Reducing the costs of migrants remittances and optimising their impact on development Financial products and tools for North Africa and the franc zone EXECUTIVE SUMMARY Naceur Bourenane Saïd Bourjij Laurent Lhériau December 2011
Migrants remittances are so important to their recipient populations that they tend to remain stable and relatively inert Money sent by migrants is an important source of financing for developing country economies and their recipient populations. They benefit broad swathes of society that would live in extreme poverty without these resources. Consequently, even when economic and financial crisis hits migrants countries of residence, their remittances tend to remain stable and less sensitive to the economic climate than official development assistance and foreign direct investment. Such is the case for the North African and franc zone countries, especially those that form the core focus of this study (Morocco, Tunisia, Senegal, Cameroon and Comoros). 2
Reduce the cost of sending money for migrants and they will be able to increase their contribution to development Remittance costs are currently stabilising at a high level. This has spurred states to national, bilateral and multilateral action. The report recommends ways of reducing the costs of sending these remittances and optimising their contribution to development using suitable financial and regulatory innovations, in keeping with the commitments made at the Africa-France Summit in Nice in 2010 and the G20 Summit in Cannes in November 2011. It builds on earlier work initiated by the African Development Bank (AfDB), with the support of France: 2007 study entitled Migrations et Développement, un Enjeu de Développement (Migration and Development, a Development Challenge), Creation of a multilateral trust fund set up at the AfDB to support its Migration and Development Initiative (2008), Capacity building programme for remittance operators in North Africa and the franc zone (2009). An understanding of the local environment is key to reducing the costs of remittances and informal flows In this regard, this study presents the general set-up for sending money in the countries studied: i) Analysis of the formal markets and their players, ii) Presentation of the regulatory and legal measures governing the remittances market and analysis of their use by the financial sector in the recipient countries, iii) Analysis of the bank and non-bank products developed for this market iv) Proposal, on this basis, of innovative financial products and services incorporating recent developments, especially those associated with the use of information and communication technologies. 3
Remittance costs in North Africa and the franc zone appear to be stabilising at too high a level The analysis of the remittances market points up the following elements: i) Relatively large weight of cash-to-cash transfers, ii) Growing use of other money transfer products, especially account-to-account transfers within the same bank with part payment in cash, iii) Sharp growth in the supply of classic linked bank account (bi-bancarisation) products, iv) Financial intermediaries primary interest in the migrants and not in the recipient families 1, hence a negative impact on financial inclusion (especially banking among remittance recipient populations) as reflected by the preference for cash remittances, v) Operators primary interest in cash-tocash transfers, since they are simple, cheap and risk-free, money-spinning operations. The operators move to reduce costs appears to be driven more by a concern to win, keep or even raise profits than by a financial inclusion or banking strategy. Profit margins remain high everywhere. This environment seems to have fostered stabilisation rather than a decrease in remittance costs and gives all the more reason for national, bilateral and multilateral state action to reduce these costs, based on the conclusions and recommendations of the G20 Summit in Cannes in November 2011. 1 With the exception of the Moroccan banks, which are also interested in what drives the recipients in the countries of origin. 4
A wider range of players is now found on the market, but the supply still needs developing to make it more competitive The study identifies five types of players operating on or likely to operate on the remittance markets: Money transfer companies (MTCs), Banks and post offices in the countries concerned, Microfinance institutions (MFIs), Mobile network operators (MNOs) and other firms with automated payment technology expertise. Financial and stock market players. Within the group of MTCs, the majors (Western Union and Money Gram) behave differently to the local MTCs, which are much younger and smaller in scale. The local banks and post offices have realised the importance of remittances and the commission they can generate. They are moving to diversify their as-yet small and not very competitive supply, using the new technologies in the main. Competition could be strengthened and remittance costs reduced by modernising the regulatory frameworks and fostering a wider range of financial products and services The regulatory frameworks remain relatively strict when it comes to migrants putting their savings into productive investments. This is for good reason: to protect the stability of the financial systems, guarantee the security of the means of payment, and protect depositors and consumers in keeping with the recommendations of standards bodies such as the Financial Action Task Force (FATF) and the Basel Committee. However, particular attention should be paid to certain regulatory provisions in an environment of strong technological innovation and also to address the risks of the development of the informal market and market stagnation. Improvements could therefore be made to the regulatory frameworks governing linked bank account operations, which it would be beneficial to develop given the shared economic and financial development objectives for the developing countries. In line with the progress already made by the regulatory and supervisory authorities, in particular for microfinance in WAEMU and for the use of information and communication technologies and more broadly e-commerce in certain countries (Senegal and Cameroon), the adaptation of the regulatory frameworks more generally conditions the scaling -up and diversification of the supply of financial products and services. It hence helps step up competition, which is vital to reduce the cost of remittances, and encourages migrants to put their savings more into working for development. 5
Remittance costs can be reduced by four types of financial and technological products and services The study shows that costs cannot be reduced solely by lifting the exclusivity clause. Cost reduction is conditioned by the diversification of relevant financial and technological niche products and services to better suit the needs of the two main players at either end of the remittance chain: the migrants and the remittance recipients. Four types of financial and technological products and services are considered: Improved classic remittance products and services 2, Linked bank account products and services 3, Products for collective investments by migrant associations and long-term institutional investment products (stock market, bank and financial products), Lastly, products and services using ICTs for North/South mobile banking transfers and the development of automated payment and e-banking. These products and services foster growth in the number of migrants with linked bank accounts 4. They help build the banking systems in the countries of origin, reduce the use of cash (and therefore cash transfer transactions) and informal channels, and increase remittances to the countries of origin. Their supply differs from one market to the next. All the countries tend to offer nationals living abroad the products available on the local market on the same terms as for the local population. Despite their merits, these products do not generally offer the possibility of taking out loans in the North for operations in the South. This restricts the savings and investment possibilities for migrants living abroad. The limited success of classic linked bank accounts and the outlook for their development have prompted the proposal of other forms, which tie in partly with inclusive development and may call for regulatory and legislative adjustments as well as financial engineering. These are complements to and not substitutes for classic linked bank accounts. 2 Cash transfer to an account, with the possibility of making part of the transfer available in cash by direct debit on an account. 3 Linked bank account products and services: remote account opened in the country of origin from the country of residence, real estate loans granted in the migrant s country of residence for a purchase in the country of origin, savings products set up in the country of residence for investment in the country of origin, and savings products (especially building society savings) in the country of origin for non-residents. 4 Possibility of opening a non-resident account in the country of origin, remote management of these accounts, and access to credit services and other financial services from this account. 6
Stakeholders, services, tools, new technologies... there are basically five avenues to be explored to develop and strengthen the supply of bank and non-bank products and foster the reduction in remittance costs and co-development. Given the range of technical and regulatory situations observed, it would be useful to step up exchanges of experiences and partnerships among the countries covered by the study, especially regarding market regulation and supervision. The report recommends five guidelines to develop and strengthen the supply of bank and non-bank products for migrants and their communities in the countries of origin: Scale up the role of MTCs solely for urgent remittances in order to reduce informal money transfers and step up competition on this market, Develop classic linked bank accounts as a tool to promote access to banking services and financial inclusion in the countries of origin and to mobilise the transferred savings, Promote inclusive linked bank accounts as an instrument to increase integration in the countries of residence and put the savings of nationals living abroad more into local development and their own individual projects. Increase the use of ICTs in linked bank accounts: mobile banking, e-banking and, more broadly, branchless banking to facilitate remittances and promote access to banking services. Promote financial and stock market products to migrants as a tool to mobilise the savings and expertise of nationals living abroad to work for development, strengthen the financial systems and economies of the countries of origin, and integrate them more into the global economy. Lastly, the report suggests how to put the recommendations into practice, in particular by circulating the report widely, holding focus meetings with the partners concerned and setting up specialised working groups with the support of the G20 countries, especially France, and the bilateral and multilateral development financing institutions, in particular the African Development Bank and the French Development Agency (AFD). 7
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