MICROCAPITAL.ORG STORY: Remittance Duopoly: International Fund for Agricultural Development (IFAD), African Development Bank (AfDB) and Inter-American Dialogue (IAD) Hold Global Forum on Remittances Calling for More Competition in African Remittance Market

The Global Forum on Remittances 2009, organized by the United Nations’ International Fund for Agricultural Development (IFAD) and the African Development Bank (AfDB) in collaboration with the Inter-American Dialogue (IAD), is calling for the lifting of restrictions and costly fees imposed on the USD 40 billion sent as remittances to Africa each year [1]. The forum, a follow-up to similar forums held in 2005 and 2007, also addressed a proposal by G8 leaders in July 2009 to reduce costs of remittances by 50 percent over the next five years [2, 3].

Global remittances in 2006 reached USD 300 billion, exceeding foreign direct investment and development assistance combined, but according to an IFAD report, “these flows [in Africa] are not yet reaching their full development potential.” The report argues that this is largely due to inefficient regulatory systems, which have led to a low level of competition, an inability for potential competitors to enter the market and excessively high costs [4].

Currently, two major money transfer companies, Western Union and Money Gram, control 65 percent of locations where remittances can be picked up. Eighty percent of African countries restrict the type of institutions able to offer remittance services, meaning microfinance institutions (MFIs), which have a greater geographical reach than banks, are unable to serve the estimated 30 to 40 percent of Africans who live in rural areas and are receiving remittances.

The IFAD report adds that allowing MFIs and post offices to conduct remittance services would not only double the number of payment points, but extend other formal financial services to the unbanked as well.

The IFAD was founded in 1977 to combat hunger by supporting agricultural development. It supports 200 ongoing programs and has invested a total of over USD 27 billion. Fifty percent of its funding goes to Africa, making it one of the top three multilateral institutions working in agriculture in the continent. IFAD’s Strategic Framework for 2007-2010 can be found here [5, 6].

The AfDB, founded in 1964, has 53 regional member countries and 24 non-regional member countries. As of 2008, it had issued 3,276 loans and grants totaling an equivalent of USD 70.26 billion [7]. According to a press release, the AfDB plans to set up a multilateral fund to channel migrants’ remittances [1].

MicroCapital has previously covered stories on remittances, which have been referenced in the bibliography section below [9] – [11].

By: Stefanie Rubin, Research Assistant

Bibliography:

[1] African Development Bank: http://allafrica.com/stories/200910210496.html

[2] International Fund for Agricultural Development: “Global Forum on Remittances 2009”: http://www.ifad.org/remittances/events/forum09.htm

[3] Ministry of Foreign Affairs: http://www.esteri.it/MAE/EN/Sala_Stampa/ArchivioNotizie/Approfondimenti/2009/07/20090710_VerticeG8_RilancioEconomia.htm

[4] IFAD: “Sending Money Home to Africa: Remittance Markets, Enabling Environment and Prospects”: http://www.ifad.org/remittances/pub/money_africa.pdf

[5] IFAD: http://www.ifad.org/

[6] IFAD Strategic Framework 2007-2010: http://www.ifad.org/sf/strategic_e.pdf

[7] AfDB: http://afdb.org/

[8] http://www.businessdailyafrica.com/-/539552/675814/-/59cykn/-/

[9] MICROFINANCE EVENT: 2009 International Forum on Remittances, Organized by the International Fund for Agriculture Development, October 22-23rd 2009

[10] MICROCAPITAL PAPER WRAP-UP: Migrant Remittances: A Development Challenge, Published by the African Development Bank Group

[11] MICROCAPITAL.ORG STORY: International Finance Corporation (IFC) Purchases Bonds Worth 11.5 Billion Colombian Pesos (USD 6.2 Million) to be Loaned by Remittance Distributor ‘Giros y Finanzas’

[12] MICROCAPITAL PAPER WRAP-UP: Financial Infrastructure: Building Access Through Transparent and Stable Financial Systems by the World Bank

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