The World Bank - Payment Systems Develoment Group

Migration and Remittances Trends in AfricaMigration and Remittances Trends in Africa

African Institute for RemittancesConsultative and Experience Sharing Forum

Leveraging Remittances for DevelopmentLeveraging Remittances for Development

Addis AbebaJuly 7-8 2011

Background and Introduction:The Importance of Remittances

2

The Importance of RemittancesRemittances are the financial transfers from migrants back to their home countries. They are typically small transfers but are sent by millions of migrants very regularly and amount to one of the largest flow of money to developing countries.

Remittances are often the largest source of hard currency for developing countries, reaching the equivalent of over 30% of GDP, and form a critical factor for their Balance of Payments. The amounts received as

fremittances can be larger than the national income from commodity exports, usually only eclipsed by oil exports.

Remittances typically exceed Development Assistance and sometimes yp y pFDI. They directly reach many poor and rural areas and often lift poor families out of poverty.

3

600 $ billions

Remittances and Other Financial Flows World

400

500•FDI

•Recorded

•Remittances

300

400

•Private debt & port equity

Remittances

100

200 port. equity

•ODA

-100

0

•Source: Migration and Development Brief 16, by Ratha et. al (2011)

Remittances and Other Financial Flows to Africa

Remittance Flows to Developing Regions 2009-2013 (US$B)

140

100

120East Asia and Pacific

Europe and Central Asia

60

80

Europe and Central Asia

Latin America and CaribbeanMiddle-East and North

20

40

Middle-East and North AfricaSouth Asia

Sub-Saharan Africa

02009 2010 2011 2012 2013

Sub Saharan Africa

•Source: Migration and Development Brief 16, by Ratha et. al (2011)

Migration Flows and Trends in Africa

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Ratio of Emigrant Population of Total Population

Major Destination Countries of African Migrants

Origin and Destination Regions for Intra-African Migration

Major Immigration Countries in Africa

Remittance Flows and Trends in Africa

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Major Sources of Remittances/Region

Major Sources of Remittances/Selected Countries

Reasons to Use Informal Remittance Channels

Inefficient Remittance Markets Cause High CostInefficient Remittance Markets Cause High CostRemittance systems in Africa are still characterized by cash transactions, inefficient manual processes, fragmentation of the delivery chains and poor compliance Often more than three parties are involved in thechains, and poor compliance. Often more than three parties are involved in the processing of a transfer.Regulation in many countries creates high barriers for banks and non-bank financial institutions to offer remittance services and other financial products tofinancial institutions to offer remittance services and other financial products to migrants and their families.

As a result, migrants still pay money transfer fees of

25.00%

Average Cost in G8 Countries (%)Canada

Francepay money transfer fees of up to 20% of the amount they send and a large portion of remittances is 15.00%

20.00%

France

Germany

Italy

Japan

Russiasent through informal channels, increasing risk and reducing benefits of remittances.

5.00%

10.00%Russia

UK

USA

G8 Average

18

remittances.0.00%

2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011

Global Average

Following G8 and G20 commitments to reduce remittance costs, PSDG began to survey remittance prices worldwide and publishes the information as the Remittance Prices

RPW - Measuring Remittance Prices

remittance prices worldwide and publishes the information as the Remittance Prices Worldwide database.

The results are used to identify inefficient markets and market distortions and to measure the impact and success of reforms and technical assistance programs

16.00%

Average Remittance Cost by Type of Provider (%)

impact and success of reforms and technical assistance programs.

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Cost Composition to SSA from Major Send Countries excl. South Africa

%

8.00%

10.00%

12.00%

14.00%

10

12

14

16

18

Av. FX Margin (%)

Av. Fee (USD)

0.00%

2.00%

4.00%

6.00%

2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 0

2

4

6

8( )

Av. Total Cost (%)

Bank MTO Post Office Global Average

0Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011

Regional Remittance Prices

Reasons to Use Informal Remittance Channels

Price Differences Between Different Types ofPrice Differences Between Different Types of Remittance Service Providers

Prices, and efficiency, of different types of remittance service providers vary tl S i li d MTO ll l ffi i t li t th tgreatly. Specialized MTOs usually employ very efficient, online systems that

allow real time transaction processing and automate back office operations.

Banks typically use SWIFT to send remittance transfers. Back office functions are manual and the transfer via different settlement banks usually takes several days.

As a result remittance costs 16.00%

Average Remittance Cost by Type of Provider (%)

with banks on average are higher than with other providers. However, banks with dedicated remittance

8.00%10.00%12.00%14.00%

with dedicated remittance products and systems tend offer very low costs.

0.00%2.00%4.00%6.00%

2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011

22

2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011

Bank MTO Post Office Global Average

The Impact of New TechnologyTraditional MTOs often have efficient systems but collect and make payments in cash, often using small retailers as collection agents and banks for payment.

The cost for the collection in this business model can reach up to 50% of the fees generated for the transfer. Payment costs approx. another 20%, leaving little for marketing cash management and administrationlittle for marketing, cash management, and administration.

Remittance services that include a self-serve process and use electronic means of 8

8.5

Avg. Cost of Online-focused RSPs against MTOs

and use electronic means of payment, such as online and mobile remittances, tend to be significantly cheaper. The 6

6.57

7.58

introduction of such services however often suffers from unclear regulation. 4.5

55.5

6

Q1 2009 Q3 2009 Q1 2010 Q3 2010 Q1 2011

23

Dedicated Online Service MTO Average

Areas of Remittance Markets that Should Be Improved

Thank you.

Kai SchmitzSenior Financial Sector SpecialistSenior Financial Sector SpecialistThe World BankFinancial and Private Sector DevelopmentPayment System Development Group

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kschmitz@worldbank.org