MICROCAPITAL.ORG STORY: Conclusions from the Global Forum on Remittances Co-Hosted by International Fund for Agricultural Development (IFAD) and African Development bank (AfDB)

The Global Forum on Remittances, co-hosted by the International Fund for Agricultural Development (IFAD) and the African Development Bank (AfDB), recently concluded in Tunis on October 23, 2009. 200 participants involved in remittances attended the forum. The discussion was focused on issues related to workers living abroad who wished to send money back to their families in Africa [1].

A recent MicroCapital story provides the background for the discussion at this forum. For more information, please visit: https://www.microcapital.org/microcapitalorg-story-remittance-duopoly-international-fund-for-agricultural-development-ifad-african-development-bank-afdb-and-inter-american-dialogue-iad-hold-global-forum-on-remittances-c/

At the closing session of the forum, several conclusions were reached. First, the participants recommended that more market actors, particularly microfinance institutions (MFIs), post offices, and credit unions be permitted to act as payout locations [1]. According to an IFAD report titled Sending Money Home to Africa, the number of payout points across the African continent is currently serving one-tenth of the population [2]. According to IFAD, a payout point is a physical location where an inbound foreign currency transfer is received and where remittance recipients collect their money [2]. For details on the IFAD report, please visit http://www.ifad.org/remittances/pub/money_africa.pdf.

A paper titled On Reducing Remittance Costs, released by the World Bank in May 2005, reached a similar conclusion, pointing towards the necessity of such institutions to be able to receive and transfer foreign currency locally [3]. According to the forum participants, this would increase outreach to rural areas where individuals must travel long distances to cash their money.

Another recommendation made at the forum was the promotion and support of increased competition in a market currently dominated by two money transfer groups, Western Union and Money Gram [4]. Please see the aforementioned MicroCapital story for details on the issue of competition and remittances in Africa. The participants added that any exclusivity agreements discouraging competition should be discontinued. According to IFAD, Western Union and Money Gram have protected the returns of their initial investment by requiring that agents sign exclusivity agreements. IFAD explains that “these agreements effectively ‘lock’ more than half of all available payout locations. Entities wishing to partner with these companies have to sign exclusivity agreements. This prevents other competitors from expanding their network” [2].

Another conclusion drawn at the forum was the importance of employing technology to improve access to financial services in rural areas. One such technology is the use of mobile phones [1]. According to IFAD, 93 percent of remittance-receiving MFI clients own a mobile phone and mobile phone owners are likely to receive more remittances in rural locations than those who do not own a mobile phone [2]. Another technology would be a software platform allowing financial institutions to pay in foreign currency.

The International Fund for Agricultural Development (IFAD) was established as an international financial institution in 1977 under the United Nations. IFAD’s goal is to empower rural women and men in developing countries to achieve higher incomes and improved food security [5]. According to IFAD’s most recent annual report, as of December 31, 2008 the organization had total assets of USD 7.2 million, and a total investment portfolio of USD 2.8 million [6].

MicroCapital has previously covered stories on remittances, which have been referenced in the bibliography section below [7] – [10].

By: Diya Chopra, Research Assistant

Bibliography:

[1] Afrol News

http://www.afrol.com/articles/34544

[2] IFAD

http://www.ifad.org/remittances/pub/money_africa.pdf

[3] World Bank

http://siteresources.worldbank.org/INTPROSPECTS/Resources/Onreducingremittancecosts-revisedMay12.pdf

[4] MicroCapital

https://www.microcapital.org/microcapitalorg-story-remittance-duopoly-international-fund-for-agricultural-development-ifad-african-development-bank-afdb-and-inter-american-dialogue-iad-hold-global-forum-on-remittances-c/

[5] IFAD