Passing the Bucks ? A BoP Market Looking for Some Action?
“I’m giving away 2 percent of my net income every month… I don’t think Bill Gates is doing that.” So says Turkish billionaire Husnu M. Ozyegin in an interview for a New York Times piece last Friday about the philanthropy of individuals who have recently achieved phenomenal levels of wealth in “once destitute countries.”
Sounds very impressive, but I’ve also been perusing another report of interest today about what some other individuals are doing with their money that really knocked my socks off – and I can guarantee that they are passing on more than 2%!Last year, 150 million migrants sent more than US$300 billion in remittances to developing countries worldwide. This information is presented in the 2007 IFAD report on World Remittance Flows. (Since we can be pretty sure that migrant workers are not, on average, making US$100,000 a year in any country, we can be pretty certain that migrant workers, on average, are remitting far more than 2% of their net incomes!)
Nothing new, you say? We already know that there’s been an explosion of services that have made the market for transferring remittances to Latin America (and now to a number of other places as well) much more competitive and affordable, especially for BoP remittance receivers who previously had no access to any financial institutions at all.
But what of Africa? Not often the centerpiece of remittance discussions, but here are three striking facts from the IFAD’s report on World Remittance Flows that should put Africa front and center, at least for those interested in lucrative private-sector business opportunities targeting BoP markets:
- Remittance flows to and within Africa are close to US$40 billion, and represent, as a regional average, 13% of per capita income and 4% of GDP;
- Africa’s predominant migration patterns are intraregional;
- In all of West Africa, 70% of remittance payments are handled through one money transfer operator.
What this shows is that there are significant amounts of money being transferred by large numbers of individuals, and that the value placed on those transactions is high, since it constitutes a significant percentage of income, both for the sender and the receiver. It is so high, in fact, that these transfers are occurring in spite of a highly monopolized and uncompetitive market that does not offer many services that appeal to BoP remittance senders or receivers.
Like any seemingly attractive market opportunity, there are sure to be many obstacles to building a profitable service that meets this demand. One is certainly government regulatory obstacles. Another would likely be consumer education. However, I think the first and largest hurdle, as is the case with so many BoP-oriented business plans, is fully understanding the potential consumer base.
With so little reliable and detailed remittance data available, even at the international level, this may present an opportunity for small experimental ventures with deep knowledge of local needs, remittance patterns, and how remittances are used, to fill knowledge gaps and begin chipping away at the huge deadweight loss that currently exists in Africa’s remittance services market.
At NextBillion and our parent, World Resources Institute, we have been looking hard at the remittance market – as of today, 91 articles have been tagged in the Remittances category. But on closer inspection, Africa remains off the radar, even here. We’ve discussed the size of the financial services market; the idea of productizing remittances; and some specific businesses in action. But other than M-Pesa and Wizzit and some other cell phone banking services, we haven’t found many good African remittance solutions.
Anything we’re missing? Comments are open (with moderation) below; or you can suggest a story.