For many Africans, remittances are hugely important. Money sent by relatives abroad often represent a significant income source. This importance also extends to countries as remittances account for a chunk of GDP with estimates pegging yearly remittances to sub-Saharan Africa at over $30 billion.
Important as they might be, sending these remittances home can be burden for both senders and receivers as transaction costs for sending remittances to Africa are more expensive than any other region, data from World Bank (pdf) shows.
The high costs of remittance transactions are often borne by people sending money to and those receiving them in developing countries as in 2014, 74% of the global remittance total went to developing countries. If remittance costs are reduced to 5%, World Bank estimates suggest that migrants could save $16 billion annually, leaving both senders and receivers with more money in their pockets. There are already efforts to reduce these costs. The Valletta Summit on Migration last November affirmed commitments to reduce remittance costs to 3% by 2030.
For most of sub-Saharan Africa, these high costs are driven by a number of factors particularly low levels of financial inclusion and a lack of access to banking services. Compared to global averages, costs of remittance transactions to sub Saharan Africa have stayed consistently significantly higher.
Money transfer operators, a popular choice for senders, are now the cheapest medium to send money costing less than post offices for the first time since 2013. Banks, however, remain the most expensive channel to send remittances, costing almost double.
While most of the remittance inflow to Africa comes from outside the continent, sending money within Africa is also expensive as South Africa is home to one of the world’s highest remittance rates. In the fourth quarter of 2015, it cost less to send money from the United States to Kenya than it was to send from South Africa.