Are Money Transfer Monopolies Keeping African Families in Poverty?

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Written by D.A. Barber

remittance

In a World Bank survey conducted during the first quarter of 2014, 69 percent of remittance service providers claimed that there are no such fees. About 11 percent reported that there is a receiving fee, mainly for transfers to bank accounts.

“Worryingly, in 19 percent of cases, remittance service providers were unable to inform clients on the sending side about whether or not the recipient would be charged fees,” notes the Bank.

The Overseas Development Institute says there is no evidence of a fall in fees for Africa’s diaspora, even though governments from the G8 and G20 have pledged to reduce such fees to 5 percent. The Institute has called for an investigation of global money transfer operators by European Union and US anti-trust agencies, as well as African regulators to revoke current exclusivity deals money transfer companies enjoy.

ODI is a research organization and we cannot undertake any advocacy campaign, but hope our research can be used by advocacy organizations to speed up the regulatory reform process,” Quattri told AFKInsider.

WorldRemit -a global online money transfer business -has been calling for global regulators to take action against the anti-competitive business and lobbying practices of Western Union and MoneyGram.

“Thankfully other interested parties have been more vocal,” Dr. Ismail Ahmed, CEO of WorldRemit told AFKInsider in an interview.

African-born Ahmed is an expert on remittances and served as compliance adviser to the United Nations Remittance Program in the early 2000s, a program mandated by the UN Security Council under then Secretary General Kofi Annan.

“Since my original comments, the Africa Progress Panel, chaired by Kofi Annan, has described the current situation as a “super racket” levying “indefensible” fees,” Ahmed told AFKInsider. “The panel has called on governments around the world to investigate the practices of money transfer organizations – a demand that I would echo.”

Speaking in London in May, former UN Secretary General Kofi Annan called for a full investigation by London regulators. Annan’s May 2014 Africa Progress Panel Report accused the money transfer industry of over charging African diaspora $1.8 billion a year.

According to Annan’s Africa Progress Panel Report, Africans send an estimated $5 billion a year from the UK alone back to their home countries. However, money transfer companies typically charge 8-9 per cent for the service on top of often undisclosed currency exchange fees which can add another 3-5 percent.

A Wireless Solution?

Some countries are pushing to increase financial access by leveraging remittance transfers through the use of mobile telephones.

According to the International Monetary Fund report,policy emphasis should be on creating an enabling environment to reduce transaction costs by exploiting new technologies, such as mobile and agent banking.”

“There is room for exploiting the potential benefits from this innovation, with Angola and Kenya well ahead of other countries in the use of mobile phones for transactions other than transfers,” states the International Monetary Fund report. And because of “the impressive growth of mobile money transfers, sub-Saharan African countries are experiencing a substantial transformation in the provision of financial services.”

“It surely has the potential,” Quattri told AFKInsider. “Still, we believe that the scope for mobile technology to cut the costs remains limited if lack of competition in the remittance market persists.”

“Part of what we do at WorldRemit is allow people to send money to mobile devices in the form of airtime top-ups and mobile wallets.  Technology certainly helps with moving money around the world and making it available to people in different ways that suit them,” says WorldRemit’s Ahmed. “However, the high fees that people pay with traditional money transfer providers has little to do with their technological systems and much to do with them deliberately overcharging.”

Other than point out the global discrepancies in money transfer fees, there is little else the NGOs or WorldRemit can do.

“This is an issue that needs urgent and international attention, starting with policy makers,” ODI’s Quattri told AFKInsider. “We also that the Federal Reserve Bank of the UK and Financial Conduct Authority of the UK can investigate the activities of money transfer operators – Western Union and MoneyGram particularly – to make sure that restrictive business practices are not compromising consumers’ interest.”

“Perhaps unsurprisingly, there has been no response from the big incumbents in the international money transfer business,” WorldRemit’s Ahmed told AFKInsider.It really is not in their interest to engage with this issue.”

It is still unknown whether this is an issue to be raised during the US-Africa White House Summit in August.

“Africans are losing $1.85bn every year to excessive remittance fees, according to the Africa Progress Panel. If that is not an issue worthy of discussion at the highest levels, I don’t know what is,” says Ahmed.