home," at
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
"Sending Money Home to Africa" - remittances hold immense untapped
potential for the poor
An IFAD report explores how remittances could be catalysed through
informed policy decisions
[For this press release, as well as the full report, and links to
statistical data and other reports, visit http://www.ifad.org/remittances/pub/money.htm]
Rome, 20 October 2009 - African workers send home more than US$40
billion to the region each year but restrictive laws and costly
fees hamper the power of remittances to lift people out of poverty,
according to a new report by the UN's rural poverty agency, the
International Fund for Agricultural Development (IFAD).
"Sending Money Home to Africa" [was] presented at the Global Forum
on Remittances 2009, organized by IFAD and the African Development
Bank (AfDB) in Tunis, Tunisia, on 22-23 October.
Globally remittances top $300 billion per year, outstripping
foreign direct investment and development assistance combined. But
while transfer costs have declined significantly in Latin America
and in Asia, sending money home to Africa is still expensive.
Within Africa, costs can be as high as 25 per cent of the sum.
At the G8 summit in L'Aquila in July 2009, world leaders recognized
the development impact of remittance flows and set a goal of
reducing the cost of remittances by 50 per cent over the next five
years, by promoting a competitive environment and removing
The number of payout locations across the entire African continent
is the same as Mexico, which has only a tenth of Africa's
Between 30 and 40 per cent of all remittances to Africa are
destined to rural areas where many recipients have to travel great
distances to collect their cash.
The report finds that simply by expanding the kinds of institutions
able to conduct remittances services to include microfinance
institutions and post offices, the number of payment points would
more than double.
The IFAD report highlights how new technologies - such as
cellphones - and existing infrastructure - particularly post
offices or small retail outlets - could vastly increase the reach
of remittance services. Algeria, where 95 per cent of remittances
are paid through post offices, could be a model for other African
"Supporting this people-to-people money flow to rural areas of
Africa is especially vital now because of the recession" noted IFAD
Assistant President, Kevin Cleaver, before leaving for Tunis.
"The power of remittances can be catalysed by easing restrictions
and making it less costly for African families to collect this
money," he added.
Most money sent home by migrants is spent on daily consumption but
research shows linking remittances to financial services for the
unbanked - savings accounts, loans and insurance - allows even the
very poor to save and potentially invest in the development of
Notes to editors:
The Global Forum on Remittances 2009 is hosted by IFAD in
partnership with the AfDB and in collaboration with the
Inter-American Dialogue, from 22-23 October in Tunis. The 2009
Forum, will assess trends in remittances to Africa, amid the
financial crisis, and identify policy solutions and will also host
a Business Models and Technology Fair.
IFAD's multi-donor Financing Facility for Remittances (FFR) was set
up to support innovative cost effective and accessible remittance
services. IFAD promotes partnerships between African microfinance
institutions and financial institutions in the US to link
remittances to other financial services. Ethiopian migrant families
can access low cost transfer services and also be introduced to
other financial products.
IFAD works with the Universal Postal Union to provide remittance
services to rural areas using post offices, linking remittances to
other financial services such as bank accounts savings and loans.
Data on Remittances in Africa
Source: IFAD Facts and figures
The African continent has over 30 million people in the diaspora.
Of all the world's regions, however, Africa's predominant migration
is the most intraregional. The fluid migration within Western
Africa, for instance, is partly due to the region's status as a
geopolitical and economic unit, but also to a common history,
culture and ethnicity among many groupings. There is also
significant international migration to former European colonial
powers such as France, the United Kingdom of Great Britain and
Northern Ireland, the Netherlands and Italy, among other countries.
Remittance flows to and within Africa approach US$40 billion.
Countries in Northern Africa (for example, Morocco, Algeria and
Egypt) are the major receivers in the continent. Eastern African
countries depend heavily on these flows, with Somalia standing out
as particularly remittance dependent. For the entire region, annual
average remittances per migrant reach almost US$1,200 and on a
country-by-country average represent 5 per cent of GDP and 27 per
cent of exports.
Remittances to rural areas are significant and predominantly
related to intraregional migration, particularly in Western and
Southern Africa. The mobility of Africans within these regions has
been followed by the sending of regular amounts of money. Two
thirds of West African migrants in Ghana remit to rural areas in
their countries of origin.
Market and financial access
When compared with other regions, money transfers to Africa are
among the most problematic, mainly due to the two major challenges
faced by the continent: high rates of informality, particularly
within the continent, and a regulatory environment that favours
monopolies. Consequently, transfer costs are higher and remittance
senders obtain less value for their money. Most African countries
restrict outbound flows of money unless used for trading and money
transfers to banking depositary institutions.
As a result, informality emerges as a solution to the need to
remit. Another effect, however, is the persistence of monopolies on
transfers by banks and the few money transfer operators (MTOs). In
all of Western Africa, for example, 70 per cent of official
payments are handled by one MTO, which demands exclusivity in money
transfers of the banks.
Nigeria is a case in point: nearly 80 per cent of transfers are
handled by one MTO, which expects exclusivity and prevents other
MTOs from contracting agreements with those banks that are the sole
remittance payers in the country. Since banks are the only entities
allowed to pay money transfers, all official flows end up being
handled by a small group of financial institutions that rely on
less than four MTOs. Migrants in South Africa are also faced with
significant regulatory restrictions on sending money, and thus rely
on informal networks.
Because regulatory environments often prevent other nonbanking
financial institutions from making transfers, or restrict outbound
transfers, financial access is also a casualty. As few institutions
participate in the transfers, and banks do not cater to
lower-income individuals, financial access among African senders
and recipients is relatively low. In some countries, for example
South Africa, barriers to entry relate to legal status, thus
disenfranchising migrants. Other countries, for example Kenya, are
seeking to increase financial access by leveraging remittance
transfers through the use of mobile telephony.
Total number of emigrants: 32,808,000
Total remittances (US$ million): US$ 38,611 million
- Central Africa: US$2,690 million
- Eastern Africa: US$5,929 million
- Northern Africa: US$17,614 million
- Southern Africa US$1,979 million
- Western Africa US$10,399 million
Indicators (weighted average)
- Remittances per capita: US$44
- Annual average remittances per migrant (unweighted average): US$1,177
- Remittances as percentage of GDP: 5%
- Remittances as percentage of exports 27%
- Average share of migrants in total population: 3.7%
- Average share of migrants in countries with a population under 1 million (unweighted
- Average share of migrants in countries with a population over 1 million (unweighted average): 5%
Top 5 recipients by volume received (US$ million)
* Morocco: $6,116 * Algeria: $5,399 * Nigeria: $5,397 * Egypt:
$3,637 * Tunisia: $1,559
6 out of 53 countries receive more than US$1 billion
Main migrant destination (and origin):
* International: United
States (Nigeria, Ghana); France (Senegal, Mali, Algeria, Morocco);
the Netherlands (Morocco, Democratic Republic of the Congo) *
Regional South Africa (Southern Africa); Cote d'Ivoire (Western and
Central Africa); Nigeria (Ghana)
Cost range of sending: US$200 8 - 12%
Sending Money Home to Africa
IFAD, October 2009
For the region as a whole, remittances far exceed official
development assistance, and for many countries they exceed
foreign direct investment as well.1 With investment and aid
flows heavily under pressure as a result of the financial
crisis, remittances remain a resilient and vital lifeline for
tens of millions of African families. Nevertheless, despite the
significant direct impact of remittances on the lives of
recipients, these flows are not yet reaching their full
This report outlines the main results of a study of regulatory
issues and market competition in 50 African countries
representing 90 per cent of remittance flows to the region.
High cost of African remittances
The cost of sending money to Africa, however, remains relatively
high and subject to wide variations. Transfer costs from the
United States are generally among the lowest, followed by
transfer costs from Europe. The cost of sending remittances
within the continent is far higher ... the cost of sending
remittances from South Africa to other African countries is
generally higher than sending money to Africa from abroad. These
costs range from 12 to as high as 25 per cent of the amount
Remittances are particularly relevant - and particularly
expensive - to Africa's underserved rural areas, which receive
an estimated 30-40 per cent of all flows. Often these
remittances are picked up far from home, and families must add
substantial travel costs and time to the already high transfer
- The African remittance market exhibits a low level of
competition and has limited payout presence in rural areas.
- Two major money transfer companies control 65 per cent of all
remittance payout locations.
- Effectively, 80 per cent of African countries restrict the type
of institutions able to offer remittance services to banks.
- Exclusivity arrangements severely limit competition and create
barriers to entry.
- More than 20 per cent of the people within the reach of MFIs
receive remittances. Yet MFIs currently represent less than 3
per cent of remittance payers.
- Post offices could potentially play a significant role in
expanding remittance services.
Africa's remittance market
The formal market for money transfers to Africa is relatively
young and faces the challenges typical of emerging markets.
These issues include uncertainty about the volume of
remittances, limited competition, high transfer costs and a lack
of technological innovation (with the notable exception of mobile
banking in Kenya and South Africa).
A robustly competitive market is key to expanding financial
access, because it drives market players to innovate and expand
services to the underserved areas and groups. Competition drives
technological innovation and reduces the cost of sending money
home. ... these costs remain relatively high in Africa
(especially within the continent) and are higher still in rural
Remittance service providers for Africa: the rule of money
Money transfer operators (MTOs) dominate the market for transfers
from the United States and European migrant destinations. There
are fewer than 100 MTOs operating in the entire African
marketplace, together comprising almost 90 per cent of all
remittance service providers (RSPs).
Of the MTOs, Western Union and MoneyGram are, by far, the most
significant market players. As pioneers these companies were
instrumental in creating the international network that has made
remittance transfers possible. Both companies, however, have
protected the returns on their initial investment by requiring
that agents sign exclusivity agreements.5 These agreements
effectively 'lock' more than half of all available payout
locations. Because they apply to all agents - banks, foreign
exchange bureaus and post offices, among others - an effective
control of 65 per cent of the authorized payout market results.
The continuing dominance of Western Union and MoneyGram is not a
result of exclusivity agreements alone, however. Among the
institutions paying out remittances there is also a lack of
knowledge of the money transfer market. Many African banks
incorrectly perceive Western Union and MoneyGram to be the only
companies offering international money transfer services. As a
result, banks are prepared to sign exclusivity agreements in
return for guaranteed volume. ...
Remittance-paying institutions in Africa
Most regulations in Africa permit only banks to pay remittances.
In most countries, they constitute over 50 per cent of the
businesses paying money transfers. About 41 per cent of payments
and 65 per cent of all payout locations are serviced by banks in
partnerships with Western Union and MoneyGram.
While non-bank RSPs play only a marginal role in most countries,
there are alternative models that highlight the potential role
of post offices, foreign exchange bureaus, retail stores and
MFIs. Post offices, for example, constitute 95 per cent of the
payers in Algeria, while MFIs constitute 29 per cent of the
payers in the Central African Republic.
Money transfers paid by post offices
In Africa as a whole, post offices do not yet play a significant
role in transferring remittances. The notable exception is
Algeria, where the postal system is engaged in a partnership
with the French postal system. Algerians sending money home from
France have adopted the use of post offices as one of their
preferred methods of sending remittances.
While post offices have a strong geographical presence, they lack
the capacity to pay remittances. Many cannot yet realize their
full potential because they lack sufficient cash flow to pay
transactions, effective communications infrastructure or
properly trained staff. In total, about 20 per cent of all post
offices in Africa currently pay remittances.
Post offices play a very significant role in rural areas: 74 per
cent of all post office locations paying remittances are outside
the capitals of their respective countries. The potential for
increasing their market share is significant, especially in
rural areas. There are also challenges, however, as 36 per cent
of the post offices outside of Algeria are agents of Western
Union and are bound by exclusivity agreements.
Money transfers paid by MFIs (micro-finance institutions)
In places where other non-banking financial institutions are
allowed to transfer remittances, the participation of MFIs
remains relatively limited. For the continent as a whole, only 3
per cent of payout locations are MFIs. But, as the example of
the Central African Republic shows, MFIs can play a much greater
The role of non-bank financial institutions
Non-bank financial institutions such as credit unions or MFIs
could potentially expand the reach of remittances and related
services significantly. This is the case both in terms of
geographical coverage and in terms of meeting the financial
needs of the less wealthy client base.
Regulations covering microfinance activities vary widely across
Africa, in part because of the fact that virtually no
microfinance legislation existed prior to 2007. In some cases,
the only clearly regulated MFIs are cooperatives or credit
unions, and in almost half the countries no specific MFI
legislation exists. Even while several countries allow MFIs to
carry out money transfer services, these organizations are faced
with legal and institutional challenges.
According to the study, the Democratic Republic of Congo, Ghana
and Kenya are the only countries in which MFIs are allowed to
carry out international money transfers. Even in these
countries, however, their participation is limited by a lack of
technical capacity enabling them to function as payers. Most
countries prohibit MFIs from making money transfers. ...
Role of MFIs in remittance transfers and financial access
The role of MFIs is of particular interest, as these are present
in more rural areas and specifically target market segments
underserved by larger financial institutions.
Expanding the role of MFIs could yield great benefits. The study
shows, however, that two potential key changes would need to be
- First, regulatory frameworks need to be examined and
streamlined to allow MFIs to play a greater role in money
transfers and potentially in deposit-taking.
- Second, investments in the capacity of MFIs and their employees
are needed to enhance their knowledge of new services, integrate
new technology and ensure regulatory compliance. ...
Policy implications and recommendations
... this report advances several recommendations that can
enhance financial access in Africa.
Improving information to improve policy decisions
As yet, relatively little is known about remittances to Africa.
The key to both informed policy decisions and private-sector
interest is the availability of timely, accurate information. As
more information becomes available on a regular basis,
governments, the private sector and the donor community are each
better able to play their roles in maximizing the impact of
Pursue regulatory reform
Regulatory reform is central to leveraging the impact of
remittances. There are a range of businesses that have the
operational and financial capacity to conduct transfers, but
that are not permitted to do so. When banks can perform
transfers and MFIs can only act as sub-agents, both institutions
suffer as they encounter barriers or lack incentives to enter
Allowing more actors to perform money transfers will expand the
reach beyond banks and foreign exchange bureaus, allowing
greater competition among RSPs. While there are eight banks on
average in each African country, there are more than 15 MFIs,
half of which are regulated, and at least three or four of which
could compete as payers.
Africa has a very low number of payout locations. Mexico alone
has almost as many payout locations as the entire African
continent, despite having only one- tenth of Africa's population.
Simply bringing MFIs into the market would double the number of
Phase-out exclusivity agreements
Contracts that prevent agents from forming partnerships with
other providers block competitors from entering the market.
Given the fact that 60 per cent of payers in Africa are banks,
and that 80 per cent of banks are already paying remittances,
the opportunities for RSPs to enter the African marketplace are
IFAD Financing Facility for Remittances
IFAD's US$15 million, multi-donor Financing Facility for
Remittances is funded by the Consultative Group to Assist the
Poor, the European Commission, the Government of Luxembourg, the
Inter-American Development Bank, the Ministry of Foreign Affairs
and Cooperation of Spain, and the United Nations Capital
Development Fund. The Facility works to: (i) increase economic
opportunities for poor rural people through the support and
development of innovative, cost-effective and easily accessible
remittance services; (ii) support productive rural investment
channels; and (iii) foster an enabling environment for rural
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