lost in intermediation two money transfer operators (mtos) ... kenya and nigeria (% of total...
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Lost in intermediationHow excessive charges undermine the benefits of remittances for AfricaKevin Watkins and Maria Quattri
Report
April 2014
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Cover photo: Skip Russell, Malawi
April 2014
developmentprogress.org
• RemittancesfromAfricanmigrantsplayavitalroleinsupportinghealth,education,food
securityandproductiveinvestmentinagriculture.Yetmanyofthebenefitsofremittance
transfersarelostinintermediationasaresultofhighcharges.Africa’sdiasporapays12%to
send$200–almostdoubletheglobalaverage.
• Ineffect,Africansarepayingaremittance‘supertax’.Reducingchargestoworldaverage
levelsandthe5%G8targetwouldincreasetransfersby$1.8billionannually.Thatfigureis
equivalenttothesub-SaharanAfricancostofpayingfortheeducationofsome14million
primaryschoolagechildren–halfoftheout-of-schooltotal;improvedsanitationfor8
millionpeople;orcleanwaterfor21million.
• Weakcompetition,concentrationofmarketpowerandflawedfinancialregulationall
contributetohighremittancecharges.Justtwomoneytransferoperators(MTOs)–Western
UnionandMoneyGram–accountfortwo-thirdsofremittancetransfers.Weconservatively
estimatethatthetwocompaniesaccountfor$586millionofthelossassociatedwiththe
remittance‘supertax’,partofitthroughopaqueforeigncurrencycharges.‘Exclusivity
agreements’betweenMTOs,theiragentsandbanksrestrictcompetitionanddriveupprices,
asdoAfricanfinancialregulationsfavouringbanksoverotherremittancepaymentoptions.
• Governmentsandregulatoryauthoritiesinsendingcountriesshoulddofarmoretopromote
competitionandencourageinnovation.Financialregulators–suchastheUK’sFinancial
ConductAuthority–andlegislativebodiesshouldactivelyreviewthepracticesofMTOs.All
regulatorsshoulddemandhigherstandardsoftransparencyforforeignexchangecharges,as
envisagedintheDodd-FranklegislationadoptedbytheUS.Africangovernmentsshoulddo
moretosecureabetterremittancedealfortheircitizens.Prohibitingexclusivityagreementsis
oneimmediatepriority,alongwithendingthestrangleholdofbanksonremittancepayments.
Key messages
Report
Shaping policy for development odi.org
Lost in intermediationHow excessive charges undermine the benefits of remittances for AfricaKevin Watkins and Maria Quattri
AbbreviationsAIR African Institute for Remittances
DRC Democratic Republic of Congo
EAP East Asia and the Pacific
FAO Food and Agriculture Organization of the United Nations
FATF Financial Action Task Force
FDI Foreign Direct Investment
FinCEN Financial Crimes Enforcement Network
FX Foreign exchange
GDP Gross Domestic Product
IDA International Development Association (World Bank)
IFAD International Fund for Agricultural Development
IMF International Monetary Fund
LAC Latin America and the Caribbean
MENA Middle East and North Africa
MFI Micro-finance institution
MG MoneyGram
MTO Money transfer operator
ODA Official Development Assistance
OECD Organisation for Economic Co-operation and Development
OFAC Office of Foreign Assets Control
OMTI Orange Money Transfer International
RSP Remittance service provider
SA South Asia
SSA Sub-Saharan Africa
SWIFT Society for Worldwide Interbank Financial Telecommunications
UN United Nations
UNCTAD United Nations Conference on Trade and Development
UNESCO United Nations Educational, Scientific and Cultural Organization
UNHCR United Nations High Commissioner for Refugees
WU Western Union
Contents
Abbreviations 4
List of tables and figures 6
Executive summary 7
Introduction 9
1. Africa in the global remittance economy 10
2. Migrant remittances – wide-ranging benefits 14
3. The high cost of remittances to Africa 17
4. Unlocking the benefits of remittances for development 27
Conclusion 29
Technical annex 30
References 31
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 5
List of tables and figures
Tables
Table 1: Remittance flows to SSA 11
Table 2: Estimating the share of Western Union and MoneyGram in Africa’s remittance ‘super tax’ 21
Table 3: Current charges and implied losses through the remittance ‘super tax’ from the UK 22
Table 4: Cost of transferring $200, 3Q2013 24
Figures
Figure 1: Rising trends: actual and projected remittance flows to sub-Saharan Africa ($ billion) 10
Figure 2: Reported use of international remittances: Kenya and Nigeria (% of total remittances received) 15
Figure 3: Concentration of market power: % of pay-out locations by company, Western Union and MoneyGram 18
Figure 4: Average % cost of transferring $200 by type of remittance service provider 19
Figure 5: Average % cost of sending $200 by product type 19
Figure 6: Average % cost of transferring $200 by region 19
Figure 7: Africa’s disadvantage: % cost of transferring $200 20
Figure 8: % of pay-out locations by type of provider 20
Figure 9: % of MTO pay-out locations by company 20
Figure 10: Remittance charges from the G7 (excluding Japan): total average % cost of transferring $200 21
Figure 11: Western Union remittance charges to the UK: % cost of transferring £120 (or $200) for selected SSA countries 23
Figure 12: MoneyGram remittance charges from the UK: % cost of transferring £120 (or $200) to selected SSA countries 23
6 ODI Report
Executive summaryRemittances–themoneysenthomebymigrantworkers–play
avitalroleinAfrica.Theyhelptopayforhealth,educationand
productiveinvestmentinagriculture.Duringperiodsofcrisisthey
provideafinanciallifeline.Formanyeconomiesintheregion,
remittancetransfersnowoccupyanimportantpositioninthebalance
ofpayments.YetAfricaisfailingtosecurealloftheirpotential
benefits.Noregionfaceshigherchargesforremittancetransfers.
Ineffect,Africa’sdiasporafacea‘remittancesupertax’thathurts
familiesandholdsbackdevelopment.
Thereisnojustificationforthehighchargesincurredby
Africanmigrants.Inanageofmobilebanking,internettransfers
andrapidtechnologicalinnovation,noregionshouldbepaying
chargesatthelevelsreportedforAfrica.Inthisreportweargue
thatmarketconcentrationintheglobalmoneytransferindustry,
financialregulationinAfrica,andhighlevelsoffinancial
exclusionaredrivingupcosts.
RemittancestoAfricaarerising.In2013,transferstothe
regionwerevaluedat$32billion,oraround2%ofGDP.
Projectionsto2016suggestthatremittancescouldrisetoover
$41billion.Withaidsettostagnate,remittancesaresettoemerge
asanincreasinglyimportantsourceofexternalfinance.
ChargesonremittancestoAfricaarewellaboveglobalaverage
levels.Migrantssending$200homecanexpecttopay12%in
charges,whichisalmostdoubletheglobalaverage.Whilethe
governmentsoftheG8andtheG20havepledgedtoreduce
chargesto5%,thereisnoevidenceofanydeclineinthefees
incurredbyAfrica’sdiaspora.
RemittancecorridorswithinAfricahavesomeofthe
highestchargestructuresintheworld.Migrantworkersfrom
MozambiquesendingmoneyhomefromSouthAfrica,or
GhanaiansremittingmoneyfromNigeriacanfacechargeswellin
excessof20%.
WhydoesAfricafacesuchhighremittancecharges?That
questionisdifficulttoanswerbecauseofthehighlyopaque
natureofremittancemarketsandthecomplexrangeofproducts
available.Muchoftherelevantcommercialinformationneededto
establishdetailedstructuresisunavailable.
However,threefactorscombinetodriveupcharges.The
firstislimitedcompetition.Globalmarketsaredominatedby
anoligopolyofmoneytransferoperators(MTOs)andregional
marketsbyaduopoly:Justtwocompanies–WesternUnionand
MoneyGram–accountforanestimatedtwo-thirdsofremittance
pay-outlocationsinAfrica.Asinanymarket,limitedcompetition
isabarriertocostreductionandefficiencygains.Second,thereis
evidenceof‘exclusivityagreements’betweenMTOs,agentsand
banks.Theseagreementsrestrictcompetitioninanalreadyhighly
concentratedmarket.
Third,financialexclusionandpoorregulationinAfrica
escalatecosts.FewAfricanshaveaccesstoformalaccounts(which
limitsaccesstopay-outproviders)andmostgovernmentsrequire
paymentstotakeplacethroughbanks,mostofwhichcombine
highcostswithlimitedreachandlowefficiency.
Nomeasurewoulddomoretostrengthenthedevelopment
impactofremittancesthanadeepcutincharges.Cuttingthe
‘remittancesupertax’wouldenableAfrica’sdiasporatomake
abiggercontributiontheregion’sdevelopment.Itwouldalso
strengthenself-reliance.Unlikeaid,remittancesputmoney
directlyintopeople’spockets,providingasourceofinvestment
andsupportforconsumption.
Inthisreportweestimatetheadditionalfinancethatwouldbe
generatedunderarangeofcharge-reductionscenarios.Webuild
thesescenariosbycomparingcurrentchargesinAfricawithtwo
benchmarks:thecurrentglobalaveragechargeof7.8%andthe
5%targetchargesetbygovernments.Wetreatthegapbetween
currentchargesandthesebenchmarksasindicativeofthe
lower-andupper-boundestimatesforthe‘remittancesupertax’.
Convertingthatgapintofinancialterms,weestimatethatAfrica
islosingbetween$1.4billionand$2.3billionannuallyasaresult
ofhighremittancecharges.
Tracingthisimplicitlossthroughtheremittancesystem
isahazardousenterprise.Africa’sdiasporaislinkedto
families,friendsandcommunitiesthroughacomplexwebof
intermediaries.ThecommercialtermsonwhichMTOsinteract
withAfricanbanksarenotwidelyavailable.Similarly,thereal
costsassociatedwithregulatorycompliance,foreigncurrency
trade,agentfeesandotherdealingsarelargelyunknown.
Despitetheselimitationsitispossibletoderivesomeindicative
figures.Usingmarketshare(asdefinedbyshareofpayment
outlets)asaproxyforindicativesharesinthe‘remittancesuper
tax’,operationsinvolvingMTOswouldaccountforbetween$807
millionand$1.3billionofourestimatedgloballoss.Asmarket
leaders,WesternUnionandMoneyGramwouldaccountfor
$586millionoftherevenuelossassociatedwiththegapbetween
Africanandworldaveragecharges.
DetailedresearchfortheUnitedKingdomidentifiesanumber
ofdistinctivefeaturesoftheremittancemarketforAfrica.As
inotherremittance-sendingcountries,thechargesincurredby
Africa’sdiasporaarehighrelativetoglobalaveragecharges.
Usingoneofthemajorremittancechannels–credit/debitcard-
to-cash–weidentifywhatappearstobean‘Africacharge’–a
consistentfeeofaround8%forWesternUnionappliedacross
countriesregardlessofthesizeofthemarket,regulatorycostsor
marketrisk.Thesameanalysisconductedforcredit/debitcard
remittancesthroughMoneyGramrevealsthattherearemarked
variationsinthechargesappliedbythetwomajorMTOsin
thesamecountry.Thisissuggestiveoflimitedcompetitionor
marketsegmentationwithinthereceivingcountry,andimperfect
consumerinformation.EvidencefromtheUKidentifiesforeign
exchangeconversionfeesasasignificant,andoftenarbitrary,
shareofoverallcosts–informationonthesefeesisnotalways
providedtoconsumersinareadilyaccessibleform.
AsoneofthelargestsourcesofremittancetransferstoAfrica,
theUKcontributestothelossoffinancethroughhighcharges.
Some$5billionwasremittedtoAfricafromtheUKin2012.
ReducingaverageUKremittancecoststotheglobalaverage
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 7
wouldincreasetransfersby$85million,risingto$225million
ifchargeswereloweredto5%.Thebulkoftheselossescanbe
tracedtolargeMTOsintheUK.Onaconservativeestimate,
WesternUnionandMoneyGramsecure$49millioninpayments
throughchargesaboveworldmarketaverages.
Thepotentialfordevelopmentgainsthroughlowerremittance
chargescanbeillustratedbyreferencetocurrentaidflows.For
comparativepurposesweuseamid-rangefigurebetweenour
upper-boundandlower-boundestimatesof$1.8billion.Thisis
equivalenttohalfoftheaidprovidedtoAfricabytheUK,the
region’sthirdlargestbilateraldonor,orsome40%oftransfers
toAfricathroughtheWorldBank’sInternationalDevelopment
Association(IDA)–thelargestsourceofmultilateralaidforAfrica.
Viewedfromadifferentperspective,adiversionofrevenues
associatedwiththeremittancesuper-taxintoeducationwould
provide,atcurrentfinancinglevels,sufficientresourcestoput
around14millionprimaryschool-agedchildrenintoschool
–almosthalfoftheout-of-schoolpopulationfortheregion.
Alternatively,itcouldfinanceaccesstoimprovedsanitationfor8
millionpeople,ortheprovisionofsafewaterfor21millionpeople.
ThisreportcallsforanumberofmeasurestolowerAfrica’s
‘remittancesupertax’,including:
• InvestigationofglobalMTOsbyanti-trustbodiesintheEU
andtheUStoidentifyareasinwhichmarketconcentration
andcommercialpracticesareartificiallyinflatingcharges.
• Greatertransparencyintheprovisionofinformationon
foreign-exchangeconversioncharges,drawingontheexample
ofDodd-FranklegislationintheUnitedStates.
• RegulatoryreforminAfricatorevoke‘exclusivityagreements’
betweenMTOsontheoneside,andbanksandagentsonthe
other,andpromotetheuseofmicro-financeinstitutionsand
postofficesasremittancepay-outagencies.Governmentsand
MTOsshouldworktopromotemobilebankingasastrategy
tosupportthedevelopmentofmoreinclusivefinancialsystems.
• EngagementbyAfrica’sdiasporaandwidercivil-societygroups
toputremittancesatthecentreofthedevelopmentagenda.The
publicinterestsrepresentedbyAfrica’sdiasporaandremittance
receiversshouldbeplacedabovethecommercialinterestsof
MTOsandbanksintheregulationofremittancesystems.
8 ODI Report
Economicremittancesfrommigrantsareanimportantand
growingsourceoffinanceforAfrica.Theseremittancesrepresent
asourceofopportunityand,formany,afinanciallifelineduring
periodsofhardship.YetAfricaisfailingtorealisethefull
potentialofremittances.
MigrantsfromAfrica,theworld’spoorestregion,facethe
highestchargesonremittances.Atanaverageofjustover12%,
thesechargesarealmostdoubletheglobalaverage(excluding
Africa).Ifremittancechargeswerereduced,therewouldbea
doublebenefit:theoverallflowoftransferswouldincreaseanda
greatershareofthetransferwouldreachtheintendedbeneficiaries.
TheexcessivechargesleviedonAfricanremittancesraisewider
questions.Migrantworkersmakeenormoussacrificestosecure
thehigherincomethatcomeswithchangedlocation.Theybring
far-reachingbenefitstodestinationcountries,generatingeconomic
growth,meetingdemandinlabourmarketsandcreatingmore
diversesocieties.Manytakeconsiderablerisksinmovingto
higher-incomecountries.Yettheinternationalcommunityand
Africa’sowngovernmentsarefailingtosupporttheireffortsto
improvetheirlives,supporttheirfamilies,andpromoteself-reliant
development.
Thispapermakesthecaseforputtingremittancesatthecentre
ofinternationalcooperationondevelopment.Itisdividedinto
fourparts.ThefirstlooksatthelevelofremittancestoAfricaand
atthedriversofmigration.Part2providesasummaryoverview
ofevidenceonthebenefitsofmigration.Part3looksatthe
highcostsofremittancestoAfrica,examiningunderlyingglobal
andregionalremittance-marketstructuresandhighlightingthe
dominationoftwoglobalmoneytransferoperators(MTOs).
Whilethereisnoevidenceofcollusivepricingorothercartel-type
behaviours,theremittancemarketischaracterisedbylimited
competition,restrictivebusinesspracticesandextensiverent-
seeking.Part4looksatstrategiestoincreasethedevelopment
impactofremittances.Whilehighlightingawiderangeof
potentiallyinnovativeoptions–includingdiasporabondissues
andpartnershipsbetweendiasporaandlocalgovernments–it
offersasimplemessage:namely,nomeasurewouldhaveagreater
impactthandeepcutsinthecostsofintermediation.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 9
Introduction
Remittanceflowstodevelopingcountrieshaveincreasedrapidly
overthepastdecade.Theyreached$414billionin2013–some
fourtimesthelevelin2000(WorldBank,2013a).Toputthese
transfersincontext,theyrepresentaroundthreetimesthelevel
ofaid.Inaddition,remittancetransfers–unlikeaid–areon
anupwardtrajectoryandareprojectedtoreach$540billionby
2016(WorldBank,2013a).
Africahasbeenpartofaglobalremittanceboom.In2013,
Africanmigrantsremittedaround$32billion–equivalentto
around2%ofregionalGDP(WorldBank,2014).Although
sub-SaharanAfrica(SSA)currentlyreceivesaround8%of
reportedglobalremittances,transfersgrewbysome6%between
2012and2013.WorldBankprojectionssuggestthatremittances
totheregionwillgrowataround8.6%overthenextfew
years,reaching$41billionby2016(Figure 1).Whileofficial
developmentassistance(ODA)stillexceedsremittancetransfers,
thegapwillnarrowiftheseprojectionsarecorrect.
Despitetheprojectedgrowthestimates,remittancetransfersto
Africahavebeenincreasingfarmoreslowlythanthosetoother
regions.From2009to2012,remittancestoSSAweregrowing
atanaveragerateofjust2%ayear(WorldBank,2013a).This
islessthanhalfoftheaverageforalldevelopingregionsand
justone-fifthoftheincreasereportedforSouthAsia.OnlyLatin
Americahasreportedalowerrateofincrease,reflectingthe
impactoftheUSrecession.ThehighchargesincurredbyAfrican
migrants,thefocusofthispaper,havealmostcertainlylimited
SSA’srateofgrowth.
LevelsofdependenceonremittancesvaryacrossAfrica(Table 1).Nigeriaaccountsfor68%oftotaltransferstotheregion–
some$20billionin2012–andistheworld’sfifthlargestrecipient
inabsoluteterms(WorldBank,2013a).Fourcountriesreport
remittancetransfersinexcessof$1billion:Nigeria,Senegal,
KenyaandSudan.MeasuringremittancesasashareofGDP
providesadifferentperspective.TherearenineSSAcountries
intheregionforwhichremittancesconstitutemorethan5%of
GDP,risingtoover20%forLesothoandLiberia.
Dataonremittanceshavetobetreatedwithcaution.Reporting
systemssufferfromanumberofdeficiencies,mostofwhich
contributetounder-estimation.1Balance-of-paymentsaccounts
inmanycountriescaptureonlypartofremittancetransfersfrom
richcountries.Thereisalsoalargeinformalremittancesystem
thatoperatesthroughtraditionalhawala (informaltransfer)
providers.Inaddition,onlyasmallshareofthetransferassociated
withintra-regionalmigrationiscapturedinofficialdata.This
isbecausetransfersthroughpersonaldeliveryandinformal
arrangementsdominate,reflectingthehighchargesassociatedwith
intra-Africanremittances.SSAisbelievedtohavethehighestshare
ofremittanceschannelledthroughunregulatedmodesoftransfer.
Indeed,surveysofmigrantsandremittancerecipientsandother
secondary sourcessuggestthatunregulatedtransferscouldexceed
officialtransfers(AIR,2013).
Patterns of migrationRemittancetransfersareasub-setofconsumertransfersacross
countries.Intermsofreportingconventions,theyare‘personal
transfers’tofriendsandrelativeswholiveabroad.Mostofthe
sendersareforeign-born,thoughsecond-generationdiaspora
remittancesarealsosignificant.Thetransfersoccurthrough
electronicpaymentstodesignatedrecipientsinreceivingcountries
throughremittanceserviceproviders(RSPs).2
Thebulkofremittancetransferscanbetracedbacktothe
globalphenomenonofmigrantssendingmoneybacktotheir
countryoforigin.Itfollowsthatanunderstandingofwhypeople
1. Africa in the global remittance economy
1 Remittancedataaredrawnprincipallyfromcentralbankreportingsystemsthatoftenfailtoidentifyremittancetransfers.Moreimportantly,theydonotcapturetheunknown,butalmostcertainlyverylarge,transfersthatoccurthroughinformalarrangements.Ontheunder-reportingofremittancessee,forinstance,SanderandMunzeleMainbo,2003,andShonkwileretal.,2008.
10 ODI Report
Figure 1: Rising trends: actual and projected remittance flows to sub-Saharan Africa ($ billion)
2009
2010
2011
2012
2013
e20
14f
2015
f20
16f
28
30
32
34
36
38
40
42
Source: World Bank Migration and Development Brief 21, October
2013.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 11
Table 1: Remittance flows to SSA
Millions of $ (2012) % of GDP (latest available year, 2010-2012)
Nigeria 20,568.29 Liberia 23.41
Senegal 1,366.85 Lesotho 22.64
Kenya 1,227.62 Gambia, The 15.37
Sudan 1,126.13 Senegal 11.43
Uganda 976.60 Togo 10.61
Lesotho 601.87 Cabo Verde 9.13
Ethiopia 524.20 Nigeria 7.86
Mali 444.45 Guinea-Bissau 5.49
Liberia 372.39 Mali 5.02
Côte d’Ivoire 325.09 Uganda 3.69
Togo 320.71 Kenya 2.98
Mauritius 246.59 Rwanda 2.57
Benin 179.18 São Tomé and Principe 2.41
Cape Verde 176.80 Benin 2.36
Rwanda 156.20 Niger 2.35
Ghana 151.50 Burundi 1.88
Burkina Faso 130.35 Côte d’Ivoire 1.63
Niger 122.36 Sierra Leone 1.61
Cameroon 109.22 Mozambique 1.55
Mozambique 99.12 Ethiopia 1.50
Gambia, The 89.25 Burkina Faso 1.31
Sierra Leone 79.01 Guinea 1.18
Tanzania 75.34 Swaziland 0.84
Guinea 74.77 Cameroon 0.83
Botswana 54.85 Sudan 0.68
Swaziland 46.89 Malawi 0.66
Zambia 45.55 Zambia 0.35
Guinea-Bissau 42.18 Ghana 0.34
Burundi 42.15 Tanzania 0.24
Seychelles 25.90 Botswana 0.13
Namibia 16.51 Namibia 0.12
Malawi 16.01 Seychelles 0.11
São Tomé and Principe 6.50 Mauritius 0.01
Angola 0.19 Angola 0.00
Sources: Data source for remittances in millions of dollars: World Bank Migration and Remittances Data, Bilateral Remittances Matrix 2012.
Data source for remittances as percentage of GDP: World Bank World Development Indicators (2014).
moveiscriticalforanyanalysisoftherelationshipbetween
migration,remittancesanddevelopment.MichaelClemensof
theCentreforGlobalDevelopmenthasarguedpersuasivelythat
migrationcanbethoughtofasafinancialstrategytodiversify
householdrisk(ClemensandOgden,2013).Thatstrategy
requirespeopletoabsorbup-frontinvestmentcostsinorderto
generateastreamoffuturerevenue.Viewedthroughthislens,
migrationisaninvestmentinhumancapitalthataimstohelp
householdsmanageriskandvulnerability,andremittancesarethe
pay-outfromthatcapital.Yet,asClemensnotes,migrationisnot
oftenstudiedasasubstitutefor,orcomplementto,otherfinancial
strategiesthatsupportdevelopment.
Peoplebearthecostsofmigrationpartlybecauseofconstraints
onotheralternatives,butalsobecauseofthepotentiallyhigh
returnsfromrelocationintoday’shighlyinter-connectedbut
unequalglobaleconomy.Thesimplearithmeticofaverageincome
gapshighlightsthepotentialforlargereturns.Intermsofreal
(PurchasingPowerParity)income,averageincomesintheUK
are22timeshigherthaninTanzania.Averageincomesinthe
DemocraticRepublicofCongoarearound1%ofthoseinBelgium.
IncomesinFranceare48timeshigherthaninNiger.Unsurprisingly,
againstthisbackdrop,theaverageannualremittancesentbyan
AfricanmigrantfromtheOECDin2009wasgreaterthanaverage
annualper-capitaincomeinSSA(MohapatraandRatha,2011).
Suchcomparisonsillustratetheconsequencesofthe‘accident
ofbirth’.Whenitcomestoopportunityandtheprospectsfor
alifefreeofpoverty,thethreemostpowerfuldeterminantsare
‘location,location,location’.Despitethewealthconvergence
thathasoccurredunderglobalisation,wealthdisparities
between countriesstillaccountforaroundthree-quartersof
globalinequality(LaknerandMilanovic,2013).Itfollowsthat
migration,farmorethanaidoreventrade,hasthepotentialtoact
asaforceforamoreequitablepatternofglobalisation.
ThisisespeciallytrueforAfrica.Whiletheregionhasnow
enjoyedsome15yearsofstrongeconomicgrowth,convergence
isstartingfromalowbase–andgrowthhasbeenuneven.For
the414millionpeopleinSSAlivingonlessthan$1.25aday
(WorldBank,2010),theopportunitytomigrate,ortoreceive
remittancesfromamigrantrelative,offersunparalleledbenefits.
AverageconsumptionamongAfrica’spoorisfarbelowthelevel
inotherregions,ataround$0.70centsaday.Securingajobon
theminimumwageintheUK(£6.31in2013oraround$10.40)
wouldrepresentanominalincomegainofaround1,400%for
someonelivingbelowthepovertylineinAfrica.
Migrationpolicyinrichcountriesisoneoftheprimarybarriers
tothebenefitsofmigration.AcrossEurope,governmentshavebeen
adoptinglegislationtorestrictunskilledmigrationandrepatriate
irregularmigrants.Thefailureofvariousschemestogetmigrants
toreturnhomethroughcashincentivesandmorestringentrulesis
indicativeofthevalueofmigrationtothoseinvolved.
Whileitisbeyondthescopeofthisreport,thereissomething
ofaparadoxinthecurrentdirectionofpoliciesincountries
receivingmigrants.Economicevidencesuggeststhatmigration
bestowssignificantbenefitsondestinationcountries,and
demographictrendsareincreasingthepotentialgainsovertime.
Yetratherthandeveloparegulatorysystemtomaximisethe
jointbenefitsofmigration,mostgovernmentsareconcernedto
appealtovotersinfluencedbyanti-immigrationparties,suchas
theUnitedKingdomIndependenceParty,theFrontNationalin
FranceandItaly’sNorthernLeague.
Currentapproachestomigrationraisefundamentalconcerns
atmanylevels.Forexample,manyrichcountrieshaveactively
recruitedhealthprofessionalsandotherskilledworkersfrom
Africa.Accordingtooneestimate,oneineveryfiveAfricans
withapost-secondaryeducationisnowworkinginanOECD
country–asignificantbraindrain(Guptaetal.,2007a).Yetrich
countrieshaveclosedthedooronpoorAfricanswiththemost
togain.Thesearepracticesthatactivelyreinforcetheveryglobal
inequalitiesthatdrivemigration.
Internationalmediaattentiontendstofocusonmigration
fromAfricaandotherdevelopingregionstorichcountries.Yet
inAfrica,asinotherregions,mostmigrationisintra-regional.
Figuresonpopulationmovementarenotoriouslyunreliable.
However,bestestimatessuggestthattherearenowsome22
millionpeopleborninAfricalivingoutsidetheircountryof
originandthataroundtwo-thirdsoftheseliveinotherAfrican
countries.Therearesome3millionNigerianslivinginother
countriesintheregion–atleasttwicethenumberestimatedtobe
livingintheUSandEurope(OrozcoandMillis,2007).Thereare
alsofarmoreSenegalesemigrantslivinginGambiathaninFrance
(Orozcoetal.,2010).
Regionalmigrationpatternsareshapedbywell-established
seasonalworkpatterns,cross-countrylabourmarketsandethnic,
kinshipandothersocialnetworks.TheBurkinaFaso–Côte
d’Ivoirecorridor(Côted’Ivoire’scocoasectorreliesonlabour
transfersfromBurkinaFaso)isoneofthetop20migration
corridorsintheworld,usedbyabout1.3millionmigrants.In
southernAfrica,workersfromMozambiqueandZimbabwe
providealabourforceforagricultureandmininginSouthAfrica.
OtherimportantcorridorsarethoselinkingSouthAfricato
Zimbabwe,MozambiqueandLesotho;MalitoCôted’Ivoire;and
DemocraticRepublicofCongotoRwanda(WorldBank,2011a;
PlazaandRapha,2011).
Behindtheheadlineestimatesofmigrationnumbersarea
vastarrayofdistinctivemigrationpatterns.Migrantremittance
transfersfromOECDcountriestoAfricaoriginatefromworkers
whohaverelocatedonapermanentortemporarybasis,from
refugeesandfrom‘irregular’migration.Onceagain,thedataare
limited.Butthepastdecadehasseenthedevelopmentofalready
establishedmigrationcorridorsfromtheHornofAfrica,North
AfricaandWestAfricaintosouthernEurope.Themigrants
usingthesecorridorsareacutelyvulnerableandtakehighrisks
torelocate,reflectingtheperceivedreturnstomigrationandthe
distressthatforcesthemtouproot(Box1).
2 Forausefuldescriptionoftheglobalremittancesystemseecfpb(2011).
12 ODI Report
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 13
Box 1: Distress movements and irregular migration
InFebruary2014,internationalmediareportscarriedanotherepisodeinanall-toofamiliarstory.TheItaliannavyrescuedover1,000Africansfromalmostcertaindeathatsea,some220kilometressouth-eastoftheislandofLampedusa–thesiteofover300deathsinOctober2013(BBCNEWSEurope,2014).
Beyondtheimmediatehumantragedies,sucheventsunderlinethepoweroftheeconomicforcesthatdrivemigration.Everyyear,tensofthousandsofAfricanstrytomakethejourneytoEuropeasirregularmigrants.Usinguptheirsavingsandriskingsmugglers,hazardouscrossings,captureandsummaryreturn,theyaremotivatedbythepursuitofabetterlifeforthemselves–andanopportunitytosupporttheirfamilies.
LegislationgoverningmigrationintheEUdrawsadistinctionbetweenformallabourmovement,theprovisionofsanctuaryforrefugees,andthe‘irregular’flowofmigrantsoutsidetheformalrules(Betts,2008).However,migrationpoliciesarebeingovertakenbythewiderforcesthatdrivepeopletomove,includingconflict,statefailure,povertyand,increasingly,ecologicalpressuresonlandandwaterresources–pressuresthatwillintensifywithclimatechange.Therearefourprimarydriversofforcedmigration
• Violence, armed conflict and human rights abuse:accordingtoUNHCR(UNHCR,2013),therearesome2.8millionrefugees
inSSA–overone-quarteroftheworldtotal-andanother5.4millioninternallydisplacedpeople(UNHCR,2014).Violent
conflicthasbeenapowerfulcatalystformigrationinsuchcountriesasSomaliaandtheDemocraticRepublicofCongo.
• High levels of poverty and acute vulnerability:SSAhasthehighestanddeepestlevelsofpovertyintheworld.Justunderhalf
oftheregion’spopulation–483millionpeople–liveonlessthan$1.25aday.Theaveragedistanceofthepoorfromthe
$1.25line,asmeasuredbythepovertygap,isthreetimesthelevelseeninSouthAsia.
• Interlocking political and economic failures:politicalinstabilityinZimbabweandCôted’Ivoireledtomarkedeconomic
reversals,withanassociatedlossoflivelihoodsandincreaseinpoverty.MassmigrationfromEritreaislinkedtounderlying
failuresinpoliticalandeconomicgovernance.
• Climate-related stress:Africa’spoorareacutelyvulnerabletoclimate-relatedshocks,suchasdrought,floodingandrainfall
variability.The2011droughtintheHornofAfricacontributedtoforcedmigrationonalarge-scale.
Atthemacroeconomiclevel,remittancesarejustlikeanyother
financialtransfer.Theyrepresentasourceofforeign-exchange
earningsthatcanbeusedtofinanceconsumptionorinvestment.
However,remittancesdifferfromotherflowsintwokeyrespects.
First,theyarelessvolatilethanforeigndirectinvestment(FDI)
andotherprivatecapitalflows.Second,unlikeaidandFDI,
remittancesgodirectlytorecipienthouseholds,augmentingthe
resourcesattheirdisposalandgeneratingstrongmultipliereffects
acrosslocalmarkets.
EvidencefromAfricareinforcesawiderbodyofresearchonthe
roleofremittancesinsupportingsocialandeconomicdevelopment.
Themostcomprehensiveoverviewoftheevidenceavailablehas
beenprovidedbyDilipRathaandothersattheWorldBank(see,
forinstance,Rathaetal.,2011,andRatha,2013).Inthissection
wedrawonthatoverviewandawiderbodyofresearch.
Macroeconomic benefitsRemittancesofferarangeofbenefits,fromanationaleconomic
perspective.Empiricalevidenceontheroleofremittancesin
supportingeconomicgrowthismixed,partlybecauseofthe
complexitiesassociatedwithdisentanglinglabourmarketeffects
frominvestmenteffects(Pradhanetal.,2008).Whatisclear
inthecaseofAfrica,however,isthatremittanceflowshave
cushionedtheimpactofexternaleconomicshocks,suchasthe
slowdownthatfollowedthe2008globalfinancialcrisis(African
developmentBankGroup(AfDB,2009).Remittanceshave
enabledgovernmentstoincreaseforeign-exchangereserves,cover
current-accountdeficitsandfinancedebtservicing.
Counter-cyclicalfinancingeffectsareparticularlyimportantfor
Africa.Morethananyotherregion,SSAisextremelyvulnerable
toexogenousshocks.Variationsinrainfall,droughtsandfloods
haveamarkedbearingontheeconomiccycle.Widerglobal
economicconditions,suchasthe2008spikeinfoodprices
andtheeconomicdownturnthatfollowedthefinancialcrisis,
alsoimpactheavilyonAfricangrowth.Oneofthebenefitsof
remittancetransfersisthattheyoftenincreaseinresponseto
economicshocks.
RecentIMFresearchonremittancepatternsfromItaly
documentsastrongcounter-cyclicaleffect:remittancesincreased
duringdownturnsinthebusinesscycleoftherecipientcountry
(Bettinetal.,2014).Thesameeffectisobservedduringperiods
ofhumanitarianemergency:remittanceflowstendtoriseas
economiescontract(andusuallylongbeforehumanitarianaid
arrives).Whileremittanceflowsfallduringeconomicdownturns
inthesendingcountry,theeffectistypicallylesspronouncedthan
thatforotherflows.Remittancetransfersfellatlessthanonefifth
oftherateofprivatecapitalflowsduring2009,forexample.3
Whatofthewiderrelationshipbetweenremittancesand
economicgrowth?Theevidencepointsindifferentandsometimes
contradictorydirections.Remittancesincreasetherealdisposable
incomeofhouseholds,therebyraisingaggregatedemand.
Theyalsocontributetofinancialdeepening.However,some
commentatorsarguethatoutwardmigrationsimultaneously
reduceslaboursupply,putsupwardpressureonwages(through
remittanceeffects)andreducesincentivetoworkthrougha
so-called‘reservationwage’effect(UNCTAD,2012).While
theempiricalevidenceisinconclusive,itdoesnotpointwith
anyconsistencytoanegativerelationshipbetweengrowthand
remittances.
Benefits for householdsBeyondthemacroeconomiceffects,remittancesgeneratevery
largesocialandeconomicbenefitsforrecipienthouseholds(Baird
etal.,2011).Therelationshipbetweenpovertyandmigration
operatesintwodirections.Inonedirection,highlevelsofpoverty
oftenactasaspurtomigration.EvidencefromMaliandSenegal
suggeststhatdecisionstomigratearetakencollectively,rather
thanbyindividualstoreducehouseholdvulnerability(Azamand
Gubert,2006).Extendedfamiliesandvillagebodiessometimes
pooltheirresourcestopayforthemigrationexpensesoftheir
mostskilledyoungmentosecureremittancetransfersthat
supportinvestment,andthatprotectconsumptionduringshocks.
Intheotherdirectionthereisapullfactor:remittancesconfer
opportunitiestoescapefrompoverty,improveopportunitiesfor
healthandeducationandboostproductivity.
Severalstudieshavelookedattheimpactofremittanceson
poverty.4Whilesomewhatpartialandfragmentary,evidencefor
Africapointstosignificantpovertyreductioneffects(Adams
andPage,2005).Onestudydocumentsadeclineof11%inthe
povertyheadcountforUgandathatislinkedtoremittances
(Ratha,2007).IMFresearchalsodocumentsapositiveassociation
betweentheshareofremittancesinGDPandreducedpoverty
(Guptaetal.,2007b).SurveyevidencefromGhanaindicatesthat
remittancesarecounter-cyclicaland,overtime,helptosmooth
2. Migrant remittances – wide-ranging benefits
3 Globalprivateflowstodevelopingcountriesdeclinedby27%in2009(WorldBank,2011b)whileremittancesdeclinedbylessthan5%(UNChronicle,2013).
4 SeeMohapatraandRatha(2011)foradetailedreviewoftheevidence;seealsoAgunias(2006).
14 ODI Report
householdconsumptionandwelfare,especiallyforfoodcrop
farmers.Controllingforothervariables,receivinginternational
remittanceshalvedthelikelihoodofahouseholdbeingpoor,and
increasedhouseholdspendingonhealthandeducation(Adams
andCuecuecha,2013).
RemittancestoAfricaareusedtosupportawide-rangeof
activities.Studiesfromacross-sectionofcountriesprovide
awindowontheseactivities.Figure 2comparesthetopten
prioritiescitedinrespondentsurveysforKenyaandNigeria.In
bothcountries,education,foodand(inNigeria)businessfigure
prominently.WhiletheevidencefromAfricaispatchy,research
fromotherregionssuggeststhatremittancescancontributeto
improvedschoolattendanceandmoreyearsofschooling.5
Justasremittancescanbuffernationaleconomiesagainst
externalshocks,sotheycanreducethevulnerabilityofpoor
households.Remittancetransferscanprovidehouseholds
affectedbydrought,floodsanddamagingeventswithalifeline.
Forexample,Ethiopianhouseholdsthatreceiveremittancesare
lesslikelytosellproductiveassetstocopewithfoodshortages.
EvidencefromGhana,MaliandSenegaldocumentshouseholds
usingremittanceincometosmoothconsumptionduringdistress
episodesgeneratedbyeconomicshocks.Thissafetynetfunction
enablesrecipienthouseholdstomitigateimpactsonnutritionand
avoidthedistresssaleofassets.Recentresearchusingpanel-based
evidencefrom42countriesinSSAhasaddedtotheempirical
evidenceonconsumption-smoothingeffects(ArezkiandBrückner,
2011).Usingvariationsinrainfalltoexaminetheimpacton
remittances,researchersfoundthattheassociatedincomeshocks
hadsignificantpositiveeffectsonremittances.
EvidencefromSomaliaprovidesapowerfulillustrationofthe
socialinsuranceandsafetynetfunctionsofremittances.During
2011,humanitarianaidagenciesrespondedfartooslowlytoa
faminethateventuallyclaimedsome260,000lives–halfofthem
childrenbelowtheageoffive.Bycontrast,theSomalidiaspora
increasedremittancetransfersatspeed,keepingmanypeople
alive,reducinglevelsofmalnutrition,andprovidingafoundation
foreconomicrecovery.
Themostauthoritativerecentestimatesputthevalueof
remittancestoSomaliaataround$1.2billionannually(FAO,
2013).Thatfigureismorethandoublethecountry’sreported
exportearningsand57%greaterthanaverageannualaid
(for2008-2011).Some41%ofhouseholdsreportreceiving
remittances,withtypicalvaluesrangingfrom$1,000to$6,000.
Thetop-rankedusesofremittanceswere(inorderofimportance)
foodpurchases,non-foodexpenses(includinghouserent),school
feesandmedicalexpenses.Three-quartersofallrespondents
studiedarereportedtousethemoneytheyreceivethrough
remittancestopayforfoodexpenses.Inaddition,some80%of
allnewbusinessventuresinSomaliaarefundedbyremittances
(PRNewswire,2013).
The counter caseVariouscounter-argumentshavebeenputforwardtocontest
thebenefitsofremittances.Ithasbeenclaimedthatincreased
remittancetransferscanharmeconomicgrowthandleadtoa
deteriorationofinstitutionalquality.6Inprinciple,largeinflowsof
remittancescancausetherealexchangeratetorise(theso-called
‘DutchDisease’effect),whichcanimpairgrowth–butthereis
littleevidenceofsucheffectsinAfrica(RajanandSubramanian,
2005;Guptaetal.,2007).Totheextentthatremittancesraise
productivitythroughinvestmentandfinancialdeepening,they
providetheirownantidotetoexchange-rateappreciation.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 15
5 See,forinstance,Borraz(2005);CoxEdwardsandUreta(2003);Lopez-Cordova(2005);ParinduriandThangavelu(2011);Yang(2004).
6 OnDutchDiseaseeffectsseeAcostaetal.,2009.
Figure 2: Reported use of international remittances: Kenya and Nigeria (% of total remittances received)
0
5
10
15
20
25
1
6 57
1113
4
108
1 00
4 5 5 6
10
22 22
25
Marriage/funeral
Rent(house/land)
Houserebuilding
Health New-houseconstruction
Food Business Education Landpurchase
Investment
Kenya
Nigeria
Source: Mohapatra and Ratha (2011: 20). Data are from Mohapatra and Ratha (2011) calculations and are based on household surveys
conducted in Kenya and Nigeria in 2009 as part of the Africa Migration Project.
Theevidenceoninstitutionalqualityis,atbest,inconclusive.
Onerecentpaperuseseconometricanalysistoexaminethe
relationshipbetweenremittancetransfersandgovernance
indicators,andobservesaconsistentlynegativecausalassociation
(Abdihetal.,2010).Theauthorstracetheerosionofinstitutional
qualitytoaccountabilityrelationships.Byactingasabuffer
betweenagovernmentanditscitizens,sotheargumentruns,
remittancesenablehouseholdstopurchasepublicgoodsrather
thanrelyongovernmentprovision,whichreducesthehousehold’s
incentivetoholdthegovernmentaccountable.Agovernment
can‘freeride’onthisincreaseinconsumptionandappropriate
moreresourcesforitsownpurposes,ratherthanfinancethe
provisionofpublicservices.Amongthemanydifficultieswith
thisargument,theauthorsappeartoassumethatthereisa
directsubstitutioneffectforpublicgoods(withhouseholds
reducingdemandforgovernmentprovisionasremittanceincome
rises),andthatincreasedprivatewelfarereducesdemandfor
governmentservices.Theirpaperalsofailstorecognisethe
needforcautionintracingcausalrelationshipsthroughhighly
imperfectdatasets.
Anotherclaimisthatremittancesareassociatedwith‘moral
hazard’inrecipientcommunities(AzamandGubert,2005).
Remittancereceivers,sotheargumentruns,willbeableto
maintainconsumptionwhileworkingless.Thereisnoempirical
evidencetosupportthisperspective,whichisbasedonsome
questionabletheoreticalpropositions.7Morecredibleisevidence
that,insomecontexts,malemigrationisassociatedwithan
increasedlabourburdenonfemalehouseholdmembers.Under
someconditions,remittancesmayalsoincreasedemandforchild
labourasreceivinghouseholdswithlabourshortagesseekto
undertakenewinvestmentactivities.Moreover,theincreasing
numberofskilledfemalemigrantsenteringtheUSfromLatin
America,forexample,hasbeenidentifiedasamajorconcern
becauseofthepsychologicaleffectsonchildrenandmigrant
mothers(Suarez-Orozcoetal.,2002;Orozco,2012).
Noneofthisevidencedetractssubstantivelyfromthelarge
actualandpotentialbenefitsassociatedwithremittances.
GovernmentsneedtoguardagainsttherisksofDutchDisease
andanerosionofinstitutionalgovernances,buttheseriskscan
becontainedthroughmacroeconomicpolicies,transparencyand
accountability.Similarly,whileremittancesmaygeneratesome
perverseeffectsinlabourmarkets,thesetoocanbecountered
throughpublicpolicy.
7 Theunderlyingassumptionappearstobethatremittancereceiverstargetaspecifiedlevelofconsumption,ratherthanoptimisingtheirownwelfare.
16 ODI Report
ThehighchargesassociatedwithremittancetransfertoAfrica
havelongbeenrecognisedasaconstraintondevelopment.Yet
internationaleffortstoreducethosechargeshaveachievedlimited
results–infact,recentevidencesuggeststhatremittancecharges
mayberising(WorldBank,2013a).
BoththeG8andtheG20havepledgedtostrengthenthe
developmentbenefitsoftheremittancesystem.TheL’Aquila
summitoftheG8in2008adoptedsomeclearprinciplesbacked
byaquantitativegoal.Politicalleaderspromisedtofacilitate
‘amoreefficienttransfer(…)enhancecooperationbetween
nationalandinternationalorganizationsand(…)makefinancial
servicesmoreaccessibletomigrants.’Thecommuniqueincluded
acommitmenttoworktowardsahalvingoftheaverageglobal
costofremittancetransfers,from10%to5%overfiveyears
–theso-called‘5X5’objective.Inthefinaldeclarationofthe
CannesSummitinNovember2011,theG20headsofstatealso
committedtoworktowardsthereductionoftheaveragecostof
transferringremittancesto5%by2014.
The‘5X5’commitmenthasbeenwidelyrestatedandtakenup
inanumberofforums,tonodiscernibleeffectontheremittance
chargesincurredbyAfricanmigrants.Atonelevel,thepersistence
ofhighchargesinremittancemarketsissomethingofanenigma.
Newbusinessmodelsandnewtechnologiesaretransforming
financialservicesacrosstheworld.Theextensionofmobilephone
ownershipandriseofmobilebankingisreducingdependence
onfixedlocationaccesspointsandmobiletransfershavebeen
associatedwithincreasedfinancialinclusionandreducedcosts.
OneofthemoststrikingexamplescomesfromAfrica.The
M-PESAnetworkinKenyaisnowoneoftheworld’slargest
mobilemoneyoperators.Launchedin2007bySafaricom,the
country’slargestmobile-networkoperator,M-PESAisnow
usedbyover17millionKenyans–sometwo-thirdsoftheadult
population.
Yetdespitethepervasivecoverageofsuchmobilenetworks
acrossAfrica,technologicalinnovationhasyettodrivedown
costsinremittancemarkets.Thebarrierstocost-reductioninclude
anoligopolisticinternationalmarketreinforcedbyfinancial
regulationinfavourofasmallnumberofbanks.
The global remittance marketTheprofileofremittanceintermediariesvariesacrosscountries
andregions.Mosttransfersoccurthroughmoneytransfer
operators(MTOs).Bankshaveshownlittleinterestinentering
themarketforremittances,partlybecausethesumsinvolvedin
individualtransactions–typicallybetween$150and$300–have
beenviewedastoosmallfortheinter-banksystem.
MTOstypicallylinkremittancesenderstoreceiversinAfrica
throughanagent.Theportfoliooftransferoptionsrangefrom
‘cash-to-cash’to‘debt/credit-card-tocash’and‘account-to-cash’,
withconsumerpreferencesdictatedbycost,convenienceand
information.
WhenAfrica’smigrantssendremittanceshome,theyenter
marketscharacterisedbyaconcentrationofmarketpower.The
‘bigfour’MTOsareWesternUnion,MoneyGram,RiaFinancial
servicesandSigue.WesternUnionaloneaccountsforanestimated
one-fifthofinternationalremittancetransfers–some$80billion
in2011.MoneyGram,thesecondlargestcompany,transfers
around$20billionannually.InthecaseofAfrica,thetwo
companiesexercisewhatamountstoaduopolyinmostcountries
(seebelow).
Remittancetradegenerateslargerevenues.In2012,Western
Unionreportedanoperatingincomemarginof28%on$3.5
billionintransactionfeesand$988millioninforeignexchange
revenues(WesternUnion,2012).MoneyGramreportedmargins
of20%onrevenuesof$1.4billion(MoneyGram,2014).Both
companieshaveregisteredstronggrowthinrevenues,reflectinga
widerincreaseincross-borderremittances.TheMiddleEastand
AfricahavebeenWesternUnion’sfastestgrowingmarket,with
7%growthin2012.Revenuesonforeignexchangetransaction
havegrownataprolificrate,withWesternUnionachieving16%
growthin2012(WesternUnion,2012).
Giventheverylargemarginsonoffer,whyareotherfirms
notenteringthemarketatscale?Thereareanumberofbarriers
toentry.Oneofthebiggestispresenceontheground.Western
Unionhas510,000agentsglobally(WesternUnion,2012),many
ofthemoperatinginareasbeyondthereachofbanksandformal
financialinstitutions.MoneyGramhas336,000agentsworldwide
(MoneyGram,2014).Marketshareiscloselyrelatedtothe
numberofagents–andWesternunionhasexpandeditsnetwork
byafactoroffiveinthepastfewyears(TheEconomist,2012).
ExclusivityarrangementsbetweenMTOsandcommercialbanks
representanotherbarriertoentry(seebelow).
From global to regional – remittance markets in AfricaRemittancemarketsinAfricaaredominatedbyaduopolyofWestern
UnionandMoneyGram.Usingpay-outlocationsasaproxyfor
marketshare,thereare22countriesinwhich eitherWesternUnion
orMoneyGramaccountformorethanhalfofthetotal(Figure 3).
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 17
3. The high cost of remittances to Africa
8 ThisfigureincludesNorthAfrica.
Inanother11countries,thetwotogetherrepresentoverhalfof
locations.WesternUnionhassome30,000agentsintheregion.8
Itisbeyondthescopeofthispapertoprovideadetailed
accountofremittance-marketstructures.Remittanceservice
agencies provideservicestoclientsandchargefeeseitherdirectlyorthroughagents.Recipientsreceivetransfersinstores,banks,
postofficesor,insomecases,micro-financeinstitutions(MFIs).
Theroleofthemainactorscanbebrieflysummarised.
Commercial banks.InseveralAfricancountries,banksarethe
onlyagencyauthorisedtoconductmoney-transferoperations,and
typicallypartnerwithlargeMTOs.Incountrieswhereonlybanks
areauthorisedtopayremittances,halfareagentsofWestern
UnionandMoneyGram,thelargestMTOsinAfrica.According
toonemarketsurvey,banksinpartnershipswithWesternUnion
serviceabout41%ofpaymentsand65%ofallpay-outlocations
(IFAD,2009).Thereare29countriesinAfricawherebanks
accountforoverhalfofthein-boundremittancepayments.In
Ethiopia,NigerandNigeriatheshareexceeds80%,risingto
100%forSouthAfrica,Mozambique,andLesotho.
Money transfer operators (MTOs). These offerbothcash-to-cashtransfersaswellaselectronicmoneytransferservices.
MTOsoperatethroughnetworksofagentsandpartnershipswith
correspondentbanksinrecipientcountries.
Non-bank financial institutions.Thisumbrellacategory
includescreditunions,cooperativesandMFIs.Underthe
regulationsoperatinginmostAfricancountries,theseinstitutions
canonlyserveaspaymentagentsforMTOs.Fewareauthorised
topayremittancesdirectly.WhilefarmoreAfricanshaveaccounts
withMFIsthanwithformalfinancialinstitutions,theformer
accountforonly3%ofremittancepay-outlocations(McKay
andPickens,2010).Onlyasmallnumberofcountries–including
KenyaandGhana–authorizemicro-financeinstitutionstocarry
outinternationalmoneytransfers(WorldBankandEuropean
Commission,2013).
Post offices. Whilecommercialbanksareinaccessibletothe
poorestinmanycountries,postofficeshavefarhigherlevelsof
coverage.Onesurveyestimatesthatmorethan80%ofpostoffices
inSSAarelocatedoutsidethethreelargestcitiesintheregion
(ClotteauandAnsón,2011).Thisprovidespostalnetworksa
uniqueopportunitytobecomealinkintheremittancetransfer
chain.However,intotal,onlyabout20%ofallpostofficesinAfrica
areauthorisedtopayremittances(ClotteauandAnsón,2011).
DataprovidedbytheWorldBankhavemadeitpossibleto
constructamoredetailedpictureofremittancetransfercosts.In
Africa,asinotherregions,banktransfersareassociatedwiththe
highestcharges,withpost-officeandonlinetransfersincurring
thelowestcharges.Betweentheseoptionsareanarrayofcharges
(seeFigures 4 and 5).InaWorldBanksamplesurveyforthelast
quarterof2013,bankchargesaveraged19%–morethantwice
theaveragelevelforMTOs.Postofficesrepresentedthelowest
costoption.However,thisoptionisassociatedwithlimitedreach
becauseoftheregulatoryenvironment.
18 ODI Report
Figure 3: Concentration of market power: % of pay-out locations by company, Western Union and MoneyGram
0
80
70
50
40
30
20
60
100
90
10
Western Union
MoneyGram
Others
Cape
Ver
de
Gabo
n
CAR
Mad
agas
car
Sao
Tom
e e
Prin
cipe
Zam
bia
Libe
ria
Zim
babw
e
Ango
la
Mal
i
Buru
ndi
Gam
bia
Guin
ea
Rwan
da
Chad
Ugan
da
Nige
ria
Mal
awi
Equa
toria
l Gui
nea
Guin
ea‐B
issa
u
Burk
ina
Faso
Nige
r
Djib
outi
Com
oros
Cong
o
Beni
n
Sier
ra L
eone
Bots
wan
a
Cam
eroo
n
Ghan
a
Togo
Moz
ambi
que
Tanz
ania
Cote
d'Iv
oire
Cong
o, D
em. R
ep.
Sene
gal
Ethi
opia
Keny
a
Suda
n
Swaz
iland
Nam
ibia
Eritr
ea
Leso
tho
Som
alia
Note: Shaded area represents countries in which market share is ≥50%.
Source: IFAD Sending Money Home to Africa, 2009.
Africa’s remittance super-taxChargesonremittancestoAfricaarewellabovethelevels
reportedforotherregions–andtheyhaveincreasedsince2010
(Figure 6).Onaverage,anAfricanmigrantsending$200home
willpayaround$25,or12.3%.Thiscompareswithaglobal
average(withoutSSA)of7.8%.Typically,Africa’sdiasporapays
twiceasmuchasitsSouthAsiancounterpartwhensending
moneyhome.
Beneaththeheadlinefigurestherearemarkedvariationsacross
agencies.Chargesarehighestforbanksandlowestforpost-offices.
Acrossthespectrumofservicedeliverymechanisms,chargesfor
Africaarefarhigherthantheglobalaverage(Figure 7).Africa’sdisadvantageinchargingcanbethoughtofasa
‘remittancesupertax’.Whilenotataxinaliteralsense,the
charginggapbetweenAfricaandtherestoftheworldcanbe
thoughtofasalevy.Thedistinctivefeatureofthislevyisthatit
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 19
Figure 4: Average % cost of transferring $200 by type of remittance service provider
Post of�ce
Money transferoperator/post of�ce
Money transferoperator
Bank/money transfer operator
Bank
Average % cost of transferring $200
0 2 4 6 8 10 12 14 16 18 20
Source: World Bank Send Money Africa, January 2014.
Figure 5: Average % cost of sending $200 by product type
Prepaid card
Online
Mobile
Cash to cash
Multiple
Bank account
Account to cash
Average % cost of transferring $200
0 2 4 6 8 10 12 14 16 18 20
Source: World Bank Send Money Africa, January 2014.
Figure 6: Average % cost of transferring $200 by region
4
5
6
7
8
9
10
11
12
13
14
1Q2009
3Q2009
1Q2010
3Q2010
1Q2011
3Q2011
1Q2012
3Q2012
1Q2013
2Q2013
3Q2013
4Q2013
Africa’s remittance ‘Super tax’
Loss = $ 1.4 billion
Global average excluding SSA
Loss = $ 0.9 million
5x5 initiative
2008
EAPLAC
MENASA
SSAGlobal
Source: Remittance Prices Worldwide database of the World Bank.
divertsrevenuesawayfromhouseholdsandtowardsMTOsand
otherintermediariesthatlinkremittancesendersandreceivers.
Weestimatethe‘supertax’transferbyreferencetotwo
benchmarks.Thefirst,alower-boundestimate,isthegapbetween
chargesforAfricaandglobalaveragecharges.Insettingthe
secondbenchmark,wefollowamethodusedbytheWorldBank
andothersthatestimatesthegainthatwouldaccrueifcharges
wereloweredtothe5%internationaltargetlevel.
Ourestimateforthe‘remittancesupertax’transfer(setouton
theright-handsideofFigure4)is$1.4-2.3billion.Thisimpliesa
mid-rangelossestimateof$1.8billion.
Partofthederivedlossthatweidentifyoccursthroughthe
operationsofMTOsandotherintermediaries.Itisnotpossible
toestimatewithanyprecisionhowthelossisdistributedacross
theremittanceintermediaries.Thisisbecausethereisinsufficient
informationonchargestructuresfordifferentformsoftransfer,
thevolumeofeachtypeoftransfer,andthecostsassociatedwith
financialregulationsandbanksinAfrica.
However,anadjustedformofourbenchmarkingdoesprovide
aplausiblepictureofhowthe$1.8billionlossisdistributed.
Marketshareprovidesoneproxyindicator(Figures 8and9).MTOsaccountforjustunder90%ofremittances,withWestern
Union(40%)andMoneyGram(24%)accountingfortwo-thirds
ofthetotal.Anothercompanyspecificproxyindicatoristhe
chargereportedforWesternUnionandMoneyGramontheWorld
Banks’s‘RemittancePricesWorldwide’website.Thischargecanbe
comparedwiththeglobalaveragetoderivean‘Africaloss’effect.
Takingthe$1.8billiongloballossfigureasareferencepointand
usingasimpleextrapolationfrommarketshare,MTOswould
accountforaround$1.6billion.
Table 2summarisestheresultsofourderivedlossapproach
appliedtothetwolargestMTOs(seethetechnicalannexfor
details).Theestimatedrangesarefairlylarge–$365–807million,
reflectingthevarianceinbenchmarks.Thelowerendoftherange
(basedonreportedcharges)wouldappeartobeimplausible,given
20 ODI Report
Figure 7: Africa’s disadvantage: % cost of transferring $200
0
18
11
5
9
5
3
2
4
6
8
10
12
14
18
16
Bank MTO Post of�ce
Remittances to SSA countries
Remittances to non-SSA countries
Source: Remittance Prices Worldwide database of the World Bank,
2013.
Figure 8: % of pay-out locations* by type of provider
Post of�ce
7.6
2.40.6
89.4
Bank
Others
MTO
Notes: * We here use the % of remittance pay-out locations as a
proxy for ‘market share’, and throughout.
Source: IFAD Sending Money Home to Africa, 2009.
Figure 9: % of MTO pay-out locations by company
Moneytrans
5.5
7.7
9.0
13.7
24.2
40.3
Banque Postale
Coinstar
Others
MoneyGram
Western Union
Source: IFAD Sending Money Home to Africa, 2009.
WesternUnion’sandMoneyGram’smarketshare(fromwhichwe
derivetheupper-boundestimate).Themid-rangefigureforthe
lossfromtransfersthroughthetwocompanies,theiragentsand
associatedbanksis$586million.Itisimportanttorecallthatany
figurederivedfromreported remittancesislikelytoconstitute
anunder-statement,becauseoftheunder-reportingofremittance
transfers(WorldBank,2013a).
Whateveritsdistribution,the‘remittancesupertax’is
effectivelyalevyondevelopmentandself-reliance.Ithurts
remittancesendersandreceivers,aswellasnationaleconomies,
intworespects.Firstandforemost,itdiminishestheresources
availableforhouseholdspendinginareassuchaseducation,
health,foodsecurityandproductiveinvestment.Second,other
thingsbeingequal,ahigherchargeislikelytoreducethesizeof
remittancetransfers,whichhasbothhouseholdandwidermacro-
economiceffects.
Howsignificantareourlossestimatesintermsofwider
externalfinancialflows?Comparisonswithaidareinstructive.
Themid-rangelossestimateof$1.8billionannuallyisequivalent
tojustoverhalfoftheaidtoAfricaprovidedbytheUK,the
region’sthirdlargestbilateraldonor.Itrepresents40%of
transferstoAfricathroughtheWorldBank’sInternational
DevelopmentAssociation(IDA)–thelargestsourceofmultilateral
aid.Withaidbudgetsunderpressure,reducedremittancecharges
couldunlockincreaseddevelopmentfinance.
Viewedthroughadifferentprism,$1.8billionwouldbe
sufficient,atcurrentlevelsofper-pupilspending,toputalmost
14millionofAfrica’schildrenintoschool.Toplacethatfigure
incontext,itrepresentsaroundhalfoftheout-of-schooltotalin
SSA.9Alternatively,thesavingsthatwouldresultfromcuttingthe
‘supertax’wouldbesufficienttoprovideimprovedsanitation
to8millionpeople,orcleanwaterto21millionpeople.10While
thesefiguresareonlyindicativeofpossibleinvestmentoutcomes,
theyillustratethescaleoftheopportunitycostassociatedwiththe
highchargesonAfrica’sremittances.
Variations across OECD countriesOneofthemoststrikingfeaturesofremittancechargesforAfricais
theirvariabilityacrossOECDcountries(Figure 10).Averagecostsinthetwolargestremittancemarkets–FranceandtheUK–are
around10%.LevelsinGermanyareconsiderablyhigher.Itisnot
obviouswhychargesshouldvarytothisdegree.Giventhatmostof
thecompaniesinvolvedareglobalandthatremittanceoperations
arerelativelysimple,someuniformityinchargingmighthave
beenanticipated.Lookingbeneaththeseheadlinefiguresrevealsa
numberdistinctivechargingsystems,withlowlevelsofvariation
onbasicfeesandhighlevelsofvariationonforeigncurrency
conversioncharges(Box2).
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 21
9 Therewerejustunder30millionprimaryschool-agechildrenreportedasbeingoutofschoolinSSAin2013.Averageannualper-pupilspendinginsub-SaharanAfricais$131(UNESCO,2013/4).
10 FiguresforaccesstoimprovedwaterandsanitationarebasedonHuttonetal.(2007),andHuttonandBartram(2008).
Figure 10: Remittance charges from the G7 (excluding Japan): total average % cost of transferring $200
0
2
4
6
8
10
12
14
16
Canad
a
Franc
e
German
y UKIta
ly US
Total average (2013)
SSA average (4thQ2013)
Source: Remittance Prices Worldwide database of the World Bank.
Table 2: Estimating the share of Western Union and MoneyGram in Africa’s remittance ‘super tax’
Reported charge and market share estimate*
Market share estimate**
Western Union (WU) $185 million $504 million
MoneyGram (MG) $180 million $303 million
Total for WU and MG $365 million $807 million
Mid-range figure $586 million
Notes: * Based on respective % of remittance pay-out locations
(40.3% for WU and 24.2% for MG) and on their average charges on
remittances to SSA (9.4% for WU and 10.4% for MG). For details,
see Technical annex 3; ** Based on share of remittance pay-out loca-
tions. For instance, for Western Union: US$1.4bn X 0.894 X 0.403
Data source: World Bank ‘Remittance Prices Worldwide.’
Table 3: Current charges and implied losses through the remittance ‘super tax’ from the UK
Amount of remittance: $5 billion in 2012
Current charges 9.5% $475 million
Charges at global average (excluding SSA) 7.8% $390 million
Charges at 5% $250 million
Implied losses through ‘remittance super tax’ $85 – 225 million
Mean value $155 million
Estimated share of losses from WU and MG* $49 – 130 million
Of which
Western Union $31 – 81 million
MoneyGram $18 – 49 million
Note: *Based on the % of remittance pay-out locations (see Table 2 notes).
22 ODI Report
Box 2: Remittances from the United Kingdom
WithalargeAfricandiasporapopulation,theUKisamajorsourceofremittancetoAfrica.In2012,some$5billionwastransferred–around15%oftheglobaltotal.ItfollowsthatthetermsunderwhichAfricanmigrantstransfermoneyfromtheUKhavefar-reachingimplicationsfordevelopment.
WesternUnionandMoneyGramarethelargestsourcesofremittancetransferstoAfricafromtheUK.PartialdataavailablefromtheWorldBankpointtoamarkedvariationinchargelevels–andinthechargeprofile.MoneyGramcharges15%onaverage(with4percentagepointsofthechargecomingthroughaforeigncurrencyconversionlevy).WesternUnion’saveragechargeis10%(with3percentagepointschargedonforeigncurrencyconversion).Onthebasisofthecommercialmarketinformationcurrentlyavailable,itisnotpossibletodeterminethereasonsforthechargingdifferentials.
Researchundertakenforthisreportlookedbehindtheaverageatthecountry-levelpatternofcharges.Wefocusedon‘on-linecredit’and‘debit-card-to-cash’transactions:amongthecheapestreportedremittanceavenues.Welookedatchargestructuresfor15countriesinsub-SaharanAfricaand4comparatorcountries(Figures 11 and 12).Indoingso,wefollowedtheconventionofcountingbothdirectchargesintheformoffeesandtheforeignexchangemargin,asdeterminedbythedifferencebetweentheexchangerateappliedbythemoneytransferoperatorandtheinter-bankexchangerate.Thetechnicaldetailsoftheexerciseareprovidedinthetechnicalannex.
Ourexerciseisobviouslylimitedinscope.Wedonottrackchangesovertime,norareweabletoaccesshistoricdataonforeignexchangespreads.Evenso,ourfindingsraiseanumberofquestionsthatmayhaveabearingonwideraspectsoftheglobalremittanceeconomy.
• There appears to be an ‘Africa rate’ for fees, independent of country characteristics.Theuniform-ratebasicchargeappliedbyWestern
Unionisaround8.3%.Giventhedifferencesincountryconditions,thereasonsfortheuniformfeearedifficulttoestablish:operating
conditionsinKenyaareclearlyverydifferenttothoseinSierraLeone,yetWesternUnionappliesauniformcharge.Inaddition,the
feestructureappearstobeindependentofthevolumeoftrade.ItisequivalentinNigeria($3.8billioninremittances)andRwanda
($4.2millioninremittances).MoneyGramappearstooperateatieredbandapproach.Formostcountriesthebandiswellabovethe
WesternUnionlevel,at14.6%.Inonlytwocases–GhanaandKenya–doesitmatchtheWesternUnionbasicfeecharge.
• There are large variations in foreign exchange charges. Foreigncurrencyconversionchargesrangefrom0.6to6percentage
pointsabovethefeeforWesternUnion,andtheycanreach8percentagepointsabovethefeeforMoneyGram.Therearemarked
differencesinforeignexchangefeesappliedbythetwocompanies.Onceagain,thefeestructureisnotobviouslyrelatedtoriskor
countryconditions.MigrantsfromTanzaniaandEthiopiafacelowercharges,respectively,thanmigrantsfromKenyaandBotswana
whenremittingfromWesternUnion.Ifunderlyingmarketconditionsdonotexplainthepricedifferentials,thevariationsmaybe
relatedtoinadequateconsumerinformationorcompanypolicyonthemarginstargetedforcurrencyconversion.
• There are marked disparities in fees between Western Union and MoneyGram.Thesedisparitiesapplyincountrieswhereone
companyhasanoverwhelmingmarketshare(WesternUnioninRwanda)andincountries–suchasUganda,Zambiaand
Zimbabwe–wherethereisamoreevenmarketsplit.Differentialchargesinonecountrymaybeexplainedbymarketsegmentation,
withonecompanydominatingeitherinageographicareaorinaspecificproductgroup.Thisisanareathatrequiresfurther
researchtounderstandtherelationshipbetweenchargestructuresandmarketconditions.Basedontheprofileofremittancesin2013,weestimatethattheUKisresponsiblefor$85millionto$225millionofthelosses
incurredbyAfricathroughthe‘remittancesupertax’.Usingtheproxymeasuresoutlinedforthewiderglobalestimate,between$49-130millionofthefiguremaybeassociatedwithtransfersinvolvingWesternUnionandMoneyGram(Table 3).
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 23
Figure 11: Western Union remittance charges to the UK: % cost of transferring £120 (or $200) for selected SSA countries
0
16
24
10
8
6
4
12
2
Zambia
Tanz
ania
Ethiop
ia
Sierra
Leon
eGha
na
Nigeria
Keny
a
Zimba
bwe
Liberi
a
Sene
gal
Botswan
a
Rwanda
Ugand
a
Malawi
Gambia Ind
iaBraz
il
Bangla
desh
Nepal
Fee (%)
FX margin (%)
Fee + FX margin (%) global average
0.6
8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 8.3 2.4 4.1 4.9 4.9
2.2 2.42.8 3.1 3.2 3.2 3.2 3.3 3.4 3.5 3.8
5.15.4
5.9
1.7
4.3
2.0
4.3
Note: Pay online with debit/credit card; delivery method: cash. The global average (excluding SSA) of fee and foreign exchange margin for the
online service offered by MTOs is 7.12%.
Source: WU website; data collected on 21 March, 2014.
Figure 12: MoneyGram remittance charges from the UK: % cost of transferring £120 (or $200) to selected SSA countries
0
25
20
15
10
5
Gambia
Zimba
bwe
Ghana
Keny
a
Zambia
Sierra
Leon
e
Tanz
ania
Liberi
a
Ethiop
ia
Botswan
a
Ugand
a
Rwanda
Sene
gal
Malawi
India
Bangla
desh
Nepal
Brazil
Fee (%)
FX margin (%)
Fee + FX margin (%) global average
8.0 3.23.1 3.2
0.71.6
2.9 3.0 3.4 3.5 3.7 3.85.3
7.8
1.6
1.7
4.0
6.8
2.5 7.4 8.3 8.3 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 14.6 2.5 5.0 2.514.6
Note: Pay online with debit/credit card; delivery method: cash. The global average (excluding SSA) of fee and foreign exchange margin for the
online service offered by MTOs is 7.12%.
Source: MoneyGram website; data collected on 21 March, 2014.
Africa’s high charge remittance corridorsItisnotjustoninternationalremittancesthatAfricanmigrants
faceexcessivecharges.Peoplecrossingborderswithintheregion
asseasonalworkersortradersfacechargesfarhigherthanthose
forOECD-Africacorridors.
Alloftheworld’stoptenremittance-chargingcorridorsareto
befoundinSSA,withSouthAfricaandTanzaniafiguringinall
butoneofthesecorridors.WorkersfromMalawi,Mozambique
andZimbabweemployedinSouthAfrica,andUgandans
remittingmoneyhomefromKenyafacechargeswellinexcess
of20%iftheyconductthetransferthroughbanks.MTOshave
lowerchargestructures,butthesearestillwellaboveOECD-
Africalevels.AsillustratedinTable 4: • therearetencountriesintheregionwithremittancecorridor
chargesforbanksinexcessof20%:migrantworkers
fromMalawiremittingthroughbanksinSouthAfricaand
UgandanssendingmoneyhomefromTanzaniapayone
quarteroftheremittanceincharges
• therearenineintra-AfricacorridorswithMTOfeesinexcessof15%,
risingto39%forNigeriansremittingmoneyhomefromGhana.
Theveryhighchargesleviedonremittancecorridorstoand
withinAfricareflectthecentralroleofbanks–themostcostly
transfervehicle.
Factors that contribute to higher pricesWhyareremittancechargesforAfricasohigh?Theopaque
natureofcommercialoperationsmakesitdifficulttoanswer
thatquestion.ThecoststructuresfacingMTOsinAfricaare
largelyunknown,andthereislittlesystematicevidenceonthe
relationshipbetweenforeign-currencyconversionoperations
andriskfactors,suchascurrencyvolatility.Similarly,noMTOs
publishthetermsofcommercialagreementswithAfricanbanks.
Whilethereisconsiderablevariationacrossremittance
corridors,severalinter-connectedfactorscombinetomaintain
Africa’shighchargestructure.Theseincludealackof
transparencyonthepartofRSPs,limitedcompetition,regulatory
practicesthatrestrictmarketentryand–critically–alackof
financialinclusioninAfricaitself.
Lack of transparency on foreign-exchange costsExchange-rateprovisionsillustratethetransparencyproblem.
Currencyconversionfeesareoneofthekeyfactorsinfluencing
overallcharges(seetheUKexampleinBox2).Itfollowsthat
transparentinformationaboutexchangeratescanhelpremittance
senderstomakeinformedchoicesandfacilitatecompetition
amongRSPs.
Theexchange-rate‘spread’,whichdeterminesthecharge,is
thepercentagedifferencebetweentheretailrateprovidedbyRSPs
andtheinter-bankrate.Forproviders,thespreadisasourceof
revenueandshareholdervaluethatissetinordertopricerisk,
maximiseprofitorattractconsumers(cfpb,2011).
ForAfricanssendingmoneyhome,‘spread’chargescan
representuptohalforevenmoreoftotalcosts.YetMTOsvary
inthedegreetowhichtheyprovidetransparentinformationin
anaccessibleform.Fewprovidecleardescriptionsoftheirpolicy
onspreadcharges,orontheshareofthetotalfeerepresented
bythesecharges.InavisittotheUKweb-siteofWesternUnion
toinvestigatecurrencycharges,wewereunabletofinddetailed
informationonthecurrencycomponentoftheremittancecharge.
Thecompanyalsoreservesahighdegreeofdiscretionwith
respecttocurrencyconversionmargins:‘WesternUnionapplies
acurrencyexchangerateifweconvertyourfundstoadifferent
currency.Anydifferencebetweentheexchangerateyou’regiven
andtheonewereceivewillbekeptbyWesternUnion(and,in
somecases,ouragents).’ManyoftheEuropeanbanksinvolved
inremittanceprovisionareunabletospecifytheexchangerate
forAfricancurrencies(WorldBankandEuropeanCommission,
2014).
24 ODI Report
Table 4: Cost of transferring $200, 3Q2013
Africa’s ten most expensive bank remittance corridors
Destination Source Total % cost
Angola South Africa 21
Zimbabwe South Africa 21
Zambia South Africa 21
Nigeria Ghana 22
Mozambique South Africa 23
Botswana South Africa 23
Kenya Tanzania 24
Rwanda Tanzania 24
Uganda Tanzania 24
Malawi South Africa 25
Africa’s ten most expensive MTO remittance corridors
Destination Source Total % cost
Rwanda Kenya 8
Lesotho South Africa 15
Swaziland South Africa 15
Zimbabwe South Africa 15
Botswana South Africa 16
Angola South Africa 16
Zambia South Africa 19
Mozambique South Africa 19
Malawi South Africa 27
Nigeria Ghana 39
Source: World Bank ‘Remittance Prices Worldwide Third Quarter
2013’ dataset.
ConsumergroupsintheUShavecampaignedforenhanced
disclosure.Forexample,theConsumerFinancialProtection
BureauhascalledforarulethatwouldrequireallMTOsto
providedetailedinformationonexchangeratefees(Cfpb,2014).
Inasimilarvein,ConsumerInternationalhascalledforregulatory
bodiestorequireMTOstoitemiseonlineandinretailoutletsall
applicablefees,costsandtaxesincludingtransferfee,theforeign
exchangerateappliedandreferencingtheapplicablespread
(ConsumersInternational,2012).
Oneexampleofquestionablepracticeonexchangeratefees
comesfromGhana.Whenthecountry’snationalcurrency,the
Cedi,wasdevaluedinJanuary,2013,RSPstransferringtothe
countryinitiallyreflectedthenewrateintheircharges.However,
overthecourseof2013theyallowedtheirconversionrateto
divergefromtheinter-bankrate,pushingthecostsofremittances
upfrom10%to16%(WorldBank,2013b).Thisoutcomeraises
concernsatanumberoflevels.Ifthedivergenceoccurredin
justonemajorprovider,therisecouldhavereflectedthelimited
availabilityofinformationforconsumers.However,ifthe
divergencewasappliedacrossseveraloperatorsitwouldpointto
thepossibilityofcollusivepricing.
Exclusivity agreementsExclusiveagreementsinvolvingthemajorMTOsontheoneside
andtheiragentsandcommercialbanksontheotherareanother
driverofhighchargesbecausetheyrestrictcompetition.Such
agreementsarecommoninAfrica.
Exclusivityagreementswithbanksallow,andinsomecases
require,MTOstoconducttransactionsthroughnominatedbanks
(Rathaetal.,2011;UNCTAD,2012;IFAD,2009).Onesurvey
inNigeria,carriedoutin2007,foundthat21ofthe25banks
operatinginthecountryhadexclusiveagreementswitheither
WesternUnionorMoneyGram.Actingasasoleinternational
remittancepartnerfor15banks,WesternUnionaccountedfor
overtwo-thirdsofmonthlybankremittancetransaction.In2008,
theNigerianCentralBankruledthat:‘exclusivityclausesaimed
atprotectingtheinterestoftheInternationalMoneyTransfer
Operators,constitutearestraintoncompetitionandunnecessarily
increasethecostofmoneytransferservicestotheusers’(Central
BankofNigeria,2008).Regulatoryauthoritiesinsomecountriesareactivelyreviewing
exclusivityagreements.BothGhanaandNigeriahavenowadopted
rulesprohibitingexclusivity,thoughmanysoleagreementscontinue.
Senegalhasalsoinstructedbankstoremoveexclusivityclauses.
Thesecasesillustrateawiderreformcurrentlyextendingbeyond
SSA.InJanuary2013,aspartofawiderfinancialliberalisation
programmetocombatthelegacyofcorruptionandinefficiency
inheritedfromthepreviousregime,centralbankauthoritiesin
Tunisiarevokedallbankexclusivityclauses.Banksinthecountry
arenowrequiredbylawtoofferservicesfrommorethanoneMTO.
ExclusivityagreementsarealsowidelyappliedbyMTOstotheir
agents.ItiscommonpracticeforWesternUnionandMoneyGram
torequiretheiragentstoworkforthemassoleremittance
providers.TheMTOsthemselvesciteanumberofgroundsin
defenceofsucharrangements.Theserangefromthepreventionof
‘freeriding’bycompetitorsseekingtoreapthebenefitsofinitial
investmentintrainingandthedevelopmentofoutletlocations,to
compliancewithregulatorymeasuresonmoneylaundering,fraud
andcriminalactivity.
Whilenotwithoutfoundation,theseargumentsdonotaddress
thecentralconcernsraisebyagentexclusivity.Withjusttwo
companiesaccountingfortwo-thirdsofagentoutletsinAfrica,
exclusivearrangementsseverelyrestrictcompetitioninwhatisa
highlyconcentratedmarket.
Here,too,severalcountriesarereviewinglegislation.Oneexample
comesfromtheGambia,whereWesternUnionandMoneyGram
togetherprovidearound96%ofmoneytransferservices.Following
acomplaintfromalocalagentcontractedtoMoneyGram,the
country’sCompetitionCommissionhasreviewedexclusivity
clausearrangements.Theseagreementsprohibitlocalagentsfrom
contractingwithotherprovidersforuptosixmonthsaftertheexpiry
ofacontract.ThefindingsoftheCommissionareinstructive.Its
investigationdeterminedthat‘theleadingprovidersofmoneytransfer
servicesareexploitingthemonopolysituation…thatisrestrictive
andanti-competitiveinnature.’TheCompetitionCommissionhas
directedexclusivityclausestoberemovedonthegroundsthatthey
‘constituteanabuseofthedominantpositionenjoyedbyWestern
UnionandMoneyGram’andabarriertothedevelopmentofa
competitiveremittanceservicesystemthatisresponsivetocustomer
needs(InvestigationReporttoCompetitionCommission,2011).
Financial regulation in AfricaAfrica’sbanksare,forthemostpart,pooratintermediation.
Thisisreflectedinhighinterest-ratespreads,alimitedgeographic
reachandportfoliosdominatedbyalucrativetradeintreasury
bills.Regulatorydirectivesoftendriveupcostsbyrequiringbanks
tofinancegovernmentdebtand,insomecases,loss-making
enterprises,onsubsidisedterms.Imposinghighcostsonthe
remittancetradehelpstofinanceinefficientbankingoperations
gearedtowardsthesubsidisationofgovernmentdebt.
FewofAfrica’sbanksofferdedicatedservicestoremittancesenders,
particularlythosewhoneedtosendsmallamountsfromoneAfrican
countrytoanother.Morebroadly,thepaymentsysteminfrastructureis
notequippedinmostcountriestohandlemoneytransfers.Smallvalue
transfersareconductedusingproductsandplatformsoftheSociety
forWorldwideInterbankFinancialTelecommunications(SWIFT),
whichprocesspaymentsthroughcorrespondentbanknetworks.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 25
11 Order13224(UnitedStatesDepartmentoftheTreasury,2001b)isdesignedtoblocktheassetsofindividualsorcompaniesprovidingsupporttoterroristorganisations;Order13536(UnitedStatesDepartmentoftheTreasury,2010)dealsspecificallywithSomalia.
12 ThefederalregulatorysystemcomesundertheremitoftheTreasuryDepartmentthroughtheOfficeoftheComptrolleroftheCurrency,theFinancialCrimesEnforcementNetwork(FinCEN),andtheOfficeofForeignAssetsControl(OFAC),agenciesthatensurecompliancewiththeBankSecrecyActandtheUSAPatriotAct.TheactivitiesoftheFinCENfocusonpreventingmoneylaunderingpractices,whiletheOFACisinvolvedinmonitoringtransfersfromcertainentitiesorcountries.
However,theexistinginternationalcorrespondentbankingnetworks
inseveralAfricancountriesarenotwelladaptedtoprocesslow-value
retailflows(MohapatraandRatha,2011).
Regulatoryauthoritiesinsomecountrieshaveallowedbanksto
imposewhatamountstoalevyonremittance.Oneexampleisthe
applicationofa‘liftingfee’–achargeincurredbytheremittance
receiveroverandabovepaymentsmadebythesender.Accordingto
theWorldBank,theapplicationoftheliftingfeeontransfersfrom
theUStoKenyahastheeffectofdoublingtheeffectivecharge,to
16%(WorldBank,2013a).
Low-levels of financial inclusionFinancialexclusioncompoundstheadverseeffectsofthewider
regulatoryenvironment.MostAfricansare‘unbanked’andthe
formalfinancialsystemhasalimitedreach,especiallyinruralareas.
Theentireregionhasfewerpay-outlocationsthanMexico(IFAD,
2009).Yetfinancialregulatorshave,forthemostpart,preferredto
consolidatethecentralroleofbanksinpayingremittances,rather
thandevolvingauthoritytoproviderswithalargerclientbase.
Around80%ofadultsinSSA–some301millionpeople
(excludingSouthAfrica)–havenoaccountwithaformalfinancial
institution(WorldBank,2011c).Farmorepeopleareconnectedto
MFIsthantoformalinstitutions.Forexample,outofapopulationof
nearly90million,only7.1millionEthiopianshavedepositaccounts.
Accesstofinanceinruralareasislimitedto31MFIs,providing
financialservicesto2.9millionclients(IMF,2013).Similarpatterns
arerepeatedinothercountries.However,whileMFIshavegreater
reach,financialregulationprecludesallbutafewfromproviding
remittancepayments.Thesameistrueofpostoffices,whichhavefar
largerbranchnetworksinmostcountriesthanbanks.
Anti-money laundering provisionsEmergingsecuritylegislationtocountermoneylaunderingandthe
financingofterroristgroupscouldhavetheunintendedeffectof
inflatingremittancecharges.Inparticular,theapplicationofmore
stringentrulesonduediligenceandmoreseverepenaltiesrunthe
riskofreducingcompetitioninanalreadyrestrictedmarket.
Theregulatoryenvironmentforremittanceprovidershas
undergonemajorchangesoverthepastdecade.Authoritiesin
OECDcountrieshavesoughttobringremittanceoperatorsunder
thebroaderrulesgoverningbanksandfinancialinstitutions.
Atthesametime,theglobalisationofcriminalnetworksand
perceivedthreatsposedbyterroristfinancinghaveledtoa
concerteddrivetocombatmoneylaundering.TheFinancial
ActionTaskForce(FATF),aninter-governmentalbodyestablished
in1989,hasplayedaprominentroleinframingmultilateral
standardsandmonitoringnationalplans.Themostrecentsetof
recommendationswasadoptedin2012(FATF,2012).
Animportantbackdroptoreformhasbeenthemergingof
financialregulationandnationalsecurityprovisionsintheUS.
Legislationadoptedintheaftermathof9/11hashadfar-reaching
implications.TheUSPatriotAct(2001)(UnitedStatesDepartment
oftheTreasury,2001a),alongwithtwoExecutiveOrders,11greatly
increasedthepotentialrisksforfinancialinstitutionsassociated
withremittanceorganisations.12Oneofthemorewidelypublicised
consequencesoftheregulatoryburdenandriskassociatedwith
thenewlegislativeenvironmentwasthedecisionbyanumber
ofbankstocloseaccountsservingSomaliremittanceproviders
(Hurlburt,2012).Moregenerally,aseriesofhigh-profileanti-
moneylaunderinginvestigationsandlargefinesimposedonbanks
hasproducedaregulatory‘chill’effect.
DevelopmentsinEuropehavetosomedegreemirroredthose
intheUS.WhiletheEUhasamorefragmentedregulatory
landscape,thePaymentsServiceDirective(2007)andAnti-
MoneyLaunderingDirective(2005)provideforamorestringent
regulatoryenvironment.Thereisanincreasedemphasisonfirms
identifyingandmanagingmoney-launderingrisks.USlegislation
hasalsohadconsequencesforEurope.InMay,2013,Barclays
announcedthatitwouldcloseallbut19ofitsclientsinthe
remittancetransferbusiness,includingthoseinSomalia–amove
thatwouldhavehaddisastrousconsequences.Aninjunction
preventingBarclaysfromclosingtheaccountofthelargest
MTOservingtheSomaliregions–Dahabshill–hasprovideda
temporarystay,butnolong-termresolutionisinsight.
Thewiderdangeristhatmorestringentreportingrequirements
willfurtherlimitcompetitioninremittancemarkets.Ifsmaller,
informalremittanceprovidersareunabletooperatethrough
correspondentbanks,theirabilitytocompeteagainstthemajor
globalcompanieswillbecompromised.Inaddition,thecosts
ofcomplyingwith‘knowyourcustomer’requirementshasthe
potentialtoincreaseregulatorycostsandcreateanotherbarrier
tomarketentry.MTOswillinevitablypassthecostofanti-money
launderingoperationsontoconsumers.Oneproposaltoaddress
thisissue,framedbytheFATF,envisagesaminimalthresholdfor
remittancesrequiringdetailedinformationonsenders.
26 ODI Report
Remittancesaresettoremainamajorsourceofdevelopment
financeforAfrica–andAfrica’sdiasporawillremainan
importantstakeholder.Yetitishardtoescapetheconclusion
thatalargegapremainsbetweenpotentialandrealisedbenefits.
Closingthatgapwillrequireactiononseveralfronts.
Thereisnoshortageofinnovativeprojectsandprogrammes.
Remittancetransfersfigureprominentlyinawiderange
ofinterventionssupportedbytheWorldBank,theAfrican
DevelopmentBankandbilateraldonorstostrengthenthe
efficiencyofbankpaymentsystems,promotebranchlessbanking
andsupportthedevelopmentofaregulatoryenvironment
aimedatstrengtheningcompetition.Thescopeofinnovationis
wellcapturedinarecentWorldBankpublication(Mohapatra
andRatha,2011),andfinancialinclusionhasbeenacentral
theme.Forexample,IFADandtheUniversalPostalUnionhave
supportedthedevelopmentofpost-officeremittanceservicesin16
corridorsinWestAfrica,spanningBenin,BurkinaFaso,Maliand
Senegal.Whilerelativelysmallinscale,theprojecthasreportedly
reducedthecostandtimeofremittancetransfers(IFAD).
Mobiletechnologiesarenowbeingappliedmorewidely
toremittancetransfers.OrangeMoneyTransferInternational
(OMTI),whichwaslaunchedin2012,haslinkedupwithMFS
Africa–acompanythatoperatesacrosstheregion–toenable
customerstomakepaymentstomobileaccounts.OMTIhas
reportedlyestablishedanetworkof1,000agentsinMalawi.
However,itisnotclearthatmarketentryhasreducedcharges.
Thatoutcomepointstoamajorconcern.Newtechnologies
introducedintoanuncompetitivemarketwillnotautomatically
generateprice-reducingbenefitsforconsumers.Mobilebanking
companiesareincreasinglyenteringremittancemarketsthrough
partnershipswiththemajorglobalMTOs.M-Pesa,theKenya
mobilebankerlinkedtoVodafone,hasteamedupwithWestern
UnionandMoneyGram.WesternUnionisalsoexpandingits
rangeofmobileservicesinAfricathroughamobilemoney
companycalledeTranzact,whichhasoperationsinNigeria,
Ghana,Kenya,Zimbabwe,SouthAfrica,Côted’Ivoireandthe
UK.CustomersofeTranzactwillnowbeabletointeractwith
WesternUnionontheirmobilephones,receivingWesternUnion
mobilemoneytransferfrom23‘sender’countries.Intheabsence
ofchangesinunderlyingmarketconditions,thereisnoimmediate
reasontoanticipatemajorpricereductions.
Regulationisoneoftheunderlyingconditions.M-PESA’s
recordsindrivingdownthecostsofretailbankingandexpanding
accessisinstructive.Severaldistinctivefeaturesintheregulatory
environmentstandout(Vaughanetal.,2013).First,financial
regulatorsstoodasideoncetheinitialpaymentarchitecture
hadbeenputinplace,allowingawaveofcompetitionintothe
retailbankingsystem.Second,thecompaniesinvolvedinvested
ininformingpeopleabouttheservicesonoffer,includingthe
provisionoftransparentfinancialinformation.Third,growthhas
generateditsownmomentum.M-PESAhassincebeenextended
tosavingsandloansproducts.
Unfortunately,financialregulatorshaveshownlittleinclination
topromotetheuseofdevolvedmobilebankingforremittances.
Thetechnologiesthemselvescouldbeeasilyadaptedforuseby
licensedpostofficesandmicro-financeinstitutions.Emerging
deliverymodelsinvolving‘M-wallets’,essentiallymobilemoney
accounts,aregraduallyreplacingformalbankinginAfrica–but
principallyindomestictransfers.Withtwo-thirdsofpay-out
locationsservicedbybanksinpartnershiparrangementswith
WesternUnionandMoneyGram,mobilebankingarrangements
aremediatedthroughhigh-costformalbanks.Regulatorsin
Africahavejustifiableconcernsovertheirabilitytomanagethe
foreigncurrencyrisksandanti-moneylaunderingconcernsthat
mightaccompanymobileremittanceoperations(UNCTAD,
2012).However,thereareclearlyvestedintereststhatcouldbe
compromisedbyamorecompetitivemarket.
Initiativesinvolvingthediasporaandgovernmentscouldplay
aroleinstrengtheningtheflowofbenefitsfromremittances.
Remittancesarenotjustaneconomictransfer.Theyrepresent
asociallinkbetweenpeople.Migrantsaroundtheworldhave
created‘hometownassociations’throughwhichtheyretainlinks
andprovidesupporttocommunities–andAfrica’sdiasporaisno
exception(Orozcoetal.,2010;Hernández-CossandBun,2007).
Someinitiativeshaveattemptedtopromotediaspora
philanthropythroughpublicfinanceincentives.Oneexampleis
Mexico’s‘3X1’programme.Establishedin1999,theprogramme
generatesaremittance-leverageeffect.Forevery$1contributed
byadiasporamemberthroughadedicatedMexicanHomeTown
AssociationintheUS,municipal,stateandfederalgovernments
eachallocateanadditionaldollar,withtheprogrammeused
tofundprojects.Attheendof2010,itwasoperatingin
28ofMexico’s31statesandhadapproved2,488projects,
rangingfromeducation,health,roadpavinganddrainage
tosportsprogrammes.Thebenefitsoftheprogrammeare,
however,contested.Supporterspointtoarangeofdevelopment
investments,whilecriticsarguethatthefundsareweaklytargeted
tothepoorestmunicipalitiesandthatthereisevidenceofpolitical
biasinallocation(AparicioandMeseguer,2011).Animportant
questionintheAfricancontextiswhethernationalandlocal
governmentshavethefiscalspacetoprovidematchinggrants.
Governanceconcernswouldalsohavetobeconsideredina
numberofcountries,especiallythoselackingtransparentpublic
financialmanagementsystems.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 27
4. Unlocking the benefits of remittances for development
Diasporasavingsrepresentanotherpotentialsourceof
developmentfinancing.WithgovernmentsacrossAfricaseeking
long-term,affordablefinancingforinfrastructure,thesesavings
areanattractiveproposition.Severalhaveissueddiaspora
bondstosupplementaid,grantsandsovereigndebt.In2008,
EthiopiaissuedaMillenniumBondunder-writtenbythecountry’s
NationalBank.Anotherbond–for$4.8billion–wasissuedin
2011tomobilisefinancingfortheRenaissanceDam(Kayode-
AngladeandSpio-Garbrah,2012).Theearlierissuefailedto
achieveitstargetsandthelatterwaseventuallysoldprincipally
intodomesticmarkets.Inbothcases,authoritiesappeartohave
over-estimatedthe‘patrioticdiscount’–thewillingnessofmigrant
toacceptrisksthatarenotcommensuratewithyield.
Pastfailureisnotapredictoroffutureoutcomes.InMarch
2014,Nigeriaannouncedabondissueofupto$300million.
Theissuehasbeencarefullypreparedwiththeinvolvementof
internationalbanks.ItwillberegisteredwiththeUSSecurities
andExchangeCommissionwithacouponrateofaround350
basispointsaboveUStreasurybills.Atthatlevelitappearslikely
thatthebondwillbeover-subscribed.Thisisapotentialwin-win
scenario.TheGovernmentofNigeriastandstosecurefinancingat
levelsbelowtherateavailableonsovereigndebtmarkets(around
8-9%)andthediasporawouldhaveaccesstoanassetgenerating
higherreturnsthantheclose-to-zerorealinterestonbankdeposits
intheUS(Kay,2014).
Alloftheseinitiativesmayhavearoletoplay–butnone
cansubstituteforthesinglemosteffectivemeasureneededto
strengthenthebenefitsofremittances.Themostpressingneedis
todevelopmorecompetitiveandtransparentmarketsinwhich
innovationcantakeoff.
Five priority areas for reform stand out. • Regulatory authorities in OECD countries should actively
review the practices of money transfer operators. Thereisnoevidenceofactivecollusivepricingandothercartel-type
arrangementsonthepartofglobalMTOs.However,ina
marketcharacterisedbysuchextremeconcentrationsof
economicpowerandsuchlimitedcompetition,thereisarisk
ofmonopolisticabuse.EUandUSanti-trustbodiesshould
alsoinvestigatewhetherexclusivityarrangementsinvolving
MTOsartificiallyinflatechargesandpreventconsumers
benefitingfromcompetition.InthecaseoftheUK,which
wehavereviewedinthisreport,theFinancialConduct
Authorityshouldreviewprovisionsforthepricingofcurrency
conversion.Investigationsbyparliamentarycommittees–such
astheFinanceandServicesCommitteeandtheInternational
DevelopmentCommittee–couldplayaroleininforming
debateandincreasingawarenesswithinthediaspora
community.
• Money transfer operators should be required to meet more transparent standards on their foreign exchange operations.TheDodd-FranklegislationadoptedintheUScouldprovide
ablueprint(Richard,2011).Thelegislationwascreated,in
part,toprotectAmericantaxpayersagainstabusivefinancial
servicepractices.Inthecontextofremittances,itrequires
serviceproviderstodisclosedetailsoftheirchargingstructures,
includingforeigncurrencyconversionfees.ThenewRemittance
TransferRulewillcoverinformationonexchangerates,fees
andtaxesincurredbyboththesenderandreceiver.Itwillalso
requirefederalagenciestoprovideclearguidelinesonlow-cost
remittanceproviders.Theseareallprinciplesthatcouldbe
adaptedintheEUandotherOECDremittancesources.
• African governments (and money transfer operators) should revoke exclusivity arrangements with banks and agents.Whatevertheirintention,exclusivityarrangementshave
theeffectofreducingcompetitionandincreasingthecost
ofmarketentryfornewcompanies.MTOexclusivity
arrangementswithagentscreatehighlysegmentedmarkets
characterisedbylimitedcompetition.Similarly,exclusivity
arrangementsbetweenMTOsandbankshavethesameeffect
asrestrictivebusinesspracticesthatareoutlawedinother
areas.Governmentsshouldusetheirregulatorypowerstolimit
thescopeforexclusivity,bothwithrespecttobankingandthe
activitiesofMTOagents.
• Regulatory authorities should empower post offices and micro-finance institutions to play a greater role in remittance markets.Whilefinancialregulatorsandcentralbanksneed
toprotectconsumerinterestsandmanageforeignexchange
risks,currentarrangementsareoutmoded.Postofficesand
micro-financeinstitutionsarefarmoreaccessibletomost
Africans,especiallyinruralareas.Well-designedandeffectively
monitoredlicensingsystemscouldfacilitatethedevelopment
ofafarmoredevolvedandcompetitiveremittancepayments
system.Allowingmoreactorstoperformmoneytransferswill
introducegreatercompetition,withpotentialbenefitsforprice
andservicequality.
• Diaspora groups and civil-society organisations should make remittances a core development issue. Manyoftheconcerns
raisedinthisreportrelatetomarketstructures,regulatory
arrangementsandinstitutions.Butthebarrierstoreformare
notonlylegalandtechnical.Politicaleconomyconsiderations
arealsoimportant.Currentremittance-marketconditions
createwinnersandlosers.Thewinnersincludemajorglobal
companieswithastrongpoliticalvoice,theirshareholders
andstakeholdersinformalbankingsystems.Thelosers–
remittancesendersandrecipients–are,forthemostpart,
highlydispersedandhaveaweakpoliticalvoice.Effective
actiontopublicisethedevelopmentcostsassociatedwith
remittances,mobilisepublicsupportforreformandpushthe
issuetothecentreofthedevelopmentagendacouldplaya
vitalroleinshiftinganunequalpowerrelationship,andin
galvanisingreform.
28 ODI Report
RemittancesalreadyplayasignificantroleinAfrica’s
development.Theycould,however,playafargreaterrole.
Nomeasurewoulddomoretounlockthefullpotentialof
remittancesthanacutincharges.Achievingthisgoalwill
requiresomesignificantchanges–inbankingregulations,inthe
practicesofmoneytransferoperators,andinapproachestonew
technology.Theintroductionofmorecompetitivemarketswith
appropriatesafeguardsforfinancialintegrityislongoverdue.Yet
despiteanumberofhigh-levelinitiatives,thereislittleevidence
ofchargescomingdown.Thispictureisunlikelytochangeuntil
thereformofremittancesistakenupasadevelopmentpriorityby
governmentsinAfrica,theG20andcivil-societygroups,including
Africandiasporaorganisations.
Lost in intemediation: how excessive charges undermine the benefits of remittances for Africa 29
Conclusion
Technical annex
1. Computation of fee (%) and foreign exchange margin (%).
Fee (%)=LCU fee * 100
LCU amount
LCU=LocalCurrencyUnit
FX margin (%)=FX Interbank – FX MTO * 100
FX MTO
FX=ForeignExchange
Total Cost =Fee(%)+ FX margin(%)
( (
( (
2. Estimated losses from SSA’s remittances ‘super tax’ (2013)
Percentage Value ($ billion)
Global remittances to sub-Saharan Africa (SSA) 32
Intermediary charges on remittances to SSA (average) 12.3 3.9
Costs for SSA if (fee + FX margin) were reduced to
Global average (excluding SSA) 7.8 2.5
5% of remittance flows 5 1.6
Estimated losses for SSA are in the range [1.4 – 2.3]
3. Estimated costs from Western Union and MoneyGram based on reported charges and market share of pay-out locations (Market share for all MTOs is 89.4% in market of $32 billion)
Reported charges: Fee + FX margin (%)
Market share (%) Value of charge ($ million)
Western Union 9.4 40.3 1,084(a)
MoneyGram 10.4 24.2 720
Costs for SSA if (fee + FX margin) were reduced to 7.8% (global average)
Western Union 899(b)
MoneyGram 540
Estimated loss associated with gap between global average charge and company charge
Western Union 185(c)
MoneyGram 180
Total 365
Notes: (a) 1,084ML= 32bn X 0.894 X 0.403 X 0.094; (b) 899ML= 32bn X 0.894 X 0.403 X 0.078; (c) 185ML= 1,084ML – 899ML.
30 ODI Report
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