Remittances are a valuable lifeline for Africans, with over USD 100 billion flowing into the continent annually from a migrant workforce of 40 million individuals worldwide. In over a quarter of African countries, remittance flows are equivalent to more than 4% of GDP, a number that rises to more than 10% for some countries, like The Gambia. 

This picture holds for the various regions in Africa. For instance, 2022 was a record remittance year for Morocco, Kenya, and Ghana. World Bank-KNOMAD data shows that formal remittance inflows to these countries rose by 8% (Ghana), 25% (Kenya) and an incredible 35% in Morocco between April 2020 and December 2022.  

However, more can still be done to reach rural and low-income remittance receivers in Africa.  

Remittances contribute to 10 of the Sustainable Development Goals (SDGs) 

Remittances are vital in supporting the reach of the SDGs, and act as a catalyst for change for the most vulnerable groups of society. In their 2021 report, IFAD noted that remittances contribute to addressing SDGs 1-8,12 and 13. This impact includes the eradication of poverty, as a 10% increase in per capita remittances could decrease the proportion of a country’s population living in poverty by 3.5%. Other impacts include eradicating hunger, contributing to good health and well-being, quality education and gender equality, ensuring clean water and sanitation, and affordable and clean energy. In addition, remittances encourage responsible consumption and production, contribute to climate action, and ensure decent work and economic growth.   

As illustrated in Figure 1 below, apart from affecting change at a global level, remittances also affect change at a macroeconomic level. Since remittances are received from the diaspora abroad, they are a valuable source of foreign exchange and contribute to keeping countries solvent. Flows from remittances often outweigh the value of official development assistance (ODA) and foreign direct investment (FDI). Remittances also present a multiplier effect with an efficient and direct injection of capital into rural communities, especially when combined with financial services intermediation. In addition, remittances received in trade currencies (e.g., the US Dollar, which is vital for fuel supplies) play a vital role in keeping economies functioning and thereby prevent potential social strife and unrest.  

At a micro-level, the impact of remittances on sustainability, climate resilience and other shocks filters through to local communities. In particular, it enhances food security because the additional source of income makes farmers more resilient to climate and economic shocks. Remittances, therefore, contribute to economic continuity. 

Finally, remittances hold specific benefits for low-income, rural households and women, the most vulnerable members of society, as it provides them with a consistent source of income to enhance their livelihoods.  

Figure: The far-reaching effects of remittances

Various access barriers remain 

Despite the contribution of remittances to the livelihoods of some of the most vulnerable, several barriers still limit inclusive access to remittances. A recent regulatory assessment by Cenfri and IFAD identified a lack of simplified customer due diligence (CDD) offerings coupled with inappropriate KYC identity document requirements as barriers at the consumer level. The underlying root causes revealed ineffective compliance and risk management practices and slow adoption of digital services such as remote identity proofing, all of which contributed to exclusionary processes and high costs. High remittance transaction costs pose a significant consumer barrier to sending remittances to sub-Saharan Africa, with costs between 9%-11% of the transaction amount. This is far above the 3% transaction cost target set by SDG 10. More broadly, political instability, poor payment infrastructure, regulatory challenges, and FATF greylisting leave remittances vulnerable to shocks and delays based on the global economic and political context.  

Remittances can easily be made more affordable and efficient  

Over the past two years, Cenfri and IFAD’s Financing Facility for Remittances worked with 13 remittance service providers (RSPs) across seven African countries as part of the Remittance Access Initiative (RAI). As part of the Initiative, numerous ways to make remittances more affordable and efficient were identified. Notably, RAI set out to bring innovation to the last mile, namely, to cost effectively reach low-income and rural households, particularly women in a risk-appropriate manner. We helped providers to rework their front-end and back-end systems to remove barriers for marginalised recipients. Interventions included digitalising paper-based systems, enhancing the implementation of the risk-based approach, and enabling remote identity proofing. 

These efforts have made formal remittances more accessible and affordable for both recipients and the broader African diaspora. The Initiative, which concluded around mid-2023, has successfully removed KYC and CDD barriers for 358 305 customers, and 44 689 transactions.  

The related interventions also benefitted RSPs through increased customer retention, higher turnover and more capacitated staff. Ultimately, the initiative built financial inclusion and increased support for livelihoods, thereby contributing to the SDGs in the target countries, but also beyond. Indirectly, thirty-six countries across the African continent were reached.  

Maintaining the integrity of remittances is crucial to reach the SDGs 

On the journey to reach the SDGs, and to include more people in the formal financial system, care should be taken to do so securely and safely. The RAI interventions specifically sought to counter a triple negative scenario, rife in developing markets, where: (i) inappropriate KYC and CDD frameworks exclude low-risk recipients, and (ii) due to a tick-box compliance focus, do not materially mitigate money laundering, terrorist financing, and proliferation financing risks. This culminates in (iii) people favouring informal parallel markets prone to criminal abuse.  

To address this issue, we need to establish a culture that fosters trust between remittance senders and recipients, and that supports innovation. This will ensure stable, targeted funding that, ultimately, promotes robust economies with improved education, food and physical security, and overall well-being. 

Cenfri is committed to contributing to global efforts to enhance access to remittances 

Remittances play a crucial role in promoting social mobility and empowering women. Now is the time to prioritise reducing barriers to remittances and ensuring their effective and secure management. 

Cenfri looks forward to continuing to support the safety, ease, and affordability of domestic and cross-border remittances. Read more here or get in touch with Masiiwa Rusare (masiiwa@cenfri.org).