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Remittance - New Ways to Send Money Home
Ethan Zuckerman, 12 Jan 06

Emeka Okafor, of Timbuktu Chronicles fame, highlights a paper about the Nigerian diaspora on his new blog, Africa Unchained. The paper, by Nigerian scholar Uche Nworah, is about the role of the Nigerian diaspora in nation building, and focuses in part on remittance - the money Nigerians living and working abroad send to family and friends at home.

It's difficult to overstate the importance of remittance income to most African nations and many developing nations. Nworah cites a figure of $300 billion dollars sent from diasporas to developing nations via remittance. In Africa, the amount of money remitted by diaspora workers - $17 billion per year - is larger than the amount of foreign direct investment in Africa, and rivals official development assistance grants or loans ($25 billion per year). In some African nations, remittance represent as much as 27% of the gross domestic product of some nations. According to the UN's Office of the Special Advisor on Africa, the average African migrant living in a developed nation is sending $200 per month home to his or her family.

While remittance income is incredibly important for the developing world, there are at least four major problems with the remittance system as it currently exists: cost, safety, potential for misuse, and scale issues:

Cost - It costs a lot of money to send money overseas. If you're lucky enough to be sending money from your bank account to a bank account in another country, the process is somewhat complex, but not very costly - I routinely send money overseas for $5 per transfer. But use a service like Western Union and you'll pay at least 6% of your money in fees - more, if you're sending small amounts of money. (According to the calculator on Western Union's site, sending $200 to Nigeria will cost you $12. Once past the $12 minimum, WU charges 6% of the amount you're sending, up to $1000, their maximum amount allowed for a first transfer. Less than $200 also nets a $12 charge. Other countries are more expensive - $200 to Ghana or Mali costs $22, or 11%.) An article by Dilip Ratha, a senior World Bank Economist, reports that 13% of the average remittance is claimed by transaction fees.

Safety - If you send money to Aunt Akwe in Lagos and she goes to the Western Union to pick it up, she's a target for a mugging, as it's likely that she'll be coming out of the shop with money in her hand.

Misuse - You may have been sending Aunt Akwe money to pay for your cousins' school fees. But there's no guarantee that Aunt Akwe isn't going to spend it on lottery tickets, or beer for crazy Uncle Pat.

Scale - Sending money home will help Aunt Akwe repair the family homestead and send the kids to school, but it won't pave the road the house is on, or build a new secondary school nearby. While $200 a month has a huge impact in the life of a family, collective action of many families is required to make major projects possible.

Hundreds of creative efforts are underway across the developing world to solve these problems with remittance. To address safety issues, MoneyGram is offering delivery services of money transfers in the Phillipines, bringing money to your door instead of forcing you to come and collect your funds from an office in town. Alternatively, if your recipient has an ATM card, they will transfer the deposit to her account.

A new remittance strategy - goods and service remittance - addresses the safety, cost and misuse issues simultaneously. Instead of sending money home, make a purchase from a store or website in the US or Europe, and powdered milk, cans of corned beef or a live goat is delivered to your relatives. Manuel Orozco, an economist with the IADB, estimates that as much as 10% of all remittance happens via goods and services.

Mama Mike's - a pioneer in goods remittance - offers online shoppers the ability to buy supermarket vouchers and mobile phone airtime for relatives in Kenya and Uganda, as well as more conventional gifts like flowers and cards. SuperPlus, Jamaica's largest supermarket chain, goes even further, allowing online shoppers to fill a shopping card for their relatives and arrange for them to pick up the order in one of the SuperPlus stores around the country. SuperPlus is a partner with both Western Union and MoneyGram and has been promoting its supermarket remittance service through Western Union and MoneyGram stores in New York City, home to a large Jamaican diaspora. Goods remittance services generally don't charge a fee, making their profit off goods sales instead.

Harder to address than the first three problems is the scale issue - how can remittances have a positive impact beyond the immediate family receiving money from abroad? The Mexican state of Zacatecas has tried a financial incentive - for each dollar a worker sends home to support a local project (building schools, paving roads, digging wells), the state government matches with two dollars. Town governments have increased the match to three to one, and in 2003, $20 million was remitted to support 308 "tres por uno" projects in the state.

Would a three for one system work in Nigeria? It requires faith that money remitted would go towards community projects and not be diverted along the way. Unfortunately, in countries with long-standing government corruption problems, this sort of faith can be hard to build, especially in a diaspora that left, in part, to escape problems of poor governance.

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One thing important to bear in mind is who is sending the remittance. Increasingly, the person sent abroad to work is the mother, who gets a low-status job in a developed country as a nanny or maid. She leaves her own children usually in the care of another female relative (her mother or sister, say), for a back-breaking job with few vacations to see her family.

Fathers are displaced from being the primary breadwinner and often spend their time drinking. Kids grow up without solid support from either parent. The mother transfers her love onto her rich charges in the United States, Britain, Greece, Taiwan, Saudi Arabia, or wherever she ended up.

I was intrigued to read that these remittances (which are pittances in the rich countries) are such a large part of GDP for some African countries. I just wanted to point out that they have a large social impact that needs to be considered as part of the total picture. It's really messy, with no easy solutions. I'm pleased to read about these options that offer new ways to transfer value in the form of goods rather than just a check.

Still, homegrown economic value would be better than splitting up families and providing almost-slave labor to developed nations.

Posted by: Kim on 12 Jan 06

If there is a Cirrus/Visa ATM near enough, Bank cards are great, but the neighbours& relatives have a huge incentive to steal the card. Also the recipient is tempted to overdraw, which some banks allow, I guess because they can charge big penalties. The recipient must also be convinced NOT to store her PIN number in her cell phone under "pin".

Posted by: g bruno on 12 Jan 06

The Caribbean typically costs about $25 - $30 in bank wires. This is because everything, at least for Trinidad and Tobago, goes through the Bank of America in New York.

What you're calling remittance here, too, is also a cost of doing contract work for corporations in developed nations. A much broader topic.

Imagine, I was going to buy an eBook from someone - a big thing for me, for I have never done so - and when I got to the PayPal place for the transaction, I literally couldn't pay because - though the account I would pay with is in the U.S. - my billing address is in Trinidad, and it's not listed.

Remittance. Sending money, for private or whatever reason... is a major problem. One aspect of this is eCommerce.

To send a deposit to India for a Simputer, while I was in Panama City, Panama, from Bangalore, India, cost me $90 US using Western Union!

The financial infrastructure has to move much more quickly on a global level to enable. Having worked with lockbox technology (check/cheque clearing) in the U.S., I have a fair idea of how things work. And they suck in a global economy.

Posted by: Taran on 12 Jan 06



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