High Money Transfer Costs are pushing Africa out of International Trade

Money Transfer and International Trade

Policy Paper by Gro Trade Consulting
In the year 2007, 318 billion dollars were sent back home by 150 Million international migrants. The top remittance earners were India at 27 billion, China at 25.7 billion, Mexico 25bn, the Philippines at 17billion and Sub-Sahara Africa received 19 billion. According to the World Bank, the remittance fees range from 6% of amount sent for inter-bank transfers to 20% for money transmittance companies like western Union. On top of the remittance fee is a hidden exchange rate charge.

Insofar as the current money transfer companies and banks do a great deal in helping deliver the much needed help to families, the high transfer fees they charge make them unsuitable as a system of payment in international business. These charges wipe out African Sme profits Furthermore; the high cost of borrowing money in Africa further increases the cost of doing business. With the current financial crisis pushing many migrant workers out of work, the remittance problem has never been worse.

The emerging consensus is that more competition in the money transfer industry will bring the remittance fees down. International Bank transfers are often reported as a highly efficient alternative to money transfer companies because they streamline the complicated process of handling cross border and inter-country disbursements and collections since each country has a different clearing system with its own rules and regulations thereby saving customers up to 90% in fees.

However, maintaining multiple Bank accounts and complying with country specific payment format is expensive and time consuming and payment delivery and time is uncertain. Furthermore, more than 80% percent of the population in Sub Saharan Africa do not keep a bank account. This calls for the use of technology that is accessible to people without bank accounts but is affordable.

The EU-Africa Trade and Investment conference (http://eatc2010.blogspot.com/)will seek as one of its objectives to find the most competitive rates for money transfer. To this end, three companies with some of the most competitive rates have been identified, these are; Atena, a Dutch company that charges a standard rate of 3% regardless of amount. The other is Xoom which charges from 0.3%-8% per transaction depending on the amount being sent. The third alternative is Money transfer software (MTS).

MTS is an easy to use interface that can be used by anyone with or without computer experience and supports multi-currencies. It keeps track of the recipient’s previous transactions in the history. The transaction is available immediately and is available for the payee agencies worldwide.

Therefore, the shift from western Union which charges 20% per money transfer transaction to Atena which charges 3% percent per transaction would translate into savings of 3.23 billion dollars for Africa per year and 54 billion for global remittances. These savings will help the small companies to increase their investments and consequently increase their share of international trade.

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