Western Union, Moneygram Hit Nigeria, Others with Charges

Western Union and Moneygram, the world's leading money transfer companies, have been accused of charging a premium of up to 12 per cent on remittances into Africa, according to a recently released report by UK-based think tank The Overseas Development Institute (ODI), according to the Banker

Yet the banks in Africa appear to charge even higher.

The ODI report claimed that the two money transfer operators' (MTOs) excessive charges cost African migrants approximately $1.8 billion annually, a significant leap from global rates.

"Migrants sending $200 home can expect to pay 12 per cent in charges, which is almost double the global average. While the governments of the G8 and the G20 have pledged to reduce charges to five per cent, there is no evidence of any decline in the fees incurred by Africa's diaspora. There is no justification for the high charges incurred by African migrants," the ODI said.

While it is difficult to pin down just how many Africans live outside their countries of origin, an assortment of statistics can paint a picture.

The World Bank said in 2011 that the number of Africans that have migrated outside their country of origin in recent decades is "conservatively" estimated to be more than 30 million (according to the United Nations, some 232 million international migrants are living in the world today) and has grown more than any other migrant community at 53 per cent in the past 10 years.

The OECD estimated that one in every nine persons born in Africa with a tertiary diploma lived in an OECD country in 2010-2011.

At the same time, the highest share of low educated migrants in the same period was recorded for migrants born in Sao Tomé and Principe (73 per cent), Cape Verde (68 per cent), Mali (67 per cent) and Guinea-Bissau (66 per cent).

The latest World Bank figures show that remittances from migrants are expected to rise to $436 billion this year, more than three times what poor countries receive in overseas aid. That number is expected to rise to $516 billion in 2016.

Nigeria alone accounted for about $21 billion, or 65.6 per cent of flows into the region, and is forecasted to bring in $41 billion of remittances in 2016.

The booming activity has led many banks in the region to establish Diaspora Banking services, including bonds, investments and remittance offerings.

However according to the ODI, banks are part of the price problem. While the ODI does not allege any sort of rate fixing between the two transfer companies, it notes that each one's "exclusivity agreements" with banks and remittance agents in Africa have been one factor in the charges hike.

"Governments and regulatory authorities in sending countries should do far more to promote competition and encourage innovation," The ODI said. "In an age of mobile banking, internet transfers and rapid technological innovation, no region should be paying charges at the levels reported for Africa."

Yet remittance corridors within Africa actually charge the most excessive prices. The ODI reports that migrant workers from Mozambique sending money home from South Africa, or Ghanaians remitting from Nigeria, can face charges of more than 20 per cent.

"In several African countries, banks are the only agency authorised to conduct money-transfer operations, and typically partner with large MTOs," the report noted. In countries where only banks are authorised to pay remittances, such as South Africa, Mozambique and Lesotho, half are agents of Western Union and MoneyGram.

 According to The International Fund for Agricultural Development, banks in partnership with Western Union service about 41 per cent of payments and 65 per cent of all pay-out location.

The ODI says that there are 29 countries in Africa where banks account for over half of the in-bound remittance payments; in Ethiopia, Niger and Nigeria the share is more than 80 per cent.

All this begs the question: what do Diaspora Banking products at commercial banks provide? The service has risen over the past few years, and is already offered through many Sub Saharan African banks attempting to reach citizens scattered throughout the world.

Yet ODI reports that all of the world's top ten remittance-charging corridors are in Sub Saharan Africa, with South Africa and Tanzania "figuring in all but one of these corridors."

Migrants from Malawi, Mozambique and Zimbabwe employed in South Africa, and Ugandans remitting money home from Kenya face charges well over 20 per cent. In Ghana, Nigerian workers can expect to pay 39 per cent in charges.

"The very high charges levied on remittance corridors to and within Africa reflect the central role of banks - the most costly transfer vehicle," said the ODI. Why are remittance charges for Africa so high?

The ODI says it's difficult to answer that question, largely due to the "opaque nature of commercial operations." For MTOs, cost structures and foreign currency exchange fees, including currency volatility measures, are not openly provided and no MTO has disclosed the terms of their commercial agreements with African banks.