Improving Remittance Operations in Africa

Published on 14th December 2015

Even though the remittance market is big (the World Bank estimates put it to $400 billion a year) and growing, competition in the African markets is not strong enough and the options are limited in several parts of the continent. The cost to individual customers is far too high, averaging around 10% of the amount sent. When it comes to Africa, the average cost is even higher: 12.5% of the amount remitted. This is an unnecessarily high rate that effectively constitutes a tax on the poorest continent. Given that some big remittance players are not African, this tax does not even stay within the region. In a context where total financial outflows exceed total inflows, the negative effect on development and economic growth is substantial and consequential, as efforts to attain the Millenium Development Goals and improve security, education, health, and the environment are undermined.

Financial controls can serve to monitor and counter illicit (out)flows as well as assist with the fight against serious crime, asset recovery and repatriation. The big question, however, is this: Do such controls succeed or do they produce their own negative externalities?

The path towards effective financial and anti-money laundering (AML) controls is replete with challenges due to a lack of political will or genuine commitment to engage in the reforms necessary and implement appropriate measures. Many countries suffer from insufficient technological, resource and skills capacity.

Proper AML requires the cooperation and contribution of several agencies and processes that need to be coordinated. Technical assistance and capacity building projects, however, are often uncoordinated, and there is no systematic quality control. At the normative level, there are disparities between what the law mandates and what many people consider acceptable or even useful practices. Moreover, the cost of compliance for financial institutions is high, particularly for small operators. Finally, corruption problems and wanted governance add to the challenges in both the public and private sectors.

All this results in a higher cost of doing business; small companies get eliminated from the competition and the big players left in the market under-serve certain communities or offer no service in many locations. Charges for remittances remain at the highest level in the world — even the 5% target recently set by the G8 should be considered too high, given the current technologies and overall financial sector capacity. As a result, humanitarian and other aid efforts are being hampered. At the same time, some AML practices have generated collateral damage: innocent parties, including charitable organizations, have been targeted unnecessarily and unfairly.

Yet, controls do not appear to be stronger, as remittances services are pushed underground or may criminalize legitimate clients and transactions. In addition, ethnic communities in sending countries and recipients in Africa are becoming less trusting and willing partners in AML/CFT.In extreme instances these developments fuel new grievances, anti-globalization or anti-Western rhetoric, and radicalization.

In addition to ill-considered AML policies that produce externalities, problems are compounded by the concentration of market power, private sector practices and flawed financial regulation. This completes a context in which banks are favored over alternative remittance payment options, while bank networks are not well adapted to process low-value retail flows, and are allowed to impose levies as well as opaque foreign currency charges. Moreover, ‘exclusivity agreements’ between money transfer companies, their agents and banks further restrict competition and drive prices up. Within-Africa remittances are occasionally more expensive than cross-continental ones. For example, South Africa to Mozambique or Nigeria to Ghana remittances may cost all the way up to 20% of the sum.

As noted by the Central Bank of Nigeria (2008), “exclusivity clauses aimed at protecting the interest of the International Money Transfer Operators, constitute a restraint on competition and unnecessarily increase the cost of money transfer services to the users.” In Gambia, exclusivity clauses “constitute an abuse of the dominant position enjoyed by” two dominant remittance companies (Investigation Report to Competition Commission, 2011).

If Africa attained the 5% cost set a target by the G8, this would increase the amounts for recipients by $1.8 billion annually. The benefits would be extraordinary, as this amount is equivalent to the sub-Saharan African cost of education for 14 million primary school age children; it could improve sanitation for 8 million people or provide clean water for 21 million.


The first broad task is to help establish the facts and document with precision by country or region the problems outlined above, especially with respect to market concentration and commercial practices that inflate remittance charges. The second task is to advocate for transparency on currency rates and actively promote positive changes towards lower cost, more competition, and better investment options for Africans, as well as more effective financial controls and good governance.

Specific projects and activities that would facilitate the achievement of these general goals include the following:

•Raise awareness of the issues in sending and receiving countries and help revoke exclusionary agreements.

•Place remittances at the center of the investment and development agenda.

•Sponsor research into the different existing and potential remittance channels available and applicable in Africa and document thoroughly the respective risks and benefits with respect to financial controls, thus enabling more informed debates and strategic planning for remittances regulation, growth, and investment in the continent.

•Following from such improved knowledge and understanding, support remittance and value transfer channels, including informal channels under appropriate and context-sensitive regulation and controls.

•Promote innovation with transparency and traceability.

Remittance regulation and markets as well as financial controls would especially benefit from a diasporaled collaboration with the donor community, international organizations, and African governments. The focus of these activities should be on the following:

•Systematic and thorough risk and capacity assessment in each region

•Adoption of a strategic approach for the longer term and improved coordination of national government agencies

•Outreach to all stakeholders, including private sector, civil society, political parties, civil service, and government officials

•Maximization of existing resources, based on the principle that you build on what you have

• Collaboration between control authorities with hawala agencies and operators and in-depth exploration of alternatives to bank and hawala options

•Thoughtful and pragmatic management of expectations as policies and measures are introduced

•Collaboration with the donor/NGO community to align their tasks and activities at home and in Africa

•Devising and applying performance indicators to measure progress, identify problems, amend policy and enhance accountability.

Such initiatives would serve to enhance some of the most positive aspects of the remittance business, such as reuniting remitting and receiving communities, supporting livelihoods and innovation at home, reintegrating and rebuilding relationships between the African diaspora and their families and home countries, facilitating productive investment and supporting good governance.

By Nikos Passas,

Professor of Criminology and Criminal Justice at Northeastern University and co-Director of the Institute for Security and Public Policy, specializes in the study of corruption, illicit financial/trade flows, and international crimes. He has authored more than 150 articles, book chapters, reports and books in 13 languages, and currently serves as serves as editor-in-chief of the international journal Crime, Law and Social Change. Prof. Passas is Chair of the International Advisory Board, African Centre for Anti-Corruption, Integrity and Accountability (ACACIA). He is also Law Professor at Case Western Reserve University; Programme Consortium Member and Faculty at the International Anti-Corruption Academy, Vienna; Corruption Program Director at the Ethics and Compliance Officer Association (ECOA); and INSPIRE Fellow at Tufts University.

Courtesy: Boston University Center for Finance, Law & Policy

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