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World Bank Urges African Governments, Financial Institutions to Leverage Development Impact of Remittances

October 19, 2010

NAIROBI, October 19, 2010—Remittances to sub-Saharan Africa exceed US$21 billion and are forecast to grow by almost 2 percent in 2010 despite a weak global economy, according to World Bank estimates on remittances flows.


A recent Bank survey for Kenya estimates that 14 percent of adult Kenyans regularly receive an average of US$735 in remittances from abroad a year. This amount is remitted in seven transactions amounting to US$105 each, according to the survey for Kenya, which was launched today at a joint conference by the World Bank and the Central Bank of Kenya in Nairobi.


The conference announced the results of a national survey profiling remittance inflows to Kenya in 2009 as part of  the Future of African Remittances (FAR) Program—a Bank platform for enhancing competition and innovation in the remittances market in Africa. The survey also explores formal and informal channels used for transfers, associated costs, and how remittances are used by Kenyan families. 


Remittance flows represent a significant share of Gross Domestic Product (GDP) for Kenya and many African countries. But many governments and financial institutions in Africa overlook the effective role that remittances can play in dealing with economic shocks, access to finance and poverty reduction.


“We urge governments and remittance service providers to cooperate and reach out to each other to enhance the development impact of remittances for Africa,” said Marilou Uy, World Bank’s Africa Region Director for Finance and Private Sector. “The public and private sectors must do well what they do best and rise above their respective limitations to maximize the potential of remittances.”


Despite significant progress in improving the recording of remittances the world over, most official statistics in sub-Saharan African still underestimate the true size of remittance flows.  This is in part due to a focus of data collection efforts on formal channels, such as banks. 



Efforts to improve remittance data collection can positively contribute to understanding channels used and play a role in leveraging the development impact of these substantial resource flows for recipients and the communities where they live.


While remittances are a private resource flow between family members and friends in a community, policymakers and remittance service providers can play an active and supportive role in leveraging the development impact of remittance transfers by facilitating formal remittance flows, thereby reducing the costs of remittance transfers and enriching families and empowering communities where recipients live.


 “Governments must develop their legal and regulatory frameworks, as remittance service providers move beyond simple cash-out systems and design and deploy innovative and functional financial products and services linked to remittances that facilitate savings, loans, mortgages and insurance,” said  Michael Fuchs, Advisor to the World Bank’s Africa Region on Finance and Private Sector Development. 


Governments need to foster increased competition and technological innovation with a view to increasing formal flows and financial deepening, thereby reducing the costs of transmittal and increasing access to financial services among remittance recipients.


 “Under the FAR Program, the World Bank is augmenting its efforts in sub-Saharan Africa to assist governments and remittance service providers to realize the development impact of remittances,” said Benjamin Musuku, World Bank’s Africa Region Payment Systems Specialist, who leads the FAR program. “This Program will act as a collaborative platform for enhancing and focusing complementary efforts on the topic of remittances in sub-Saharan Africa.”


In this context, FAR is uniquely positioned to leverage the World Bank’s financial sector regulatory reform engagements and will endeavor to use analytical country assessments such as household surveys and  payment systems assessments to develop tailored technical assistance and capacity development strategies.


“FAR Program efforts will focus on implementing regulatory reforms to enhance competition in remittance markets by balancing the playing field for all types of remittance service providers,” according to Don Terry, previously head of the Inter-American Development Bank (IADB) remittances program in Latin America and consultant on the FAR Program.”It will also leverage the development impact of remittances by supporting the development, piloting, and adoption of new technologies and financial products linked to remittances”.


The Nairobi conference, and similar ones in Uganda and Ethiopia, will disseminate the survey results and launch country-specific follow-on initiatives to improve competition and foster technological innovation. This is expected to lead to lower transaction costs, financial deepening and increasing formality of money transfers by channeling remittances away from cash and towards new remittance-linked financial products. The program will be expanded to cover other African countries over the next five years.


Altogether, the conferences aim to bring together nearly 150 participants comprising policy and decision makers from ministries of finance, central banks, commercial banks, non-bank financial institutions, micro-finance institutions, mobile network operators, international money operators, payment service providers, academics and researchers from institutions involved in the topic of remittances.


The aim is to support country ownership of the reform process and create a forum for regulators and private and non-profit stakeholders to addressing outstanding regulatory obstacles to leveraging remittances for access to finance, enhancing the development impact of remittances and poverty reduction.


Conference speakers will include remittance service providers, consultants and researchers from a host of institutions.  Using a case study and applied approach, the aim will be to demonstrate the viability of innovative regulatory approaches, financial products and technology platforms from more developed remittance markets within Africa and foreign regions.


The agenda of the conferences balances issues of interest to both policymakers and remittance service providers, and include a practical focus on what can - and cannot - be achieved in the context of the conference objectives. The agenda is structured around  the themes of enhancing understanding of the profile of remittance flows; increasing formal flows and the availability of financial products linked to remittances; and enhancing collaboration and commitment to reform actions among relevant regulatory agencies, and public and privates sector entities.


The expected outputs from the conferences is a compact supported by both the public and private sector actors comprising a plan, next steps and recommendations of reform actions to reduce money transfer costs, strengthen measurement methodologies, enhance regulation of remittances to increase formal flows and linkage to other financial products.

Media Contacts
In Nairobi
Peter Warutere
Tel : (+254 20) 322 6444
In Washington
Francois Gouahinga
Tel : (+1 202) 473 0696