Friday, October 23, 2009

Remittances to Africa

Yesterday, the United Nations International Fund for Agricultural Development (IFAD) released a report on remittances to Africa. The report notes that the 30 million members of the African diaspora abroad contribute annually approximately $40 billion in remittances -- a number that far exceeds official development assistance for the region as a whole and that is greater than foreign direct investment for many countries. As a result, "[p]articularly in these times of financial turmoil, workers’ remittances are being recognized for their contribution to the economic health of the region’s nations, as well as for their vital importance to recipient families." In the interest of increasing the development impact of these remittances, IFAD examines the competitiveness and regulation of as well as access to African remittance markets.
The picture is not pretty: two major money transfer companies control 65 percent of all remittance payout locations, and these companies require that agents sign exclusivity agreements, creating serious barriers to market entry. Moreover, 80 percent of African countries allow only banks and foreign exchange bureaus to offer remittance services. As a result, microfinance institutions, which may be better located and structured to serve rural and less wealthy customers, constitute less than 3 percent of remittance payers. IFAD cautions that a regulatory fix alone will be insufficient to jump-start microfinance; most of these institutions currently lack capacity and will need significant technical assistance in order to offer remittance services that will maximize development impact.
Of particular interest is the impact of remittances on gender disparities in income:
Average monthly income excluding remittances is significantly higher for men (US$195) than for women (US$175). Interestingly, when the receiving of remittances is included, women have a slightly higher monthly income (US$226) than male remittance recipients (US$218). Among non-recipients, men have significantly higher monthly incomes (US$195 versus US$164 for women).
Moreover, female remittance recipients have, on average, 2.5 times the savings of non-recipients.
Lowering the cost and increasing the development impact of remittances seems an uncontroversially desirable goal. To that end, IFAD recommends more regular study of remittances to Africa; reforming regulation to encourage competition in services, including by supporting microfinance institutions; and building capacity by providing technical assistance to microfinance institutions and financial literacy programs for remittance recipients. These approaches fall squarely within the African Union's mission of sustainable and self-reliant development, and may be promising candidates for regional regulation and coordination.

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