Opinion: Cost Of Sending Money To Africa Still High Despite Rise In Technology

Opinion: Cost Of Sending Money To Africa Still High Despite Rise In Technology

By Ahmed Cassim | Piece first published by BDlive

Despite the steadfast growth of the global remittance industry, which is now estimated to be worth over $610 billion per year, the cost of sending money to Africa and within Africa remains higher than anywhere else in the world. Funds transferred by migrants to their home countries still represent significant financial inflows for many nations, particularly within sub-Saharan Africa.

According to global industry bodies the driving impetus for this ever growing industry is the growing globalization trend, which continues to accelerate economic growth owing to the increase of international migrant populations in many developed countries.

The Remittance Prices Worldwide (RPW), World Bank-sponsored database monitors remittance prices globally across 300 corridors, and according to the World Bank is used as reference in measuring the progress made in attaining reductions in remittance prices.

Hello Paisa, a low cost international remittance provider that forms part of the Hello Group of companies, acknowledges that a fair amount of the $610bn in remittance has filtered into sub-Saharan Africa. Experts estimate this number to be as high as $30bn, which contributes to the gross domestic product of many of the countries that fall within this region.

It is imperative to facilitate the affordability and sustainability of remittances as it is the life blood of numerous communities, enabling people to empower themselves and improve their economic circumstances. Further, it is a means for users to meet their obligations in terms of providing for their families.

The high cost of remittance transactions within the African continent speaks to a lack of infrastructure, legacy technology systems and resources. Despite this there has been an increased adoption of smartphone usage as well as investments in internet based technologies coupled with the upskilling of people. This is a step in the right direction towards the development of infrastructure and capabilities within African countries.

However, the lack of basic services and infrastructure such as electricity and connectivity have affected operations within those countries, hindering the services operators could provide to customers and their ability to scale up their businesses.

Volatile exchange rates — especially the rand-dollar rate — coupled with the ever increasing cost of doing business and increasing compliance requirements, have further compounded the high remittance rate issue. This simply means that, as an example, a customer receiving a remittance might receive 6% less than what they did a week ago.

In specific reference to Hello Paisa within the South African context, the absence of relevant legislation allowing migrants to access remittance services has proved a defining challenge, which culminated in customers using illegal or informal channels to transfer funds.

The role of key institutions such as the South African Reserve Bank in realising the need for remittance service providers in the market prompted the crafting of legislation. The greatest challenge for operators within this industry is the holistic understanding of the customer’s needs, and getting them to trust you. Knowing customers’ influences and trends enables operators such as Hello Paisa to build and foster trust.

That fact remains that when migrants move thousands of kilometres away from home and have loved ones who rely on them for support, they want to know that they can meet their obligations which can only be done if they believe that the company they are dealing with is trustworthy.

The successful provision of remittance services can boil down to core principles such as an operator’s ability to leverage technology so that it is secure, accessible and, most critically, affordable.

Countries in Asia such as China, India and Pakistan are prime examples of countries that have developed ecosystems as well as infrastructure to facilitate inward remittances, and African countries should follow their example.

It is imperative for operators to be constantly investing in people and learning through the participation of global industry-related conferences which provide the latest developments with regards to technology, and infrastructure. This culminates in better services being provided to customers.

Cassim is MD of international remittance provider Hello Paisa