Remittances: the money that crosses borders on a phone
Every month, millions of people send part of their pay home. A briefing on how remittances work, what they cost and why they matter more than most development budgets.
A cleaner in Paris, a nurse in Manchester, an engineer in Houston: each month, millions of members of the African diaspora send part of their earnings to relatives at home. Together, those transfers are among the largest financial flows into the continent, and in several countries they exceed official development assistance.
More than money
Remittances pay for school fees, rent, hospital bills and, increasingly, for small businesses. Unlike investment from abroad, they go directly to households, which is why economists describe them as a kind of private social safety net. They also tend to hold up when other flows fall away.
How a transfer travels
A transfer begins with an app, a website or a counter in the sending country. The sender pays in one currency; a provider converts it, passes the instruction to a partner in the destination country and pays out in cash, on a phone wallet or into a bank account. Each step has a price: a fee, an exchange-rate margin, a partner's share. The visible fee is often the smaller part.
The cost of sending
Sending money to Africa is expensive. Fees on many routes are among the highest in the world, because of limited competition, cash-based networks and the cost of converting between currencies. The United Nations has set a target of bringing the average cost of sending remittances below three per cent; for most African corridors, the gap is still wide.
Mobile money and digital transfer services are narrowing it. Sending to a phone wallet is often cheaper and faster than collecting cash at a counter, and it leaves a record that can later help a recipient access savings or credit.
What policy can change
Some of the costs are structural. In many corridors a handful of operators have exclusive agreements with the agents who pay out cash, which limits competition. Regulators can open those markets, allow more providers to connect to each other and make comparison tools mandatory so that senders can see the real cost before they pay.
The best remittance is the one that arrives in full.
What to watch
Three things will decide whether remittances do more for development: lower fees, easier ways to turn transfers into savings and investment, and regulation that protects senders without pushing small operators out. The Diaspora Desk will follow all three.