Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Finance DIRECTIONS INDEVELOPMENT Markets inAfrica Sanket Mohapatra andDilipRatha Remittance Remittance Editors Remittance Markets in Africa Remittance Markets in Africa Sanket Mohapatra and Dilip Ratha Editors © 2011 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved 1 2 3 4 14 13 12 11 This volume is a product of the staff of the International Bank for Reconstruction and Development / The World Bank. The findings, interpretations, and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. 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All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: [email protected]. ISBN: 978-0-8213-8475-6 eISBN: 978-0-8213-8553-1 DOI: 10.1596/978-0-8213-8475-6 Library of Congress Cataloging-in-Publication Data Remittance markets in Africa / Sanket Mohapatra and Dilip Ratha, editors. p. cm. Includes bibliographical references and index. ISBN 978-0-8213-8475-6—ISBN 978-0-8213-8553-1 (electronic) 1. Emigrant remittances—Africa, Sub-Saharan. 2. Economic development—Finance—Africa, Sub-Saharan. 3. Africa, Sub-Saharan—Emigration and immigration—Economic aspects. 4. Africa, Sub-Saharan—Economic conditions. 5. Financial services industry—Africa, Sub- Saharan. 6. Africans—Economic aspects—Europe, Western. 7. Immigrants—Economic aspects—Europe, Western. I. Mohapatra, Sanket, 1975- II. Ratha, Dilip. HG3982.R46 2011 332.450869120967—dc22 2011013215 Cover illustration: Diana Ong/SuperStock/by Getty Images Cover design: Drew Fasick Contents Foreword xv Acknowledgments xvii Abbreviations xix PART I Overview1 Chapter 1 Migrant Remittances in Africa: An Overview3 Sanket Mohapatra and Dilip Ratha Recent Remittance Trends in Africa6 Macroeconomic Impacts of Remittances 11 Impact on Households 16 Remittance Markets in Africa 26 Policies for Leveraging Remittances for Development 38 Overview of Remittance Market Surveys in Africa and Two Remittance-Source Countries 42 Annex 1.1 50 Annex 1.2 51 Notes 54 References 59 v vi Contents PART II Remittance Markets in Remittance-Receiving Countries 71 Chapter 2 Burkina Faso 73 Yiriyibin Bambio Remittance and Migration Trends 74 Characteristics of the Remittance Industry 77 The Regulatory and Business Environment 81 Conclusions and Recommendations 86 Annex 2.1 87 Notes 88 References 88 Chapter 3 Cape Verde 91 Georgiana Pop Remittance and Emigration Trends 91 Characteristics of the Remittance Industry 96 Access to Other Financial Services 100 The Regulatory and Business Environment 100 Remittance Costs and Identification Requirements 103 Conclusions and Recommendations 106 Annex 3.A Financial Sector Development in Cape Verde 109 Notes 110 References 110 Chapter 4 Ethiopia 113 Alemayehu Geda and Jacqueline Irving Recent Migration Trends 114 Remittance Sources and Trends 114 Characteristics of the Remittance Industry 116 The Regulatory and Business Environment 124 Remittance Costs 126 Customer Identification Requirements 127 Conclusions and Policy Implications 127 Annex 4.1 Banks and MTOs Interviewed for the Study of the Ethiopian Remittance Services Industry 130 Contents vii Notes 130 References 131 Chapter 5 Ghana 133 Peter Quartey Remittance and Migration Trends 133 Characteristics of the Remittance Industry 138 The Regulatory and Business Environment 145 Conclusions and Recommendations 149 Notes 151 References 152 Chapter 6 Kenya 155 Rose W. Ngugi Remittance and Migration Trends 156 Characteristics of the Remittance Industry 158 The Regulatory and Business Environment 172 Conclusions and Recommendations 178 Notes 182 References 182 Chapter 7 Nigeria 185 Chukwuma Agu Remittance and Emigration Trends 187 Characteristics of the Remittance Industry 190 The Regulatory and Business Environment 199 Conclusions and Recommendations 210 Notes 216 References 217 Chapter 8 Senegal 221 Fatou Cisse Remittance Trends and Their Economic Significance 222 Characteristics of the Remittance Industry in Senegal 229 The Regulatory and Business Environment 235 Conclusion 238 viii Contents Notes 239 References 239 Chapter 9 Uganda 243 Rose W. Ngugi and Edward Sennoga Trends and Uses of Remittances 245 Characteristics of the Remittance Industry 247 Emerging Products: Mobile Money Transfers 256 Transport Service for Domestic Remittances 258 Remittances and Access to Financial Services 259 Regulatory and Business Environment 260 Remittance Costs and Identification Requirements 262 Conclusion 266 Recommendations 267 Notes 268 References 268 PART III Remittance Markets in Remittance-Source Countries 271 Chapter 10 France 273 Frederic Ponsot Remittance and Migration Trends 273 Characteristics of the Remittance Industry 278 The Regulatory and Business Environment 295 Conclusions and Recommendations 302 Annex 10.1 308 Acknowledgments 310 Notes 311 References 315 Chapter 11 United Kingdom 317 Leon Isaacs Migration and Remittance Trends 317 Characteristics of the Remittance Industry 320 The Regulatory and Business Environment 329 Contents ix Conclusions and Recommendations 340 Annex 11.1 Country-Specific Pricing Grids 344 Notes 345 References 346 Contributors 347 Boxes 2.1 Remittances and Poverty Reduction in Burkina Faso 74 2.2 Remittances from Côte d’Ivoire 77 2.3 The Financial System in Burkina Faso 82 3.1 The Central Bank’s Regulatory and Supervisory Role 101 4.1 The Ethiopian Financial Sector 117 4.2 Case Study: Birritu Express 120 5.1 Informal RSP Case Study: A Shoe Seller at Madina Market, Accra 144 5.2 The Financial Sector in Ghana 146 6.1 The M-PESA Money Transfer System 162 6.2 Transport Industry and Money Transfer Services in Kenya 164 6.3 Hawala: The Somali Community-Based Remittance System 165 6.4 The Financial Sector in Kenya 171 7.1 Geographic Nuances of Nigerian Migration and Remittances 188 7.2 Recharge Cards for Domestic and International Remittances: The MTN Model 192 7.3 The Financial System in Nigeria 193 7.4 NIPOST’s Potential to Revolutionize the Nigerian Remittance Market 197 7.5 The Plague of Fraud in Remittance and Other Electronic Fund Transfers 211 9.1 Financial Institutions in Uganda 248 9.2 SACCOs and MFIs as Providers of Domestic and Cross-Border Remittance Services 254 9.3 The Transport Sector as a Provider of Remittance Services in Uganda and in East Africa 258 10.1 French Banks and Sub-Saharan Migrants 282 10.2 The BdE Experience: Developing Agent Networks 283 xContents 10.3 Loro/Nostro Accounts Enable African Banks to Collect Deposits in France 293 10.4 Telemedia and Tagattitude: New Channels for Micropayments to Mali 294 10.5 RSP Remittance Ceilings 302 11.1 Case Study: A Formal Remittance Service Provider Coping with Global Financial Crisis 319 11.2 Case Study: A Shipping Company as Informal RSP 323 11.3 Case Study: An Arab RSP with a Large Branch Network in the United Kingdom 324 11.4 Case Study: A Competitive Small Formal RSP 326 11.5 The EU Payment Services Directive 330 Figures 1.1 Remittances and Other Resource Flows to Africa, 1990–20107 1.2 Sources of Remittances to Africa and All Developing Regions in 2010 10 1.3 Stability of Resource Flows to Africa, 1990–2008, by Source 12 1.4 External Debt as a Share of Exports from, and Remittances to, Selected Countries 13 1.5 Shares of Remittance Recipients in Top Two Consumption Quintiles, Selected Countries 18 1.6 Average Annual Remittance to Selected Countries, by Source 19 1.7 Secondary and Tertiary Educational Attainment of Remittance Recipient and Nonrecipient Households, Selected Countries 22 1.8 Household Bank Accounts in Selected African Countries, by Remittance Status 25 1.9 Cost of Sending Remittances 27 1.10 South-South Remittance Costs in Sub-Saharan Africa 28 1.11 Banking Networks and Costs, by Region 29 1.12 Factors Inhibiting Use of Formal Remittance Channels 30 1.13 Formal and Informal Remittance Channels in Africa 33 1.14 Average M-PESA Transaction Size, March 2007–March 2009 35 1.15 Top Remittance Areas Needing Attention in Sub-Saharan Africa 39 Contents xi 2.1 Migrant Remittance Flows to Burkina Faso, WAEMU, and ECOWAS, 1974–2010 75 2.2 Obstacles to Providing Formal Remittance Services 83 2.A.1 Remittance Sources and Destinations, WAEMU vs. Non-WAEMU Countries 87 2.A.2 Inward and Outward Remittances