Kenyans working abroad increased the amount of remittances sent home by 39 per cent last year, helping to cushion their friends and relatives from the rapid rise in consumer prices and also taking advantage of a government-driven diaspora Treasury bonds sale.
Remittances jumped to Sh75.7 billion ($891.1 million) thanks to Central Bank (CBK’s) aggressive marketing of the diaspora-targeted Treasury bonds.
In 2011, the CBK revised its investment procedures to allow Kenyans abroad to open accounts for buying Treasury securities.
“Government’s Savings Development and Infrastructure bonds issues and subsequent awareness campaigns led to increased diaspora interest in investing through these formal channels over this period,” said Charles Koori, director of research at CBK.
A disapora-targeted infrastructure bond sold last year attracted Sh13.5 billion, while a savings bond raised Sh19.5 billion.
Reduced money transfer charges also encouraged more Kenyans to send remittances through formal channels, helping data collection.
“The increased competition among money transfer service providers recently could have resulted in reduced transaction charges and thereby encouraging the use of formal remittance channels,” said Mr Koori. Foreign exchange inflows help to support the shilling, smoothen household budgets and also boost investments, especially in the real estate.
Remittances are the fourth-largest source of foreign exchange in Kenya after export earnings from tea, horticulture and tourism.
In a publication titled Harnessing diasporas released September last year, the International Monetary Fund said that the cost of sending money to Africa was high at an average fee of more than 10 per cent of the principal.
In Kenya, the use of mobile money transfer services, opening of bank agents in the diaspora markets and lowering of fees by players such as Western Union has seen the commission charges decline.
Rising costs of borrowing, however, saw the pace of new constructions slow down late last year as captured in a Hass-Consult market survey released early this month.
Last year saw a rapid rise in the cost of living, with the inflation rate going up in each month of the year except December.
Remittances increased most in December, with Sh7.2 billion ($85.2 million) sent home.
“Usually with the European markets facing challenges there is a tendency to hold money but the remittances increased with the euro crisis indicating that it was needed here more,” said Alex Muiruri, a research analyst at African Alliance Investment Bank.
IMF studies have showed that relatives and friends often send more money home when the recipient country is in an economic downturn or experiences a disaster.
The institution, however, warns that small fluctuations in remittance inflows can pose macro-economic challenges to recipient countries, especially those with large inflows.
The improved transmission of money by persons abroad is seen to have spilled over to this year, with the CBK attributing a strong showing of the shilling last week to the diaspora remittances.
“The appreciation of the Kenya Shilling was mainly because of tight liquidity in the money market, increased dollar inflows from the agriculture sector and foreign investors purchasing of government securities” said CBK in its weekly report.
The shilling touched an all-time-low of 107 units to dollar in October last year, but has since re-gained to the mid-80s range.