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Explaining the High Cost of Remittance to African Countries

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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.

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.

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:

This article was submitted by Jens Ischebeck. Jens 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).

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