The COVID-19 pandemic has exposed the vulnerability of people, and the financial and other systems that underpin much of our daily existence. Remittance recipients in Africa are likely to be particularly hard hit by both the immediate and longer-term effects of the pandemic.

In 2018 alone, personal remittance flows to Africa were worth approximately $84 billion (compared to the $47 billion derived from foreign direct investment). And it’s worth remembering that a high proportion of remittances tend to be informal and are therefore not included in this data.

There are more than 9.5 million (formally documented) Africans living in Europe, many of whom send remittances back to Africa. Of these African migrants, 88% live in just five European countries – all of which have been under some level of shutdown – and so, like many other people living in Europe, their opportunity to earn an income has been severely curtailed. Although formal data is not yet available, one remittance operator had seen an 80% fall in volumes in one week.

One estimate is that remittance flows between Europe and Africa during 2020 would decline between 5% and 25% on the volumes seen in 2019 (and there are obviously several other remittance corridors to and within Africa).

Moreover, there are many Africans who migrated from lesser-developed countries in Africa to the economic hubs on the continent (Nigeria, South Africa, Kenya, Egypt, Cote d’Ivoire). Economic activity in these countries has already diminished and intra-African remittance flows are likely to contract as well.

While remittances are used for a variety of purposes, many families rely on remittances as a key source of financial support for basic consumption needs like food, payment of medical expenses is another typical use case. The current situation is therefore something of a double whammy – remittances are likely to decrease because remittance senders are earning less income and this is happening when remittance recipients are most likely to need the money.

Even when remittance senders are still in position to continue sending, cash-out options have been significantly reduced as some agents are based at facilities that have been closed.

So, what can be done to mitigate the effects of the Coronavirus pandemic on remittances? This was the topic of discussion during a recent webinar co-hosted by Cenfri and the Digital Frontiers Institute (DFI).

During the webinar, experts Hennie Bester and Barry Cooper (Cenfri), Nikki Kettles (FinMark Trust), Dr Olayinka David-West (Lagos Business School) and Leon Isaacs (DMA Global) suggested several potential options for policymakers.

Moderator Hennie Bester emphasised that “remittances are a lifeline and that which still flows must flow with greatest efficiency and lowest cost.” Due to the complexity of the problem, both short- and longer-term actions are required.

Policy options related to cost reduction:

1. Fee waivers or reductions. It is gratifying to see the swift action taken by government and key players in several African countries. Fees for certain mobile money transactions have already been waived in numerous jurisdictions and this could be replicated elsewhere.
2. Co-ordinated action. Panelists urged alignment in the way that governments and financial service providers respond to declining remittances to Africa to ensure that resources are optimized given the size of challenge (and noted that UN agency IFAD has announced it is convening the Remittance Community Task Force to consider the challenges confronting migrant workers and their families).
3. Prohibition on profiteering. Regulators would also need to closely monitor pricing to ensure that no remittance companies are taking unfair advantage of vulnerable consumers during this time
4. Digitisation of the remittance process. Many government entities and development organisations are advising citizens to use digital payment mechanisms rather than cash (given that the virus can be transmitted via the handling of cash).

Panelists cautioned that although progress has been made in digitizing the channel, the same can’t be said for cash-in and cash-out in many countries. Digital ecosystems often do not extend beyond core urban areas and therefore there is no way of spending digital currency or value for most recipients.

5. Education on digital applications. While payment systems in the UK and France are already digitised to a significant extent, that is not so for many of the Southern European countries. Education for senders and recipients on how to use digital channels is therefore one action that could be initiated quickly.
6. Regulatory clarification on KYC requirements. Financial services companies would benefit from regulatory clarification on a risk- rather than rules-based approach to non-face-to-face KYC (know-your-customer identity verification requirements). Currently, digital modalities sometimes require more onerous KYC checks than in-person transactions do.
7. Ensure AML approaches are proportional and appropriate. Some of the current anti-money laundering (AML) regulations may need to be revisited. For many EU countries, US$1,000 is the level at which extra due diligence checks are triggered, and this drives transactions into the informal market.
8. Rethinking product approval and licensing processes. Given fintech developments over the past few years, regulators could also assist in getting innovative solutions (that have the potential to reduce the cost and/or boost the efficiency of remittance flows) to market more quickly.

Panelists agreed on the need to react to the immediate threats in a responsible way that will improve both health and financial resilience in the medium- and longer-terms. It remains to be seen whether this pandemic, despite being so devastating in so many ways, can catalyze changes in the financial sector that continue to deliver benefits to lower-income consumers long after the virus has subsided.

We will be exploring this further in on our next webinar with DFI on the impact of COVID-19 on financial health in Africa on 6 April.