How Mobile Money Is Saving Africa $2bn Annually
Wednesday, May 6, 2015
Mobile phones have proven to be potential game-changers in boosting access to financial products and services to people in Africa. This is particularly true for those at the bottom of the socio-economic pyramid as seen in East Africa. It has often been appraised based on its contribution to ‘banking the unbanked’, but mobile money has achieved much more, it has saved the continentnearly $2 billion previously lost annually to inefficient money transfer.
UK-based think thank, Overseas Development Institute (ODI), in a 2014 report noted that Africans in diaspora pay an average of 12 percent to money transmitters to send $200 home. This is a far-cry from the global average of 7.8 percent and more than double the 5 percent target set by the G8. “These excess fees cost the African continent $1.8 billion a year; enough money to pay for the primary school education of 14 million children in the region.”
Why Africa pays so much
Weak competition, concentration of market power and flawed financial regulation all contribute to high remittance charges, according to ODI.
Western Union and MoneyGram are the two leading money transfer operators (MTOs) that account for two-thirds of remittance transfers, and ODI estimates that both will account for $586 million of the loss associated with the remittance ‘super tax’, part of it through opaque foreign currency charges. ‘Exclusivity agreements’ between MTOs, their agents and banks also restrict competition and make prices jump.
However, WorldRemit, a UK-based company founded by a Somalian, is providing much-needed petition.
“With fair and transparent prices, we are challenging the “Remittance Super Racket” of incumbent money transfer companies in Africa which continue their practices of agent-exclusivity arrangements and charging unreasonable fees. We are embracing mobile money as new technology that is set to revolutionise banking from the ground up and make money transfers more convenient for everyone,” CEO & Founder of WorldRemit, Ismail Ahmed said in an interview.
Ahmed, who founded the online money transfer service in 2010 aims to use technology to shake-up the industry, which he considers stagnant. “By taking the industry online and refusing to engage in anti-competitive practices, we are bringing fairer, lower cost remittances to Africa.”