Remittance has increased significantly and has become the main financial external inflow in some developing countries. Records as per World Bank predict that remittance now make up about 1/3 of total financial inflows in developing countries. Similarly, like other regions, Africa also witnessed a large increase in the last decade. Facts from World Bank Migration and Remittances database show that remittances represent up to 22% of some of the African countries’ GDP in 2017.  African migration has been rising steeply in recent years, fueling the growth of cross-border flows. Migrant remittances to Africa have increasingly become the main source of financing for households, communities and governments. Experts from IFAD stated that there are 30million Africans living outside their home countries, sending more than $40billion to their relatives each year.

According to a survey from IMF, remittances provide its contribution both at a micro level, i.e. recipient household and family and also at a macro level like transaction costs and opportunities for investment. At a micro level, remittances are believed to help in increasing the recipient’s income, as well as improving their investments in health, education and assets. At a macro level, remittances seem to increase the credit-worthiness of a country and deepen the local financial market.

Remittances would be even greater in Africa if the amount of flows going through informal channels was taken into consideration. Formal remittance channels include banks, electronic payment systems, microfinance institutions, money transfer operators, non-bank financial institutions, remittance service providers, and post offices also. In several African countries, banks are the only financial institutions which are authorised to perform money transfers. As such providing limited options for remittance services.  In some of the African countries, where only banks are authorised to pay remittances, half the agents are Western Union and Money Gram. They are known to be the largest money transfer operators in Africa. The inefficiencies of weak and unreliable commercial banks in Africa has left a gap in the market for remittances and has paved the way for formal Money Transfer Operators (MTOs). In comparison to banks, MTOs cover a broader network of locations.

When it comes to infrastructure, Africa can take advantage of mobile money to be able to propel remittances across the continent as well as promote financial inclusion. Remittance Service Providers have developed several innovative transfer technologies to expand access to the electronic transfer services. The African continent is known as an early adopter of mobile technology and digital wallets, with M-Pesa well adapted in Kenya and in other African countries. M-Pesa has increased the accessibility and affordability of remittances, and hence helping in increasing inclusion in financial services.

Remittances on the other hand, are the financial flow from migration. It is largely seen as household transfer with constructive motives and have a social insurance role. The majority of remittances to Africa are used to purchase daily necessities. Yet a significant amount, around $5-10billion, is available for savings and investment. Remittances are believed to further allow migrant’s households to build their assets- both cash and property. This will enhance access to financial services and investment opportunities. Household surveys by the Africa Migration Project indicate that expenditure on education is the second-highest use of international remittances in Nigeria and Uganda, the third highest in Burkina Faso and the fourth highest in Kenya. Remittance receiving households in Kenya and Uganda, for example, typically spend 15 % of domestic remittances on education, while in Nigeria, households typically spend 20% of domestic remittances on education.

In addition, remittances can contribute to improve investment opportunities and also promote entrepreneurship.  According to surveys by the Africa Migration Project indicate that a significant share of remittances to Africa are spent on investments in property, farming, agricultural equipment and investments in small companies.

Remittances have the potential to eradicate poverty directly by providing basic subsistence needs of households and indirectly by providing a monetary base for the creation of new assets.  And most importantly, without forgetting the facilities that benefit the overall community and also to stimulate economic growth.

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Source of Information- International Monetary Fund