Cross-Border Remittances Study – 2016

The World Bank estimates that in 2016 remittances from migrant workers to developing countries will be worth USD 440 billion. More than twice that of foreign aid. Remittances play a critical role in supporting the welfare for many individuals and households in developing countries. Moreover, remittances can contribute to economic growth, with research indicating that it can have a greater impact than ODA and FDI.

However, many developing countries struggle to leverage these remittances. One of the major impediments is the cost and ease of sending remittances. Nowhere is this more evident than in the remittance corridors between South Africa and the rest of the Southern African Development Community (SADC), which are amongst the most expensive in the world. According to data collected by the World Bank as recently as 2015, the global average of sending remittances was ~7%. From South Africa, it was ~17%. Further, due to identification requirements and distribution challenges, many adults rely on informal channels.

Several FinMark Trust studies have explored remittances in SADC. In particular, one 2011 study specifically looked at the user experience of sending cross-border remittances from South Africa. The study highlighted the barriers faced by many migrants when accessing formal transfer services, including affordability and access to documentation.

South Africa has taken action to address this problem. In 2016 they introduced regulation which allowed for non-bank formal providers to offer cross-border remittances independently of a bank. This was intended to spur innovation that would bring down the cost and improve the ease of sending remittances.

This report provides an update on the available money transfer offerings that facilitate remittance flows from South Africa to other countries in SADC, specifically focusing on comparative instrument costs, access requirements, and the customer experience. This is compared with informal remittance channels. Four corridors were selected as a focus for the research, namely: the Democratic Republic of the Congo (DRC), Lesotho, Mozambique, and Zimbabwe.

Outputs from this research will be used to inform the ongoing policy and market debate on overcoming access barriers and bringing down the cost of cross-border money transfers. The research also supports on-going strategic engagements between FinMark Trust, and providers and regulators.