{"id":4933,"date":"2014-04-25T13:42:48","date_gmt":"2014-04-25T13:42:48","guid":{"rendered":"https:\/\/africaresearchinstitute.org\/wordpress\/?p=4916"},"modified":"2016-03-11T14:21:05","modified_gmt":"2016-03-11T14:21:05","slug":"talking-remittances-somalia","status":"publish","type":"post","link":"https:\/\/africaresearchinstitute.org\/wordpress\/talking-remittances-somalia\/","title":{"rendered":"Talking remittances: \u2018Super tax\u2019, a strangled market and the Somali regions"},"content":{"rendered":"

\"remittances\"<\/a>Last week the Overseas Development Institute hosted an afternoon of discussion<\/a>, focused on the high fees associated with money transfers to Africa.\u00a0Whilst remittance costs have fallen globally, costs in Africa have remained stubbornly high. According to the report launched at the event<\/a>, the African diaspora pays approximately 12% in fees to send US$200 to friends and family on the continent. This figure is almost twice the global average and has consequently been labelled a \u2018super tax\u2019. In some instances, South-South transfer fees are as high as 30%.<\/p>\n

Remittances play a vital role not only in covering essentials, such as health care and education, but also in providing investment to businesses. The G8 and G20 have set a target to reduce the global average of the cost of money transfers from 10% to 5% within five years. Reducing the charges to the 5% target would increase global transfers to Africa by US$1.8billion annually.<\/p>\n

An eye on the Horn<\/i><\/strong><\/p>\n

Money sent from the diaspora provides essential support for some 40% of the population of the Somali territories. An estimated US$1.2 billion is remitted to the region every year \u2013 a figure which exceeds international aid flows.<\/p>\n

However, against the backdrop of cost, Somali money transfer organisations stand apart. Speaking at the event, Dominic Thorncroft (chairman of the UK Money Transmitters Association) noted Somalia\u2019s position as \u201cthe country with the lowest remittances charges in Africa.\u201d<\/p>\n

In the absence of a formal banking system, Somali money transfer operators (MTOs) developed into a fast, reliable and cost-effective network providing a wide range of financial services. MTOs are used by individuals to send money to family members, by national and international organisations to pay workers\u2019 salaries and project fees, as well as in trade finance and investment.<\/p>\n

On competition <\/i><\/strong><\/p>\n

The ODI report claims that the high prices associated with money transfers to Africa is the result of a number of factors, including a lack of competition and concentration of the market in the hands of a few operators. It depicts the situation in many sub-Saharan Africa markets as a duopoly dominated by Western Union and MoneyGram.<\/p>\n

The importance of competition in bringing down the costs was a point echoed by Abdirashid Duale CEO of Dahabshiil \u2013 the largest Somali MTO \u2013 speaking at the event:<\/p>\n

\u201cCompetition is key in remittances. The money transfer business was very different in the 1990s. Prices were higher, there were less companies operating. It is better now because the competition is better. There is competition everywhere. If the customers don\u2019t like us they can go somewhere else.\u201d<\/p><\/blockquote>\n

Indeed, with international companies considering the Somali regions to be too high risk or too complicated to operate in, a plethora of local-owned MTOs have flourished, connecting customers to locations around the world.<\/p>\n

Taxing the poor<\/i><\/strong><\/p>\n

Remittances are of critical importance in many countries. In times of crisis and natural disaster, remittances are often the first, most reliable and consistent way people can provide assistance to friends and family. Remittances have also shown themselves to be remarkably resilient. However, increased regulation in the wake of the global financial crisis and an enduring air of suspicion as remittances are caught up in the \u2018financial war on terror\u2019, are not \u201chelping remittances at all\u201d according to Dilip Ratha<\/a>, Head of Migration and Remittances Unit at the World Bank. Speaking at the event, he also issued a warning: \u201cIf reducing remittance costs becomes a 20 or a 30 year agenda issue we should be very ashamed.\u201d<\/p>\n

Denying banking facilities to well-run, regulated MTOs is counterproductive. It is likely only to increase costs \u2013 which will be passed on to the customer \u2013 and to ultimately push transfers underground. Ratha went on to say that any plans for improving and strengthening remittances should pay due attention to the unbanked. \u201cPoor people don\u2019t like banks and the feeling is mutual\u201d.<\/p>\n

A strangled market, \u2018exclusivity agreements\u2019 and inappropriate regulation all drive up the costs associated with remittances, serving essentially as a \u201ctax on the poor\u201d. More proportional regulation of remittances is needed, together with a concerted effort to open international payments systems to smaller, non-Western operators which can meet proportional regulatory requirements.<\/p>\n

The UK government and regulators need to work together to ensure that the excessive charges that currently undermine the benefits of remittances in Africa are addressed. In a region in which rich and poor alike have not been able to access banks, local-owned money transfer companies have stepped in to fill the void. If we are looking at ways to reduce the costs of remittances, perhaps we need look no further than Somali MTOs.<\/p>\n

By Hannah Gibson, Policy Researcher, Africa Research Institute<\/em><\/p>\n

FURTHER READING\u00a0<\/strong><\/p>\n

Somali remittances: 10 things you need to know<\/a><\/p>\n

Somalia, remittances and unintended consequences: in conversation with Abdirashid Duale<\/a><\/p>\n

Somali money matters \u2013 an update on the remittances saga<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Hannah Gibson looks at the vital role remittances play in paying for essentials and investment for businesses and asks whether lower fees would be a good idea.<\/p>\n","protected":false},"author":7,"featured_media":5292,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"inline_featured_image":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[17],"tags":[320,321,510,511,405,316,512,513,315,558,314,107,514,481],"class_list":["post-4933","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-abdirashid-duale","tag-dahabshiil","tag-dilip-ratha","tag-economics","tag-hannah-gibson","tag-money-transfer","tag-moneygram","tag-odi","tag-remittances","tag-somali-regions","tag-somalia","tag-somaliland","tag-western-union","tag-world-bank"],"aioseo_notices":[],"yoast_head":"\nTalking remittances, \u2018Super tax\u2019, a strangled market and the Somali regions<\/title>\n<meta name=\"description\" content=\"Whilst the cost of remittances have fallen globally, costs in Africa have remained stubbornly high. 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