The price of privilege – how to bring the cost down
Sept. 1, 2015
Diaspora is the term that refers to a large population moving away from their homeland, often without choice.
Many migrant Africans will relate to this term, and for these people remittance plays an important role of commitment, and unconditional love for their family, some of whom they may never have met. Remittances thus bind generations of families across native and new countries. Over the course of 2014, it has been estimated that Uganda received just under $1 billion in remittance payments, which is nearly 18 times more than the total international humanitarian assistance the country received in the previous year. For a country where despite significant progress poverty afflicts around one third of people, remittance can quite literally be a lifeline. This goes to show how these strong connections within a family can be a lifeline to those in need many miles away.
There are a myriad of reasons why someone decides to send their money to a home they may never have been, and the consequences have been just as varied. For many, the commitment is born out of religious and familial tradition, whereas for others it is simply a matter of obligation, due to the sometimes extreme circumstances that their families live in.
For these reasons, it is a shame that there is such a tight choke-hold on the flow of money to Africa from remitting relatives. In 2012, the 6 most expensive corridors for money transfer were all within Africa and the top 3 all originating from South Africa, peaking at 23%. Security checks, armoured vehicles and currency exchanges are some of the factors that the big money transfer operators use to justify their exorbitant rates across Africa. However, unlike in other continents, companies like Western Union reportedly sign deals with banks to ensure exclusivity, allowing them to shore up the prices significantly in the absence of competition. For example, monopolistic market dominance in Rwanda and Mali gives the operator a shocking 79% of the market. It is no wonder that each year millions of dollars are taken away in fees from remitting families trying to support their own relatives in the most poverty-stricken countries in Sub-Saharan Africa. A previous blog piece gave an insight on the ways that the fight against poverty could be considerably assisted if remittance fees in Africa were lowered to the G8 target.
Despite this, technology may be a big step forward in lower remittance fees, as more mobile money companies rapidly emerge in the market. New digital companies increase the level of competition by simply entering the playing field, but many also focus on mobile phone money transfers. As a result, not only do the charges drop as the number of companies rise, but the actual process of sending and receiving money is made much simpler, overcoming some of the physical barriers mentioned above. Now, there is no need to pay the charges for armoured vehicles with companies like WorldRemit or M-Pesa. In fact, the presence of these mobile transfer companies has led to more people having mobile money accounts, rather than traditional bank accounts, with the majority of adult Kenyans owning an M-Pesa account. Due to developing partnerships between network providers, the rise in mobile money exchanges can slash inter-country transfer fees from 20% to 3% within Africa. For many migrants, these projects will let them breathe a little easier knowing that they are able to send more money to their relatives who need it. As importantly, they bring stability to economies by reducing the volatilities of household inomes.
For some people, sending money home is a necessity; for others it is a case of moral obligation. Many migrants consider remittance as an inherited value that can be a matter of choice. These people would even call it a privilege to be in such a position that they can help care for their elders, spouses, children, cousins, nieces and nephews; and with developing African countries stepping up to digital money exchanges, they may be able to help more than they ever thought.
Anshuman Sinha, TrasferGuru Research