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Africa: Remittances Update

AfricaFocus Bulletin
Mar 10, 2010 (100310)
(Reposted from sources cited below)

Editor's Note

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]

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 barriers.

The number of payout locations across the entire African continent is the same as Mexico, which has only a tenth of Africa's population.

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 countries.

"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 their community.

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.

Rural remittances

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): 20%
  • 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 development potential.

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 sent.

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 fees.


Major findings

  • 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 areas.


Remittance service providers for Africa: the rule of money transfer operators

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 role.


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 addressed:

  • 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 remittances.

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 the market.


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 payout locations.

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 restricted.


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 remittances.

For more information, please visit

AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

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