Cash transfer fees ‘tax the continent’

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Wiseman Khuzwayo and Sapa-AFP

Africans lost $1.8 billion (R19bn) a year because of high fees levied on funds sent from abroad by relatives, Britain’s leading think-tank on development said last week.

The Overseas Development Institute found that Africans faced some of the highest charges in the world for international money transfers.

But a global leader in money transfers, Western Union, insisted the fees were the result of local factors.

The report, issued with the Comic Relief charity, claimed that reducing African charges to the global average would generate enough revenue “to put some 14 million children into school, almost half of the out-of-school total in the region, and provide safe water to 21 million people”.

Charges in sub-Saharan Africa averaged 12 percent on transfers of $200, almost double the global average, according to the report.

“This remittance supertax is diverting resources that families need to invest in education, health and a better future,” said Kevin Watkins, the report’s co-author and director of the institute.

“Africans living abroad make huge sacrifices to support their families, yet face charges which are indefensible in an age of mobile banking and internet transfers,” the report said.

The institute said global markets were dominated by an oligopoly of money transfer operators, and Sub-Saharan Africa by a duopoly.

“Just two companies – Western Union and MoneyGram – account for an estimated two-thirds of remittance payouts in Africa. As in any market, limited competition is a barrier to cost reduction and efficiency gains,” the think-tank said.

“Second, there is evidence of ‘exclusivity agreements’ between money transfer operators, agents and banks. These agreements restrict competition in an already highly concentrated market.”

It estimated that the two companies and their associated banking partners in Africa accounted for one-third of the $1.8bn loss associated with high remittance charges each year.

Western Union argued that it “delivered much-needed services to individuals looking for fast, convenient and reliable ways to send money to family and friends”.

It said: “Our pricing varies between countries depending on a number of factors such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility and other market efficiencies. These factors can impact the fees and foreign exchange rates.”

The institute said financial exclusion and poor regulation in Africa escalated costs. Few Africans had access to formal accounts, which limited their choice of payout providers, and most governments required that payments take place through banks, most of which combined high costs with limited reach and low efficiency.


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