Exorbitant costs for sending money back home affect migrants - Cafeqa

Exorbitant costs for sending money back home affect migrants

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For Jerry Lukendo Mbokani, sending money to his mom in the DRC requires a number of computations

Mr. Mbokani must first acquire US money in Kampala, Uganda, his home of sixteen years. Approximately three dollars would be required to convert eighty pounds’ worth of Ugandan shillings, according to his research.

In order to avoid any fees for his mother when she receives the money, he also includes the $7 withdrawal charge.

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He avoids using traditional financial institutions like banks and post offices in favor of more modern alternatives like mobile money, which consists mostly of digital transactions made over the phone. The fees might eat up 10% of the sum in actual terms.

According to Mr. Mbokani, CEO of the Refugee-Led Organization Network (Relon), he is not alone.

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Remittance rates should be below 3% and total fees to transmit and receive money between two nations should not exceed 5% by 2030, according to one of the UN Sustainable Development Goals. If we want to be really inexpensive, according to some academics, we should aim for a rate much lower than 3%.

Assuming no reduction in direct expenditures, the International Monetary Fund estimates that accomplishing this goal may yield $32 billion (£26 billion).

Reason being, when costs are reduced, individuals are more likely to send more money back home, which has a significant impact on the economy.

Still, we’re a long way from our goal. The World Bank reports that the worldwide average is 6.2%, which is more than double the aim.

The cost of sending money to Africa is high


With an average transaction charge of 7.4%, sending money to sub-Saharan Africa is very costly. Fee percentages may reach double digits for certain combinations of countries.

Inconsistent regulation is a factor contributing to excessive fees.

According to Nika Naghavi, a payment corporation in Africa cannot utilize a single license in more than one country. At Onafriq, a digital payment network that spans over 40 African nations, she serves as the group head of growth.

Therefore, unrestricted flow of capital is not always possible, even across neighboring nations with strong commerce and large population movements. To provide one example, Ms. Naghavi notes that having a same currency makes transfers between Togo and Benin easy and frequent.

However, sending money from Togo to another neighboring nation, Ghana, is not easy.

“That’s why the costs become heavy: a lot of it is in compliance and regulation,” Ms Naghavi points out.

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Transfers with a modest value could not be subject to these regulations. Even while sending $50 to a relative in another nation isn’t very dangerous, it could still be subject to a maze of restrictions designed to prevent money laundering.

A policy analyst at the Migration Policy Institute Europe named Ravenna Sohst claims that “the regulations governing who can act as a remittance provider can be quite stifling” in some nations.

“For young companies to enter into this market requires a lot of technical, financial and legal knowhow, which I think is one of the reasons why the field has seen relatively few players for a long time.”

According to Ms. Sohst, more competition has led to price reductions in important remittance corridors like the Mexico-US one. The few businesses (or informal, cash-based brokers) that can handle transfers between two nations may determine the prices in the absence of competition.

UNCDF Companies may not feel compelled to give as much information about costs due to limited competition, according to Uloma Ogba, a gender and learning expert with the UNCDF’s Migration and Remittances Program. Ogba transfers money from the US to Nigeria. “It’s up to the service providers what they want to show to the customer,” says Uloma Ogba, a gender and learning expert for the Migration and Remittances Program of the UN Fund for Development (UNCDF).

One example is when people make false promises about fee-free transactions, which “often means that the service provider and other agents involved along that transaction process are making money some other way.”

Our North Star should be to ensure that these customer fees are as close as possible to zero,” according to Ms Naghavi. “But today it’s not possible because of the underlying cost of running your business.”

As happened soon after the 2023 Moroccan earthquake, businesses may temporarily reduce or do away with transaction fees in the aftermath of calamities. However, unexpected costs can arise sometimes.

Migrant women, in particular, are sending money back to their families to pay for unexpected costs. Ms. Ogba pays for her parents’ medical bills, her cousin’s schooling, and community responsibilities including burial costs out of her own monthly remittances to Nigeria. Improvements to one’s house can qualify as donations.

Women would benefit greatly from pricing arrangements that are more flexible. According to Ms. Ogba, women frequently have lower wages than males and send smaller and more frequent remittances for expenses like healthcare and education.

Much of the innovation is happening online because digital remittances are cheaper than conventional banking (average costs of 4.8% vs. 6.2% respectively) and because they potentially need less verification.

One financial technology firm serving Gambian immigrants in the UK, for example, discovered that many of its clients wished they could pay their Gambia-based energy bills directly.

A single license cannot be used by a payment business in more than one African country


When discussing technological advancements in money transfer, Bitcoin must inevitably come up. Cryptocurrencies, like Bitcoin, have their advocates who think they may one day allow for faster, more secure global money transactions.

The widespread use of cryptocurrencies for money transfers is still hindered by issues such as unpredictability, inconsistent regulation, and a lack of education.

People who send and receive remittances may not have access to even the most fundamental technology. Although sending money via mobile is more cost-effective, many of the world’s poorest people do not have access to phones or the internet.

Even though a majority of remittances are now sent digitally, low- and middle-income nations still rely on cash remittances.

Providing tax ID numbers and other paperwork might be particularly challenging for those who are on the road or who are unable to get formal forms of identification.

Mr. Mbokani states that unlike national IDs, refugee IDs in Uganda are not part of a centralized registry. Additionally, certain money transfer providers may not accept refugee IDs.

Given these problems, “we’re leaving a lot of people behind,” says Ms. Naghavi.

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