The COVID-19 pandemic shows yet again the important role that remittances play for economic development and poverty reduction. A remittance is money that family members or friends, who live in another country or location, send to loved ones in order to help them make ends meet. Remittances help put food on the table, soften economic shocks and keep businesses going at a time when people’s livelihoods and well-being are most at threat. Given the important role of remittances, the Sustainable Development Goal (SDG) 10c of the United Nations calls for bringing the average costs of sending money transfers down to 3% of its value by 2030.
In Morocco, in-bound remittance flows increased strongly during the pandemic, reaching an estimated 6.5% of GDP or US$7.4 billion at the end of 2020. A large share of these remittances stem from France, Spain, and Italy (70% of in-bound remittances). Remittances within Morocco are also frequent, with 1 out of 5 Moroccan adults having received or sent remittances within Morocco in 2017. The cost of sending a US$200 transfer to Morocco varies widely, ranging from an average of 4.7% for sending money from Belgium to 12.4% from Israel. The costs dropped slightly in the last few years, but with an average of 5.9% across sending corridors remains well above the SDG target of 3%.
The Central Bank of Morocco, as part of its efforts to enhance the population’s financial inclusion, recently launched the Greenback Initiative in Morocco. The Greenback Initiative is a World Bank initiative that aims to increase efficiency in remittance markets and through this lower the cost of money transfers. It promotes change by using an innovative, client-centric approach and bringing stakeholders together. To jump-start the Greenback Initiative in Morocco, 16 focus groups were held by the local research company LMS-CSA with 146 randomly selected remittance recipients in four regions of Morocco, and the results shared with core stakeholders of the financial sector in April 2021. Below are a few core findings from this qualitative research (the full report can be found here).
The focus group results reveal that senders and receivers of remittances largely rely on cash-based services for transferring money:
- Most international remittances (97%) are transferred through cash-based services. These so called “over-the-counter” transactions are usually done through two international Money Transfer Operators (MTO), with the remittance receiver cashing out the full amount upon reception. Even remittance receivers that have a bank account (62% of the sample) usually do not make use of the account for receiving remittances. Only 12% report occasionally using the account for remittances.
- People also tend to rely on the same service provider time and again, regardless of the amount or the country from which the money is being send.
These cash-based transfer services are not the most cost-efficient solutions. Sending the equivalent of US$200 from a payment card in France to an account in Morocco can, for example, be done within three to five business days for about 2% of the amount transferred. On the other hand, using a cash-based MTO service easily costs 8% or more, but is available within minutes. By choosing a different service and transfer speed, the remittance sender and receiver could have saved US$12. Also, using the same MTO can be reasonable in one country, but rather expensive in another. In short, the findings reveal that people likely pay much more than the average cost of 5.9% calculated for Morocco.
The focus groups shed light on the main underlying factors that drive this behavior:
- Focus group participants usually have several financial service points (FSPs) nearby, but are not familiar with all the services that are offered there. Most remittance recipients in Morocco have several financial service points within walking distance or at locations where they run their errands. In semi-rural and peri-urban areas, FSPs are usually payment service providers and the postal bank. Around marketplaces and in more urban areas, these also include banks. FSPs frequently offer services from several MTOs or banks, but respondents tend to equate them with only one MTOs.
- Many respondents are also not fully aware or comfortable with alternative options for receiving money. Many have heard about mobile wallets or pre-paid cards but do not feel sufficiently knowledgeable about them to start using them. Several also express reservations toward having or using a bank account, citing lack of transparency of costs of financial services, not being familiar with how to use accounts, or simply not feeling “at home” in bank branches.
- Finally, the participants revealed that they chose the service provider based on proximity, speed, reliability, and quality of service. The cost of a cash-based transfer is paid by the sender, so the transfer receivers are generally not concerned about it. Recipients like to go to payment service providers, which they see as fast, reliable, and of high quality. They appreciate that transfers are available immediately, internet connectivity is reliable, procedures to retrieve the funds are simple and transparent, and the service is friendly and unbureaucratic. This is in contrast to banks, where the perception is that transfers need time to arrive, can incur unknown costs and longer wait times in branches, and are intimidating to people unfamiliar with banking products.
The findings uncover important issues that, if addressed, could help remittance senders and recipients save money, and increase their uptake of digital financial solutions. People are generally open to alternative options for receiving or sending remittances, but need clear information on the costs of these options and on the “how to”. To foster uptake of digital financial services, people also need to know what to do in the event of problems—“what if my card gets withheld at the ATM, or stolen?”, “what if there has been a problem with the transaction on the mobile phone?”—and to trust that they can easily convert their funds into cash.
The Greenback Initiative will develop and implement an action plan to address the above issues. The action plan will include a variety of hands-on financial education activities to increase the financial knowledge of remittance receivers and sender, and familiarize them with the “how to” of using these options. The activities will be implemented in collaboration with the Bank Al Maghrib, Financial Service Providers, the Moroccan Foundation for Financial Education (FMEF), and other stakeholders from public and private sector. Furthermore, pilot projects in one or two “Champion” Cities will be developed to connect clients with service providers and through this promote the development of suitable financial service. International experience shows that this is an efficient approach to bring about change. Finally, boosting the transparency of information and consumer protection around remittance services will be an area of focus. The feedback received in the focus groups show that it is important to provide clients with easy-to-understand information on money transfer options and help them understand where and how to resolve possible problems or voice complaints. These will be essential complements to foster the uptake of financial services and to change perception towards formal FSPs.