Remittances have been one of the key beneficiaries of digital transformation as members of the diaspora sent funds to their loved ones back home to ride out the ravages of the pandemic.
The diaspora has demonstrated its strong attachment to their home countries during this difficult period.
As you will recall, there were predictions most notably by the World Bank, that remittances to sub-Saharan African could plummet by over 20 percent.
Remittances have been one of the key beneficiaries of digital transformation as members of the diaspora sent funds to their loved ones back home to ride out the ravages of the pandemic.
The diaspora has demonstrated its strong attachment to their home countries during this difficult period.
As you will recall, there were predictions most notably by the World Bank, that remittances to sub-Saharan African could plummet by over 20 percent.
This dire prediction turned out to be inaccurate.
Kenya defied this prediction and remittances in 2020 showed strong growth. Cumulative remittance inflows increased to $3,094 million in 2020 from $2,796 million in 2019, an increase of 10.7 percent.
Several countries as diverse as Comoros, Gambia, Mexico and the Philippines joined Kenya in bucking the predictions with increased remittances in 2020. As we applaud this commendable achievement in the remittances space in 2020, we need to reflect on how to maintain and grow the market to lift livelihoods.
First, is the cost of remittances. The Sustainable Development Goals (SDGs) set a target for the cost of remittances of less than three percent by 2030. The cost in sub-Saharan Africa at end of 2020 stood at 8.2 percent, while in Kenya this stood at eight percent. This has come down significantly over the last 10 years from over 15 percent. In Kenya’s case, the adoption of technology and innovation has brought down the costs significantly. This has been facilitated by the multiplicity of remittance channels and products provided by banks and money remittance providers.
The integration of mobile phone financial services in the remittance’s ecosystem has also lowered costs but more importantly allowed for smaller “bite-sized” remittance tickets. While the progress is commendable, a lot more remains to be done to achieve the SDG target.
Second, what are the opportunities for growth and are they in cross-border payments systems? Looking to the horizon, it will be critical to connecting our payment systems across the region.
Regional integration will provide the economies of scale that we need to compete effectively as Africa.
The connectivity of our payment systems in the region will form the backbone for our vision of the African Continental Free Trade Area and closer home, the East African Community. But even as we imagine our cross-border payments systems, we must be alive to the risks.
Of prominence in integrated cross border payment systems will be the anti-money laundering (AML) or combating financing of terrorism (CFT) risk. We must secure our AML and CFT perimeters as we move regionally, and this behoves all players to exercise due care.
Third, a customised approach is required. The remittance market is complex and highly segmented by region and countries hence policy measures and direct initiatives and interventions should, target countries and regions if the flow of official remittances is to be encouraged and increased. We need to analyse each of our remittance corridors and develop targeted interventions.
This an abridged version of Dr Njoroge’s speech during second national remittances stakeholder network meeting.
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