WASHINGTON, October 10, 2013—The remittances sent home every year by the African Diaspora should create a doorway to still greater opportunities, which have yet to be fully opened. The participants at the African Institute of Remittances (AIR) Forum, which took place in London on September 26, 2013, were informed that the key to the door was financial inclusion.
Last year, an estimated 30 million migrants sent cross-border remittances worth $60 billion to recipients in Africa, benefitting an estimated 120 million residents.
In her opening remarks, Soheyla Mahmoudi, the Task Team Leader of AIR and Senior Operations Officer in the World Bank’s Africa Region Finance and Private Sector Development, said, “The primary impact of remittances is on the living standards of the direct remittance beneficiaries; nevertheless they can affect the financial system in several ways”.
“If the banks that pay out the remittances month after month were to offer the beneficiary families an array of basic financial services such as savings accounts, payment facilities and small loans for microenterprise, it is likely that the portion of remittances saved and invested would grow from current levels”, Mahmoudi said. “It is this leveraging of remittances through financial inclusion that can increase their development potential, but much has yet to be done before this can come about”.
Important facts on African remittances and AIR initiatives were presented by Ron Hendrix, European Union (EU) Delegation to the African Union and EU’s Program Manager of Migration Mobility, Employment and Higher Education, who stated that AIR’s key short-term goals are improving data on the measurement of remittance flows and introducing policy reforms to increase competition in the remittances markets, so as to lower costs.
“The longer term goals are to promote the willingness of banks to introduce financial products for remittance beneficiaries on one side, while strengthening financial literacy programs so as to increase the population´s readiness to engage with the banking system on the other. At the same time, better delivery channels must result from technological innovation. The way forward is leveraging remittances for development,” Hendrix said.
The Acting Kenya High Commissioner to UK, Ambassador Jackline Yonga said, “The Diaspora is part of the resource that would assist to propel Kenya into a Middle Income Country”. She explained that the government recognizes the Diaspora as a critical resource in the national development, especially in realization of the Vision 2030.
The Forum brought together 40 participants which included AIR partner organizations, the private sector, Diaspora organizations, embassies and high commissions of African countries, think tanks, academia, and the media.
The purpose of AIR is to best leverage the positive impact of remittances for families and communities, the participants were informed. Don Terry, an AIR Project Consultant explained that the idea of AIR is to create an institute for remittances to address the unique characteristics, challenges and opportunities of African remittances.
“Unfortunately in Africa, the financial system—starting with the Banks—has not recognized sufficiently that the remittance senders and receivers can be good business for them,” Terry said. “As a result there isn’t sufficient competition in this area and because of this lack of competition the rates to send money to Africa and within Africa are the highest in the world”.
Explaining just how expensive remittance charges are, Marco Nicoli, the World Bank’s Payment System Specialist responsible for the remittances database Send Money Africa said, “On average, remittance service providers charge migrants 11.79 percent to send funds to Africa, leaving the recipients of those funds with $88 for every $100 migrants set aside for their families. Transparency and competition can dramatically alter remittance markets, especially when coupled with appropriate changes in the regulatory environment.”
AIR was conceived as an African-led organization to be set up as a specialized institute within the framework of the African Union Commission (AUC). The project to facilitate its establishment is being financed by the EU, executed by the World Bank and supported by the International Organization for Migration (IOM) and the African Development Bank (AfDB).
The project was designed to benefit from Diaspora input at the governance level, and ensures engagement with Diaspora organizations when implementing activities at the community level, since the comparative advantage of Diaspora members is their on-the-ground knowledge of local conditions.
One of the Forum’s recommendations was the necessity of continued engagement with the African Diaspora, governments and relevant agencies to ensure the sustainability of the AIR initiative. Another recommendation was that AIR be a centralized structure for the collection and collation of pertinent information on remittances and for the capacity building of relevant actors.
It was expressed that AIR could have a role in providing technical assistance to various stakeholders such as central banks, private sector remittance operators in areas such as risk prevention mechanisms, know your customer and Anti Money Laundering. The Forum’s conclusion included that AIR should encourage the use of formal channels for sending money and that it should be a flexible organization which must avoid getting bogged down in politics or bureaucracy.
While progress had indeed been slowed down by the need to observe the institutional formalities in decision-making typical of any international organization, the project is now ready for its operational phase. All that remains is a decision on the location of AIR, following hosting offers from four member states (Djibouti, Egypt, Kenya and Mauritius). It is expected this should occur in January 2014.