Explaining the High Cost of Remittance to African Countries

The World Bank recently released a study report with
findings that the cost of remitting cash to African nations is higher
compared to other continents all over the world. The report indicates
that for every 200 dollars sent to Africa, a charge of 12% as remittance
fee is imposed.

Inward and Outward Remittances

Since the African Diaspora community generates a lot
of income, they are more willing to share the fortune with family back
home, e.g. for family members to study and to get
a bachelor degree

The process of wiring money from a foreign country
to a native country is identified as inward remittance. On the other
hand, money wired from a bank account in a native country to a foreign
country is described as outward remittance. In this case, the African
Diaspora greatly contributes to the inward remittance of their countries
of origin.

African Remittance Market

Due to the fact that these remittances make up to
approximately 2.5% of the Gross Domestic Product in various countries
in the region, it’s important to point out the critical role played
by African immigrants who send money back home.

For instance, in countries such as the Gambia, Liberia
and Comoros, online money transfer
from natives abroad account for almost 20% of the GDP. This stresses
the importance of remittances to the African continent.

Importance of Online Money Transfer

In the year 2017 for instance, African immigrants
sent approximately $38 billion according to the World Bank report. In
the report, Western African countries accounted for the greatest share
of $21.9 billion for Nigeria, and $2.2 billion for both Ghana and Senegal.

A rising quantity of these remittances were passed
on directly on the mobile phones of the recipients. This guide about sending
money on mobile
explains the setting and the
benefits of this money transfer method.

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The money plays a huge role in fuelling economic growth.
Money transfer services such as Western Union and Moneygram are amongst
the most commonly used. However, a rising number of new fintech startups
explore the remittance market. The British remittance company Worldremit
serves Ghana with low fees. Bank transfers are possible as well as sending
money to mobile wallets.

Various studies indicate that online money transfer
from the Diaspora plays a pivotal role in the native country. Inward
remittances directly benefit recipients, therefore improving their lives.
These monies are mostly used to cater for basic needs, but can also
be utilized as an investment for start-up businesses.

One of the best things about remittances is it eliminates
corruption. Since the money is directly sent to individuals, there is
no open avenue for corrupt dealings played by middlemen or corrupt government
officials. According to Mathieu Jacques, manager of ACP – EU Migration
Action Programme, the security of remittances lies in the way in which
they are dispersed.

Cost of Remittance in Africa

Studies reveal that it costs more to send money to
Africa compared to other continents. This implies that fees charged
for online money transfers in the continent consume a majority of the
cash sent in the first place, meaning communities, families and individuals
end up receiving less money than the intended amount.

According to World Bank figures, remittances cost
almost 10% of the payment amount while the global rate is slightly over
7%. This setback is attributed to various factors such as inefficiencies
in processes, online money transfer companies charging exorbitantly
and excessive bank regulations just to mention a few.

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Reasons for High Remittance Charges in Africa

Excessive bank regulations are implemented to make
sure that online money transfer companies do not help in money laundering
practices. The checks have a positive influence in discouraging and
deterring terrorist funded activities, however, they throw the cost
of remittance through the roof, adversely affecting innocent people
that are receiving money legally. Reducing the number of regulations
for transactions on small amounts will be advantageous to recipients.

Secondly, in most African countries, natives do not
have a choice on which online money transfer company to use. This is
usually the case since government owned post office possesses exclusive
rights to partner with a particular money transfer company. Since most
individuals have access to the post office, they are by default the
exclusive remittance points especially for those living in rural areas.
The effects of monopoly in business are well known since they have the
free will to charge higher transaction fees.

Banking networks that form a correspondence attribute
to the high remittance overhead charges. Transferring money from one
country to another forms a rigorous process that involves various sister
or partner banks. In such a scenario, each bank claims a fee in processing
payment, a feature that has a domino effect on the final cost of the
transaction which is paid for by the sender.

Author bio:

Jens Ischebeck is an Africa focused website publisher.
The two main sites are apps-for-money-transfer.com
(international money transfer apps for inward and outward remittances)
and fast-bachelor-degree.com
(accelerated bachelor degree by inline studying).