African Migrants Could Save US$4 Billion Annually on Remittance Fees
January 28, 2013--Every year, millions of migrants leave their homes and families behind to make a living overseas. And every year, these migrants send billions of dollars home to their loved ones, collectively spending millions of dollars on remittance prices in the process. In 2012 alone, 30 million African migrants sent close to US$60 billion in remittances. With scarce opportunities at home, the majority of the 120 million recipients in Africa depend on remittances for their survival, health, education, and livelihood.
But the high cost of sending money home means that remittances aren’t as impactful as they could be.
According to new data from the Send Money Africa database, funded by AIR Project, Africans pay more to send money home than any other migrant group. Sub-Saharan Africa is the most expensive region to send money to, with average remittance costs reaching 12.4 percent in 2012. The average cost of sending money to Africa as a whole is almost 12 percent, which is higher than global average of 8.96 percent, and almost double the cost of sending money to South Asia, which has the world's lowest prices (6.54 percent).
Bringing remittance prices down to 5 percent from the current average of 12.4 percent, which is what the G8 and G20 are targeting by 2014, would put US$ 4 billion back in the pockets of Africa’s migrants and their families.
“High transaction costs are cutting into remittances, which are a lifeline for millions of Africans,” said Gaiv Tata, Director of the World Bank's Africa Region and Financial Inclusion and Infrastructure Global Practice. ““Remittances play a critical role in helping households address immediate needs and also invest in the future, so bringing down remittance prices will have a significant impact on poverty.” Lowering the cost of remittances can also advance financial inclusion. Remittances are often the first financial service used by recipients, who are then more likely to use other financial services, including bank accounts.
Remittance prices are even higher between African nations. South Africa, Tanzania, and Ghana are the most expensive sending countries in Africa, with prices averaging 20.7 percent, 19.7 percent, and 19.0 percent respectively, due to several factors, including limited competition in the market for cross-border payments.
What can bring remittance prices down? According to Massimo Cirasino, Manager of the World Bank’s Financial Infrastructure and Remittances Service Line, competition and transparency are key. “Governments should implement policies to open the remittances market up to competition,” he explains. “Increased competition, as well as better informed consumers, can help bring down remittance prices.”
Currently, Send Money Africa finds that banks, which are the most expensive remittance service providers, are often the only channel available to African migrants. A regulatory environment that encourages competition among remittance service providers not only gives migrants more choices, it can also help bring down prices. Migrants can also benefit from more transparent information on remittance services because it gives them the resources they need to make informed decisions.