TUNIS, Tunisia—People in developing countries worldwide depend on remittance income—money transfers sent by family members working abroad—to sustain their households, but some countries' financial systems are better able to support such programs than others. Particularly hard hit are programs in African nations whose capabilities are hamstrung by restrictive regulations and dominated by only a few providers. According to World Council of Credit Unions (WOCCU), more remittance funds would reach more people, especially in poor rural areas, if Africa's savings and credit cooperatives (SACCOs), or credit unions, were able to better support cost-effective remittance programs.
"Remittances have become a critical income source for many poor families in developing countries," said Saul Wolf, remittances manager for IRnet®, the international remittance program supported by WOCCU Services Group, the association's for-profit arm. Speaking to attendees at the recent International Fund for Agricultural Development's (IFAD) Global Forum on Remittances in Tunisia, Wolf echoed the findings of a recent IFAD study, noting that lower transfer costs and greater access through microfinance institutions (MFIs) like SACCOs will improve Africa's remittance opportunities.
"High remittance fees take money away from poor recipients who depend on the funds to meet basic needs and improve the quality of their lives," said Wolf. "IRnet's goal is to help African SACCOs gain the capabilities necessary to grow their remittance programs where local laws permit."
Roughly 30 million Africans live outside their country of origin for work, according to the IFAD study, which also estimates that African migrants send about US$40 billion in remittances back to their families each year. An estimated 30% to 40% of remittances are destined for recipients in underserved rural areas, many of whom face high transfer fees and the need to travel significant distances to pick up their remittance funds.
Both hurdles eat away at those funds, leaving less to help recipients meet their personal needs. In addition, regulatory restrictions in some African countries prohibit MFIs, including SACCOs, from participating in electronic funds transfer activities necessary to support remittance traffic. Finally, market dominance by Western Union and MoneyGram, which the IFAD study estimates control 65% of the remittance market in Africa, leave little room for fledgling service providers to grow. Greater involvement by SACCOs and other MFIs would not only help make remittances more affordable, but foster greater economic stability among Africa's working poor, the study said.
IRnet''s program in Kenya, where local laws have been favorable, has demonstrated that SACCOs can be effective conduits for remittance funds. Currently, 11 SACCOs throughout Kenya distribute remittance funds sent via credit unions in other countries to family members back home. Kenya's SACCOs processed 1,432 transactions for an aggregate amount of 49,431,278 Kenyan shillings (about US$670,000) in the first nine months of 2009, with indications that the number of transactions and the amounts transferred are increasing.
Kenya is IRnet's first foothold in Africa. The program, which supports credit union-to-credit union funds transfers in seven Latin American countries, accounted for 1,271,647 transactions totaling US$491,854,162 worldwide in 2008. WOCCU would like see both amounts increase, and hopes to bring IRnet services to other African nations through their SACCOs pending increased technological capabilities and favorable regulations in support of such programs, Wolf said.
"IRnet can be a critical link in the chain because it can help facilitate viable low-cost money transfer opportunities for people worldwide," Wolf told his IFAD audience. "We want to follow the model we've established in Kenya and expand IRnet to other parts of the world, where high remittance fees remain the norm rather than the exception."
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 57,000 credit unions in 103 countries serve 208 million people. Learn more about World Council's impact around the world at www.woccu.org.