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Category Archives: African Remittances

Western worries about money-laundering are threatening an economic lifeline for millions of Africans Jul 20th 2013 | NAIROBI |From the print edition of the Economist


FOR Mohamed Abdulle, sending money to his family in Somalia means a trip to a high street in Stratford, East London, home to a large expatriate community. Once there he hands over cash, a telephone number and a name, usually that of his grandmother who lives in Somalia’s capital, Mogadishu, to an agent. A few minutes later Mr Abdulle, who works as a shop assistant, gets a text message letting him know the cash has arrived on the other side. This fast and reliable system, developed during decades of war in Somalia, is used by hundreds of thousands in the global diaspora, as well as by some UN offices and aid agencies to pay staff.

Perhaps not for much longer. Barclays, a big retail bank, has served notice that it will close the accounts of some 250 money-transfer businesses. The bank said the decision followed a routine legal review. Some money remitters “don’t have the proper checks in place to spot criminal activity,” the bank says, or could “unwittingly” be financing terrorists.

Barclays was among the last British banks willing to deal with agents who cheaply transfer money to poor countries. Many European banks have become nervous about such cash transfers after the American government last year forced HSBC, another big British bank, into a $1.9 billion settlement over allegedly shoddy money-laundering controls.

The impact of Barclays’ decision will be felt across east Africa. Without accounts, the transfer agents cannot operate and their businesses in Somalia’s neighbours, Kenya and Ethiopia, may be hindered, too. The agents, who need a bank account to get a licence, insist they have no problems with law enforcement or regulators. Cash going to extremists in Somalia is sent in sacks by plane, not from a London suburb a few hundred dollars at a time.

The agents are asking what extra measures banks want them to take. Abdirashid Duale, who runs Dahabshiil, the largest Somali money-transfer agency and a customer of Barclays for the past 15 years, says he is willing to comply with any transparency checks the bank requires. He estimates that $500m is sent to Somalia from Britain each year and thinks much of this money will switch to underground agents if legal operators are put out of business.

Dominic Thorncroft, who heads the British money-transfer trade association, says as many as 50 of his 170 members face closure. Under pressure from British MPs, some of whom are elected in constituencies with large migrant populations, the bank has agreed to a 30-day stay which ends in mid-August.

Meanwhile, a group of 100 academics and other notables has written to the British government asking it to avert a humanitarian crisis in the Horn of Africa. An estimated 40% of Somalia’s population depends on money sent from abroad. A recent study showed that three-quarters of recipients need the money to buy essentials, such as food and medicine.

“This will mean children being pulled out of school, people going hungry or not getting medicines they need,” said Laura Hammond, a lecturer at the University of London. The Somali Money Services Association, another British trade body, warned that the consequences of the closure of the accounts would be “worse than the drought” that ravaged Somalia two years ago and killed tens of thousands.

So far attention has focused on Somalia, where years of conflict have destroyed the banks and left no real alternatives to cheap money transfers. But the 250 firms put on notice by Barclays also include some serving Ghana and Nigeria, as well as India and Bangladesh. More sophisticated and expensive competitors such as Western Union may now benefit. A reduction in competition in the African remittance market will drive up prices.

Africans already pay more than any other migrant group to send money home. The cost of remitting to sub-Saharan Africa, typically around 12%, is three percentage points higher than the global average, according to the World Bank. If African rates could be brought in line with those of South Asia, African migrant families would save more than $4 billion a year. Instead rates are likely to rise further.

Some observers are calling for the creation of new institutions that could replace private banks. One suggestion is a “remittance bank” hosted by the UN or a multilateral agency. Another is a code of conduct worked out by remitters, banks and regulators. “This needs to be driven by government,” says Leon Isaacs of the International Association of Money Transfer Networks. “Or the banks won’t get the comfort they want.”

From the print edition: Middle East and Africa

 
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Posted by on July 19, 2013 in African Remittances

 

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Diaspora Bonds in an African Context, African Development Bank, 12/02/2013 reposted 22/02/2013


The Chief Economist Complex of the African Development Bank Group has released an Economic Brief on the application of diaspora bonds in an African context. Drawing lessons from diaspora bond issuances in Israel, Ethiopia and India, the paper, entitled “Diaspora Bonds: Some Lessons for African Countries”, argues that tapping migration wealth could be an effective means of funding development on the continent.

With an estimated 140 million Africans living outside the continent, saving up to an estimated $53 billion in those destination countries each year, the potential for diaspora bonds is enormous. Studies have indicated that migrant remittances to African countries are second only to foreign direct investment (FDI), and surpass even official development aid (ODA).

Bonds are a debt security instrument with a maturity of more than one year, tradable on the financial markets. Diaspora bonds are issued by the country to its own diaspora to tap into their assets in the destination country, as an alternative to borrowing from the international capital market, multilateral finance institutions or bilaterally from governments. The practice goes back to 1930s China and Japan and was later followed by Israel and India in the 1950s.

Diaspora bonds are typically used to finance large-scale infrastructure development projects in the private sector and are generally used by a country to implement its development strategy. Moreover proceeds of diaspora bonds could be earmarked to projects with appeal to the diaspora, such as infrastructure projects, housing and social amenities.

African countries rely heavily on external funding to finance their development. However, FDI and ODA have declined in recent years. Traditional donor aid is likely to wane in the future as donor countries focus their resources internally. Remittance flows have also been affected by the economic crisis and consequently developing institutions are seeking new sources of resource mobilization.

According to earlier Bank research, Africa could potentially raise $17 billion annually by using future flows of exports or remittances as collateral. Securitization of remittances could be used to raise short- to medium-term financing by African banks.

In Africa, Ethiopia is the first country to issue a diaspora bond to date, although several countries are considering following suit, including Cape Verde, Kenya and Ghana. Regular bond issuances in African countries have been available on the international market, such as the Morocco issuance (2010), and Senegalese, Nambian, Nigerian and Zambian issuances in 2011 and 2012. In this case, the shift from international bond to diaspora bond is simply a case of marketing, the paper’s authors argue.

The structure and management of the diaspora bonds are further discussed in the paper, which suggests the African Development Bank’s expertise and its financial instruments, as well as its interest in co-financing projects, could help leverage African migrant resources for development.

 
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Posted by on February 22, 2013 in African Remittances

 

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