By Allan Halcrow
Prime among the challenges of sending money to Africa is the eye-popping cost. Last year, the World Bank’s Global Knowledge Partnership on Migration and Development (KNOMAD) reported that the cost of sending remittances to Sub-Saharan Africa topped 10 percent in some corridors, averaging out to 9.72 percent. That’s almost double the 5.54 percent average cost of sending money to South Asia, and more than 20 percent higher than the cost to transfer funds to any other region in the world.1
Observers explain that two dynamics have traditionally driven overseas money-transfer cost. First, laws across the region require that money transfer operators ensure they aren’t either funding terrorism or abetting money laundering.2 The geopolitical value of such regulations is hard to argue with, but the reality is that the cost associated with enforcing them usually is passed on to individuals and businesses.
Second, costs are kept aloft by a landscape almost devoid of free-market competition. As in other developing economies, a high percentage of the population do not have bank accounts. The BBC reports, for example, that 60 percent of Nigerians do not have a bank account.3 That’s typical for the region. The World Bank says that 66 percent of Sub-Saharan Africans are unbanked. And that financial reality is not limited to consumers. About 400,000 businesses in South Africa do not have access to formal financial institutions and, therefore, rely on cash.4
But unlike Latin America—where consumers have many choices for where to receive cash—the options are limited in Africa. To understand why, it’s first important to understand the central role of the post office. Not only is it both widely trusted and accepted as part of the social fabric, the post office is also often the only outpost of civilization for Africa’s largely rural population. Consequently, nearly 100 million Africans use post offices and postal agents to access basic financial services.5 The result is a virtual monopoly, at least outside cities, because the national post offices of many African countries have exclusive partnerships with a single money transfer provider. Fees are higher because there is no competition.
That landscape may be about to change, however. Ironically, the source of much of this change involves people who no longer live there. According to the United Nations, eight of the world’s 10 fastest growing migrant populations are from Sub-Saharan Africa.6 Working abroad, these people are sending money back to Africa. Last year, that amounted to about $40 billion.7
This influx of money is putting pressure on the current system from two sides. First, individuals are seeking options that will allow recipients to keep more of the money they are sent. Experts note that governments are recognizing that remittances are an increasingly vital part of the economy. In Nigeria, Africa’s biggest economy, remittances were worth 5.6 percent of the gross domestic product (GDP) in 2017.8 In other countries it was much greater—27 percent in Liberia and 21 percent in The Gambia, for example.9 Experts generally assume that these numbers are conservative.10 Official data is often unreliable (or unavailable), because a lot of money enters the country unofficially, carried across borders by friends or bus drivers. Experts also assume that the numbers would be greater, still, if high costs didn’t still inhibit sending money.
Enter fintech. Using mobile technology to transfer money cuts out the need for agents, at the post office or otherwise, thus reducing costs. In response, some governments are easing the restrictions on money transfers. For instance, the Central Bank of Nigeria now allows telecommunications companies to operate as payment service banks, while Ghana has established regulations on e-money.
But the status quo is far from broken, for fintech has not made inroads everywhere. The Reserve Bank of Zimbabwe still prohibits digital cross-border transfers, for example. Beyond that, a patchwork of regulations, service providers, and infrastructure means that anyone seeking to send money must expend significant effort to determine how to transfer the funds from one country to another country as cost effectively and economically as possible. The possibilities might not be endless, but they are plentiful—more than half of the world’s mobile money services are in Africa.11
One tool that may help any sender find a solution is Send Money Africa.12 The online database aims to promote transparency in the remittances market. Although the database doesn’t include every possible combination, the Corridors tool allows users to see the fees, transfer speeds, and other attributes of different providers. Those in the U.S. wanting to send money to Ethiopia, for example, can compare 11 vendors. It’s at least one place to begin seeking answers to the question, “How do I send money to Africa?”
Fintech is making it easier and cheaper to send money to Africa, and some African governments are easing money-transfer restrictions. But it’s an evolving market and finding the best option may take some effort.
Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. His is also the author of four books on management.
1. Migration and Remittances: Recent Developments and Outlook, KNOMAD; https://www.knomad.org/publication/migration-and-development-brief-29
2. “Remittances to Africa cost far too much—more competition would change that,” Quartz; https://qz.com/africa/1272445/remittances-sending-cash-to-africa-is-most-expensive-says-world-bank/
3. “The battle between cash and mobile payments in Africa,” BBC; https://www.bbc.com/news/business-47292757
4. “Smart Africa: Mobile payment race spawns entrepreneurs,” Financial Times; www.ft.com/content/a3ca86b4-bece-11e5-9fdb-87b8d15baec2
5. Remittances at the post office in Africa, International Fund for Agricultural Development; https://www.ifad.org/documents/38714170/40194630/Remittances+at+the+Post+Office+in+Africa+-+Serving+the+financial+needs+of+migrants+and+their+families+in+rural+areas/7d3d7bd9-0652-44d9-bd07-d22d99f0c3c8
6. International migrant stock: The 2017 revision, UN; https://www.un.org/en/development/desa/population/migration/data/estimates2/estimates17.asp
7. “Remittances to Africa cost far too much—more competition would change that,” Quartz; https://qz.com/africa/1272445/remittances-sending-cash-to-africa-is-most-expensive-says-world-bank/
9. Migration and Remittances: Recent Developments and Outlook, KNOMAD; https://www.knomad.org/publication/migration-and-development-brief-29
10. “Africa loses billions due to high cost of remittances,: Deutsche Welle; https://www.dw.com/en/africa-loses-billions-due-to-high-cost-of-remittances/a-43506362
11. “B2B Mobile Payments is old news in Africa,” Graydon; https://www.graydon.co.uk/blog/b2b-mobile-payments-old-news-africa
12. Send Money Africa; https://www.sendmoneyafrica-auair.org/