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AFRICA: 'Pick Up Your Money With Your Groceries'
By Paul Virgo
ROME, Nov 6 (IPS) - Of the many proposals on how to combat poverty in Africa, the United Nations'
International Fund for Agricultural Development (IFAD) is championing what
must be one of the simplest - make it cheaper and easier for migrants to send
money home.
Remittances already play a huge role in supporting the continent's most
vulnerable, especially in today's tough economic climate, with rural poverty
agency IFAD estimating in a report released last month that they bring 40
billion dollars into the region each year.
"That's a lot of money. It's more than all foreign aid and direct foreign
investment combined, but the main difference is that these flows go directly
into the hands of those who need them most," Pedro de Vasconcelos,
coordinator of IFAD's remittances programme, tells IPS.
"Remittances are funds that go from people who are poor by western
standards to people who are even poorer still. They are a vital lifeline for rural
families."
But the money sent home by the 30 million Africans who live outside their
homelands could be a much more powerful engine for development with
stronger market forces and better regulation. Lack of competition in the
remittance market means that on average it costs twice as much to wire funds
to Africa than to other parts of the world, the Rome-based IFAD says.
"There is too little competition. Two players, Western Union and MoneyGram,
have 65 percent of the market alone at the moment. So you pay a high
premium to get your remittances into the hands of your loved ones," de
Vasconcelos explains.
"On average the cost of a remittance to Africa is 10 percent (of the amount
sent) but the worldwide average in countries where the market is developed
is five percent. By bringing the cost down from 10 percent to five percent,
you would have another 2 billion dollars going into the hands of the poor,
just by promoting more competition."
IFAD says scrapping the regulations that in many countries stop non-bank
organisations, including retail stores and microfinance institutions (MFIs)
such as village savings banks and credit cooperatives, from handling
remittances would be a massive step forward. At the moment 80 percent of
African countries restrict the type of institutions able to offer remittance
services to banks and foreign exchange bureaus or banks only.
Just letting MFIs into the market would double the number of remittance
collection locations, a much needed measure in a continent that currently has
as many payout points as Mexico boasts with one-tenth its population.
Making remittances tax-free would be a big boost too, and so would
providing post offices with the resources needed to offer remittance services,
especially given their distribution in rural areas, which are estimated to
receive 30-40 percent of the money sent into the continent.
Expanding the number of payout points would also cut the long journeys the
rural poor frequently have to go on to collect their remittances, which means
the costs of transport and lost working time have to be added to the already
high service charges.
The hazards of trips that frequently take more than a day are also a factor.
"Often it is women who travel from rural areas to the cities to collect the
money," Fatumo Farah, executive director of the Amsterdam-based HIRDA
Foundation that helps the Somali diaspora contribute to the fight on poverty
in its homeland, tells IPS.
"They can have problems with robberies, rape and attacks. You might come
back without any money and with problems you didn't have before.
"Even if the trip is successful, there is the extra cost of the travel. So they will
always get less. We have to do something about this problem and bring the
money to people's villages."
Farah says HIRDA is working on a joint project with IFAD that, when it is up
and running, will enable people in rural areas to collect remittances from
grocery shops.
She says migrants' home-bound money is especially important in Somalia,
which has been mired in chaos since the fall of Siad Barre's military regime in
1991.
"With no central government and few employment opportunities, many
people in Somalia depend on remittances to survive. We believe that around
40 percent in urban areas rely on them and that around 80 percent of start-
up capital for businesses comes from them."
The G8 acknowledged the importance of remittances for development at
July's summit in L'Aquila, Italy and pledged to reduce their costs by 50
percent in the next five years; a commitment de Vasconcelos said IFAD will
not let the world's most powerful nations forget.
The good news is that Latin America has shown progress is possible, and
authorities in African countries are starting to recognise the need to create a
healthy environment for senders and recipients.
"Look at the situation in Latin America five to 10 years ago and you'll find a
lot of similarities with Africa today," de Vasconcelos explains. "Competition
was low and costs were much higher. This is still the case in Africa, in part
because of exclusivity agreements that certain remittance companies agree
with banks.
"Some countries, like Nigeria, are addressing this (by banning exclusivity
agreements), and many should follow. What is good for Nigeria is good for all
of Africa. Central banks are starting to follow up on this issue now, whereas
previously they didn't, simply because they didn't know the volume of
remittances."
IFAD says only MFIs that prove their capacity to comply with standards on
financial crime prevention, possess the liquidity to cover payments, and
maintain the necessary levels of technology and trained staff should be
allowed to offer remittance services.
Having the MFIs on board would make it possible to link remittances to other
financial services, and this could be a lever out of poverty that is just as
important as the money coming in.
Because remittance recipients tend to be poor, they spend 80-90 percent of
the incoming money, IFAD estimates, with most of it going on basic
necessities such as energy and food. At the moment many people's only
option is to spend the rest too, or shove it "under the mattress" because they
do not have access to basic financial services.
Having money safely put aside at an MFI and the ability to take out insurance
policies, on the other hand, would help them survive hard times. And access
to microcredit loans of relatively small amounts could create opportunities to
climb out of poverty by, for example, borrowing the money for seeds to plant
an extra field and make a profit when food prices rise.
Indeed, remittance savings could act as a spur for local development because
giving people the chance to put money into accounts at MFIs would in turn
increase deposits useable for loans to smallholder farmers and enterprises.
"Our study shows that in Africa the potential is enormous," de Vasconcelos
says. "People could go to microfinance institutions, microcredit cooperatives
and rural financial institutions that are close to them and we could by
extension promote other types of services.
"This would be completely world changing for many people, who would have
the possibility of having savings for the first time in their lives.
"What's more, by linking remittances to microcredit, there would be a
multiplier effect that would not happen if you just had cash-to-cash
transfers. If you have a financial institution as the reception point, the effect
will be multiplied two, three or even five times.
"What migrants and their families need are more options. This is the
opportunity remittances represent and it is not imaginary. It's already
happening where the conditions allow. I think with more information, better
educated decisions will be taken by governments to benefit recipients and
their economies." (END/2009)
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