The high cost for African migrants sending money back home

image14The ability for people from Somalia to send money back home is becoming increasingly harder. Barclays bank’s attempt to shutter its services were met with strong opposition. Now the same issue is being raised in the US with Merchants Bank planning to end its remittances services to Somalia this week.

“Somalia is hanging once again on the precipice of a full-blown catastrophe,” said Degan Ali, Executive Director of Adeso. ”Even a minor disruption to the link between Somali communities and their friends and family abroad could push them over the edge into crisis. We can’t just sit on the sidelines and let this happen, and neither can the Obama administration.”

The estimated $1.3 billion that Somalia receives in remittances each year beats out the total foreign and and investments in the country. The money helps some 40% of families in Somalia pay for things like food, education and healthcare. The money is also helpful to the economy as a whole. Adeso, Oxfam and the Inter-American Dialogue estimate that 80% of start-up capital businesses comes via the Somali diaspora.

The closing of Merchants Bank accounts on June 20, as is planned, will impact as much as 80% of US remittances to Somalia. That means that the money making its way to help families get buy and improve the country might not get there. Advocates say that better due diligence is an appropriate solution, not shutting down accounts.

“It would be an incredible mistake to allow the only regulated channels for sending money back to Somalia to absorb such a crippling blow. Unless emergency measures are taken, many families will be cut off from their only source of income at a time when conditions in Somalia are getting worse,” said Ray Offenheiser, President of Oxfam America.

For those who are able to send money back home, the charges are getting increasingly more expensive. On average, Africans pay 12% fees to send home $200. That is nearly twice the global average for the same amount. As is the case for Somalia, many other countries have citizens who rely upon money sent from far away. This effective tax means less of that money ends up where it is needed most.

Capture

Annual transfers would increase by $1.8 billion per year if charges reach the global target of 5%, estimates an analysis by Kevin Watkins and Maria Quattri of the Overseas Development Institute. That much money would alone fund the education for 14 million primary school children in sub-Saharan Africa.

“No measure would do more to strengthen the development impact of remittances than a deep cut in charges,” write Watkins and Quattri. “Cutting the ‘remittance super tax’ would enable Africa’s diaspora to make a bigger contribution the region’s development. It would also strengthen self-reliance.”

Money transfer firms, such as banks like Barclays and wire services like MoneyGram, say that there is uncertainty in sub-Saharan banking. The reasons that some are ceasing business altogether is why fees are so high; few regulations make it hard to know whether money sent could be funding terrorism or other illegal activities. Such concerns can be dealt with if governments and regulatory authorities do more, says the report.

Demanding higher standards and providing the right protections and incentives can lead to better competition and lower pricing, they argue. There is also a call for more transparency and an investigation into what might be causing the higher charges.

Share.

About Author

Tom Murphy

Tom Murphy is a New Hampshire-based reporter for Humanosphere. Before joining Humanosphere, Tom founded and edited the aid blog A View From the Cave. His work has appeared in Foreign Policy, the Huffington Post, the Guardian, GlobalPost and Christian Science Monitor. He tweets at @viewfromthecave. Contact him at tmurphy[at]humanosphere.org.