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Thursday, April 23rd, 2015
Are new remittance services key to economic development?

Remittance is a hot topic in Africa right now, even if growth seems to be slowing down. According to the World Bank’s Migration and Development Brief, released in April: “Growth of remittances to the Sub-Saharan Africa region is projected to slow to 0.9 percent in 2015, amounting to $33 billion. The regional growth in remittances in 2014 largely reflected strong growth in Kenya 10.7 percent, South Africa 7.1 percent and Uganda 6.8 percent. The level of remittance dependency varies across countries. Remittances in the Gambia, Lesotho, Liberia and Comoros equal about 20 percent of GDP in 2013, the latest available data. Remittance flows to the region are expected to pick up to $34 billion in 2016 and $36 billion in 2017.”

It was also reported in the New York Times that banks, afraid of flouting government anti-laundering regulations and put off by increased costs of compliance, are reducing remittance services to Somalia. After the attack in Garissa, the Kenyan government has suspended the licences of 13 Somali remittance firms. This threatens to have a huge impact: remittances from around the world account for up to 40% of Somalia’s GDP. It is this financial stability that lessens the lure of al-Shabaab money.

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Just as banks have less of a role in remittance, new players are coming on the scene. Giants such as Great Western and MoneyGram may now control more than half the market in Sub-Saharan countries but there are challengers. Moni, for example, is looking to revitalise the market with lower rates and a mission focusing on social enterprise. While the mobile-based money transfer company M-Pesa has enabled its users to send money to recipients in Kenya, Tanzania, DRC, Mozambique, Uganda, Rwanda and Zambia after an agreement was recently signed between MTN and Vodafone.

The most revolutionary way of bypassing banks, has been Bitcoin. It seems, reports Tom Jackson for the BBC, to be gaining a hold on a continent known for forward-thinking money management. BitPesa charges a flat fee of 3% for workers to send money home to Ghana and Kenya (they have to buy Bitcoins first) into a specified mobile money account – their M-Pesa account can serve as the digital wallet. Igot has reported more than 200,000 transactions since its launch in early 2014. Ironically as many banks are foregoing remittance services because of stricter anti-laundering regulations, the replacement services – such as Bitcoin transfer services – are an ideal management system for money launderers!

The usual barriers to entry for Bitcoin apply: the regulatory landscape has not been clearly mapped out; there are low levels of liquidity although this should change as more customers come on board with Bitcoin; and the value of Bitcoin is vulnerable to volatility – although most remittance companies immediately convert transfers into the end currency thereby avoiding the uncertainty of fluctuation.

Bitcoin will probably be just one method among many. It’s a huge market. Despite the projected slow down, the Migration and Development Brief, stated that in Nigeria “money transfer from the west makes up the country’s second highest foreign exchange earner after oil”.  It’s also a topic, particularly given the recent focus on immigration, that will continue to be highly relevant when it comes to the continent’s purse strings.