Is mobile money the means to cut costs of intra-Africa remittance?
A customer at a Western Union outlet in Nairobi. Worldwide, the most expensive remittance corridors are for intra-Africa money transfers. FILE PHOTO | NATION MEDIA GROUP
What you need to know:
Worldwide, the most expensive remittance corridors are for intra-Africa money transfers.
High cost of sending money within Africa is attributable to the fact that there are limited formal channels for sending money between African countries.
Seven years since the invention of M-Pesa and yet the cost of sending money from one East Africa country to another remains quite high.
Globally, one of the most expensive remittance corridors is between Tanzania and its neighbouring countries.
According to a World Bank report on Sending Money Home, the cost of doing this from Tanzania to Kenya can be as high as 20 per cent of the amount sent, especially if the transfer is through a bank.
This means that it will cost Sh3,600 ($40) to send Sh18,000 ($200) from Tanzania to Kenya. On the other hand it only costs Sh276 ($3) to send an equivalent amount of money within Kenya, which essentially is 13 times the cost of sending money across the border from Tanzania!
The Overseas Development Institute (ODI) estimates that the average total cost of sending money to and within sub-Saharan Africa (SSA) is 12 per cent of the amount sent. This is relatively high compared to the global average cost of sending money at 7.8 per cent, excluding SSA.
Worldwide, the most expensive remittance corridors are for intra-Africa money transfers. For instance, sending money from Ghana, South Africa and Tanzania to neighbouring countries can be as high as 22 per cent of the amount sent.
High cost of sending money within Africa is attributable to the fact that there are limited formal channels for sending money between African countries.
These formal channels mainly include Money Transfer Operators (MTOs) such as Western Union and MoneyGram, which have dominated the remittance market for years, in addition to commercial banks.
Due to the high costs, most migrants prefer to send money informally through personal delivery. It is therefore estimated that the total amount of formal remittance recorded in Africa is half the actual amount of money sent by immigrants to their friends and family at home.
In 2013, total remittance to Africa was $60 billion of which $32 billion was remittance to sub-Sahara Africa based on World Bank database. In the same year, total remittance to Kenya, Rwanda Uganda and Tanzania was $2,507 million.
The remittance amounts represent 0.2 per cent to 4.3 per cent of the gross domestic product (GDP) in the four East Africa countries.
Remittance within the four countries was $799 million in the same year, which is far below the actual figure due to the high prevalence of informal channels for sending money within Africa.
The cheapest remittance corridor is between Kenya and its neighbouring countries. For instance, sending money from Kenya to Uganda through Western Union costs as low as two per cent of the amount sent, thanks to the partnership between Safaricom and Western Union. On the other hand, sending money from Tanzania to Kenya costs as high as 20 per cent of the amount sent.
This variation is too high between two remittance corridors which are only borders apart.
Mobile money transfer is emerging as the cheapest channel of sending money and it also guarantees greater ease since the money goes directly to the recipients’ e-wallet.
Kenya has been a pioneer when it comes to mobile money transfers with a record of 26.2 million mobile money subscribers of which 18.1 million subscribers belong to Safaricom’s mobile money platform, M-Pesa.
Although the uptake of mobile money has been on an upward trend in East Africa with a penetration rate as high as 79 per cent in Kenya, there are still barriers to cross-border money transfer.
Two telecoms in East Africa, Airtel and Tigo are at the forefront in bridging this virtual barrier to enable transactions with ease across national border. Tigo recently launched a wallet to wallet cross border remittance services which allows its TigoPesa customers in Tanzania to send money to Tigo Cash users in Rwanda and vice versa.
Airtel is undertaking a pilot project set to start in November 2014 to provide cross-border money transfer for its customers in Kenya, Rwanda, Tanzania and Uganda following approval from the central banks.
Although there are attempts by Airtel, Tigo, MTN and Orange to provide cross border money transfer services, this service is restricted to customers on that particular mobile network. These are only four telecom operators in an industry with more than 10 operators and 88 million mobile subscribers.
In 2012, a total of Sh52.8 billion ($613 million) was sent from Kenya to the four neighbouring countries in inter-African remittances. Tanzania received KES1.29 billion ($15 million) according to a report by Trademark Southern Africa (TMSA).
On the other hand, money sent from Tanzania to Kenya was Sh10.17 billion ($118 million) which is more than seven times the amount sent from Kenya to Tanzania.
Studies indicate that the amount recorded as the official figure for intra-Africa remittances is usually less than half the actual amount sent. With increased intra-Africa trade especially within East Africa, the current landscape in the remittance industry presents an untapped opportunity for telecoms and financial institutions to leverage on the growing volumes of cross-border transactions.
Through interoperability and systems integration, the telecoms stand to gain the most by eliminating the virtual barriers that exist within them to lower the cost of sending money and attracting the remittances sent informally.
