/ 13 January 2012

Remittance fees punish poor Africans

The World Bank has identified South Africa and Tanzania as having some of the highest costs for remittance payments in the world.

The World Bank has identified South Africa and Tanzania as having some of the highest costs for remittance payments in the world, with some charges as high as 25% of the money being transferred.

Remittance payment is the transfer of money across borders, often used by immigrant workers to send money home to family members.

In 2010, the African diaspora sent home $40-billion in remittance payments to the continent, with these money transfers representing close to 10% of some African countries’ gross domestic products.

The World Bank said that cutting charges by 5% could save up to $16-billion a year. Considering that remittance payments were a vital source of income for many families who were living hand to mouth, this would have a massive impact.

The information, Remittance Prices Worldwide: Making Markets More Transparent, on the World Bank’s website, singled out the remittance corridors of Tanzania to Rwanda, Uganda and Kenya, and South Africa to Zambia and Mozambique as being the five most costly corridors among the 213 countries analysed.

A transfer of $200 from South Africa to Zambia cost on average $44.66 or 22%, and a $200 transfer from South Africa to Mozambique cost on average $36.11 or 18%.

The World Bank’s website also singled out the cheapest remittance corridors in the 213 countries analysed as Singapore to Bangladesh at 2.2% and the United Arab Emirates to Pakistan at 2.6%.

“In many cases, the cost to consumers of these remittance transactions is expensive relative to the often low incomes of migrant workers, the amounts sent and the income of remittance reci­pients,” the World Bank said.

“Therefore, any reduction in the remittance transfer price would result in more money remaining in the pockets of migrants and their families and would have a significant effect on the income levels of remittance families.”

It argued that an underdeveloped financial infrastructure, limited competition, regulatory obstacles and a lack of access to the banking sector by remittance senders and/or receivers all played a role in keeping the costs high.

Lack of transparency
However, it said the single most important factor leading to high remittance prices was a lack of transparency in the market, making it difficult for consumers to compare prices.

Walter Volker, the chief executive of the Payments Association of South Africa (Pasa), said the World Bank first raised these issues at a World Bank conference in Cape Town in 2010. “We were horrified,” said Volker. “So was the Reserve Bank.”

Volker said that Pasa and the Reserve Bank began to analyse why these charges were so high. It mostly related to the regulations that South African financial institutions needed to comply with, such as the Financial Intelligence Centre Act (Fica) and exchange-control regulations.

Volker said the Reserve Bank had made good progress on negotiations to relax Fica regulations for smaller money transfers up to a certain value and was also negotiating with regulators in the South African Development Community region regarding exchange-control regulations. These revolved around whether a non-banking agent would be allowed to facilitate remittance payments. He said no announcement had been made yet, but one could be expected soon.

The Reserve Bank did not respond to questions this week.

Absa spokesperson Zain Kahn said that, in analysing the World Bank data, it was important to bear in mind that these figures were based on the average fees charged by a wide range of service providers using a number of different methods.

Kahn said it was important when looking at the price charged for an international transfer to recognise that there were varying target markets and to distinguish between the fees charged and the exchange margin applied.

“Money transfer specialists such as Western Union, available through Absa internet banking and at 400 Absa branches, typically target cash customers performing lower-value transactions, while banks such as Absa cater for a variety of customers at a wider range of payment values.”

FNB spokesperson Patty Seetharam said the business of transacting cross-border payments required massive investment from a technological, human, logistics and infrastructure perspective, as well as the associated banking licences and statutory and regulatory compliance. She said exchange-control costs played a large part in the cost.

Standard Bank spokesperson Ross Linstrom said a number of differences needed to be considered when comparing the price of products between South Africa and other countries, such as the fact that in South Africa, the regulations governing cross-border payments were more onerous than in many countries around the world.

“The costs are affected by the regulatory requirements, both local and international, linked to cross-border remittances such as exchange-control regulations, the Fica Act, the Consumer Protection Act and so on,” said Linstrom. “Many customers pay for low-value remittances using cash and the expense of transporting and holding cash also needs to be taken into account.”

Linstrom said Standard Bank had two options for consumers: international transfers where payments were sent securely to other banks around the world or MoneyGram, which was a person-to-person money transfer where money was sent to countries where MoneyGram had agents.

The general manager of Nedbank’s global trade and investments, Steve Meintjies, said it was not in a position to comment on the World Bank report as it had not had an opportunity to study its content in depth.

Treasury spokesperson Bulelwa Boqwana said South Africa was aware that the cost of its cross-border remittances was among the highest in the world.

“We are committed to bringing down the cost of remittances to 5% and the treasury and the South African Reserve Bank are working together closely,” said Boqwana. “In the medium-term budget policy statement, the finance minister announced several investment and prudential reforms.

In an effort to promote competition and reduce the cost of remittances to neighbouring and other countries, the treasury plans to remove ownership restrictions on international participation in authorised dealers in foreign exchange with limited authority, that is, foreign exchange bureaus.

“In addition, the requirement for money remittance agencies to partner with existing authorised dealers in order to do remittance business will no longer be obligatory,” said Boqwana.

“The Reserve Bank has completed the relevant circulars to this proposal and the dispensation will become effective once all regulatory and reporting requirements have been finalised.”

On November 18 2011, a meeting attended by representatives from the Financial Intelligence Centre (FIC), financial surveillance department (the former exchange control department) as well the national payment systems department (NPSD) was held at the South African Reserve Bank.

“The objective was to advance the process of possible exemptions or reduce the regulatory burden on banks and money transfer operators in order to realise possible cost reductions,” Boqwana said.

“It was proposed that the South African Reserve Bank’s NPSD should ask the banks to provide estimated possible cost reductions that they may implement based on the current draft exemption notice put together by the FIC. Only once estimated cost reductions have been provided would the regulatory authorities proceed with exemptions.”