Sending remittances to Africa is more expensive than anywhere else in the world, a new global report published at the Global Remittances Conference in New York last week shows.
According to the report, more than 1 million migrants in the U.K. are paying on average £80 a year more than they should to send remittances to friends and families in Africa.
“The absence or weakness of a digital payments infrastructure and acceptance network, a financially included population, and/or an identification system means that many of the traditional acceptance services, such as terminating in to a bank account or mobile wallet, are not always available,” the report says.
The report, which was prepared by Developing Markets Associates (DMA), indicates that the average cost of sending money to Africa is almost 10 percent, compared to the global average of just over 7 percent.
It further shows that nine out of 10 money transfer dealings from the U.K. to Africa are in cash and only one in 20 transactions is initiated online.
“Sending money home is very expensive compared to the relatively low incomes of migrant workers and the small amounts they typically send,” DMA CEO Leon Isaac, was quoted by All Africa.
However, Isaac insists that the many challenges contributing to the high cost of sending money to Africa require a holistic approach instead of solely focusing on new technology.
Consequently, he wants new regulations for the new technology and a change in consumer behavior through the digitization of the entire process of sending money to Africa.
Also speaking at the conference, Stephen Kaboyo, an executive partner at Alpha Capital, attributed the high cost of sending remittances to Africa to the lack of competition and strong market structures, adding that remittances are quite sensitive to costs, which can be a big disincentive.
Kaboyo is therefore upbeat that a reduction in costs would result in a significant increase in remittances.
“Building the capacity and readiness of the end-user to access and adopt technology-based solutions as well as creating an enabling environment to foster the development and roll out of such solutions will be just as important as the solutions themselves, if scale is to be achieved and the anticipated benefits realized,” the report concludes.
Despite the high cost of sending money to Africa, the World Bank reports that African migrants are now sending remittances back to their families at levels above $441 billion, a figure that is three times the volume of official aid that flows to developing countries.
The bank also states that these inflows of cash constitute more than 10 percent of the GDP in some 25 developing countries, enabling governments to provide important services, such as health and education.