REMITTANCES--money sent home by relatives or friends working abroad--are the financial lifeblood of many poor countries. One of the biggest and fastest-growing markets is Africa, which received $32 billion in 2013. That is expected to grow to more than $40 billion by 2016.
It would be reasonable to assume that the fees charged by middlemen were falling, thanks to the spread of mobile banking, online transfers and other innovations. In sub-Saharan Africa, however, they have remained stubbornly high, and in some countries they have even been rising slightly, according to "Lost in Intermediation", a report by the Overseas Development Institute.
The think-tank finds that the region's diasporas pay an average of 12.3% to money transmitters to send $200 home, compared with a global average of 7.8% and a target of 5% set by the G8. The cost of transfers between African countries can be much higher: close to 20% for funds sent from South Africa to Mozambique, for instance. The ODI says this translates into $1.4 billion in extra payments annually, enough to put 14m of the region's children through primary school for a year.
One explanation is lack of competition. Western Union and MoneyGram, the two largest money transmitters, have a combined 50% or more of the market in three-quarters of Sub-Saharan countries (using number of payout...Continue reading
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