Capturing a Market Share? : Migrant Remittance Transfers & Commercialisation of Microfinance in Africa

Capturing a Market Share?

Migrant Remittance Transfers
&
Commercialisation of Microfinance in Africa




Paper prepared for the Conference on
Current Issues in Microfinance
Johannesburg, 12-14 August 2003

by Cerstin Sander
Bannock Consulting
July 2003

---

Table of Contents

EXECUTIVE SUMMARY & INTRODUCTION
2
THE MARKET Ţ REMITTANCE FLOWS, CHANNELS & USES
3
Remittance Volumes & Flows Globally
3
Remittance Volumes & Flows for Africa
3
Remittance Receiving Countries
5
Remittance Source Countries
5
Remittance Recipients & Uses
6
Average Remittance Value & Transfer Cost
7
Remittance Transfer Services & Transactions
8
Transfer Costs
9
THE OPPORTUNITY? REMITTANCES, MONEY TRANSFER &
MICROFINANCE 11
An Opportunity in MFI Commercialisation?
11



Annexes
Annex 1: Note on Data
15
Annex 2: Examples of Transfer Amounts and Costs
16
Annex 3: MFI & Money Transfer Services – Case Examples
18
Annex 4: Microfinance & Money Transfer Services – Guiding Questions
22
Annex 5: Legal & Policy Issues for Money Transfers Services by MFIs in Africa
24


Bibliography
26















This is work in progress and a topic of continued interest for the author. Any comments as well
as feedback on additions are very welcome. Please send them to cs_sander@yahoo.de or
cerstin_sander@bannock.co.uk


1
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

Executive Summary & Introduction

In maturing microfinance markets with increasing competition, professionalisation and
commercialisation of microfinance are key to sustainably serving the microfinance clientele. In
this context, the common uniformity of services and products of microfinance institutions (MFIs) in
the same market can be a significant disadvantage.

This paper looks at migrant remittances to and in Africa1 and the link with the microfinance
industry as a provider of money transfer or ancillary financial services to remittances. It explores
what transfer services microfinance institutions currently do or could provide and discusses the
opportunities and challenges of such services for MFIs. Such a financial service perspective is a
relatively new angle in remittance studies compared to the more traditional migrational,
anthropological, or economic analyses. A focus on Africa in this context is similarly a contribution
to an otherwise strongly Latin America centred interest and documentation on remittances.2

Remittance transfers by migrant workers or professionals have been recognised as a significant
financial flow for developing countries. They have also emerged as the fastest growing and most
stable flow.

Due to the perceived or actual proximity of MFIs to client groups who typically receive
remittances, the opportunity and potential for money transfer services by MFIs has become of
growing interest. Money transfer is seen as an opportunity to provide a new and potentially very
profitable product which can aid in the commercialisation process. The outreach networks of
MFIs are seen as potentially highly compatible for such a service which would also address
another need of clients. It could open up an avenue to (better) integrate remittance receivers as
microfinance clients and build their financial capital and/or profile. More generally, attracting
remittances to formal financial services constitutes a business opportunity to the service provider
of the money transfer product as well as for cross selling other financial services they offer.

The findings indicate that there is a high potential for capturing a market share of an
underserviced market of remittance money transfers. MFIs in Africa, unless operating as
regulated financial institutions, however, are not necessarily the best placed to take advantage of
this opportunity. This is due in part to their legal limitations as financial service providers, their
limited institutional and system capacities, limited capital reserves, and limited networks of
service outlets and links to international networks. Nonetheless, there are product opportunities
for MFIs which can contribute a competitive and profitable service as part of a commercial or
commercialising MFI, such as focussing on domestic rather than international money transfers.

The paper looks at remittance flow and use analysis as a backdrop to understanding the business
potential for money transfer services for remittances. This is followed by a discussion of the
business opportunity for MFIs. A preliminary review framework of considerations for the uptake
of money transfers as a product by MFIs is included.

This paper benefits from work completed by the author on a number of studies on remittances and money transfer, some
conducted with fellow experts, researchers, or colleagues. These have been conducted with the support of different
organisations, namely the World Bank (Sander, 2003a), the UK Department for International Development (DFID)
(Sander, 2003b), the International Labour Office (ILO) (Barro et al., 2003) , and MicroSave-Africa (Sander et al., 2001 and
Sander et al., 2003). This paper draws in part on these and also builds on them. The author thanks all fellow authors and
researchers for excellent collaboration and learning in these studies and the sponsors for their interest and support, both
financial and professional. All errors and omissions, however, are the responsibility of the author alone.

1 The paper looks at continental Africa and island nations as a whole for remittance flows though with focus on Sub-
Saharan Africa, especially on the financial services and microfinance questions. This is in line with the common definition
of grouping Northern Africa with the Middle East rather than Africa.
2 A global scoping study on migrants’ remittances indicates that Africa has to date received the least attention in studies
or discussions on the subject. This may in part be explained by, in global terms, the relatively fewer emigrants and more
dispersed migration patterns of African emigrants as well as the relatively lower portion of global remittance flows going to
the African continent. (Sander, 2003a and 2003b)

2
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

The Market – Remittance Flows, Channels & Uses

Understanding volumes and significance of remittance flows, the motivations behind sending
remittances, how they are sent, and the intended and actual uses are important in assessing the
potential of a market niche and with which product and strategy MFIs could attract these money
transfers to their business. Similarly, it is important to understand whether current use patterns of
remittances might be altered and funds attracted through the provision of options in financial
services, such as cross-selling services, especially savings products or other investment or risk
management products, such as microinsurance.


Remittance Volumes & Flows Globally

The World Bank’s Global Development Finance Report 2003 (GDF) highlights migrant workers’
remittances as an increasingly important and most stable source of external finance for many
developing countries. Globally, migrants sent US$ 80 billion in remittances to developing
countries in 2002. Compared to 33.1 billion in 1991, remittances have more than doubled over
the past decade. The increase of about ten percent from $72 billion in 2001 illustrates how this
growth has accelerated. 3

Remittances constitute the second largest flow of external finance behind FDI (41% of FDI flows,
2001) and ahead of official flows (260% of ODA, 2001). Remittances are also more stable than
other sources.4 Remittances have also outpaced migration, which is currently estimated to grow
at 2 to 3 percent annually.


Remittance Volumes & Flows for Africa

Remittances are an important capital flow to the African continent and one that is largely
underreported. (see Annex 1 Data Note) It is important despite the fact that growth in remittance
flows, especially to Sub-Saharan countries, has not been very pronounced, that flows are almost
erratic for some countries, and that aid dependency is relatively high.5

The global trends in remittances to developing countries are not mirrored in the flow to African
countries. Whereas remittances to developing countries have more than doubled over the last
decade, remittances to Africa have grown little and have declined in relative share – for Sub-
Saharan Africa from some 8% in 1980 to 5% in 2002.6 (see also Figures 1 & 2) Total remittance
receipts in Africa over the past decade peaked in 1992 (US$ 10.7 billion) and were at their lowest
in 2000 (US$ 7.8 billion). (See Figure 2)

In 2002, Sub-Saharan Africa received US$ 4 billion or 5% of total workers’ remittances received
by developing countries; for the Middle East & North Africa combined it was US$ 14 billion or
18%, for North Africa alone about 10%.7 In terms of flows to the continent, Northern Africa has
received the lion share of almost three quarters of all remittances to the African continent. In
Sub-Saharan Africa, East Africa currently receives about one fifth of the share and has overtaken
West Africa, though previously the latter was the second most important remittance receiving
region. Central Africa does not even register a full percentage point relative to the rest of the
continent. (see Figures 3 & 4)


3 GDF, 2003 and Sander, 2003a and 2003b; please see also Annex 1 with a note on data availability and quality
4 ibid.; see also Buch et al., 2002; Gammeltoft, 2002

5 see ibid. footnotes 2 and 3
6 GDF, 2003; Gammeltoft, 2002
7 based on GDF, 2003 and GDF data set

3
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

Remittances received in 2002 represent 1.3% of GDP for Sub-Saharan. This compares to 1.3%
of GDP for all developing countries and 2.5% for South Asia, the latter recording the largest effect
on GDP. Globally, only four African countries are among the top 20 receiving developing
countries as a percentage of GDP (2001) (see Table 1).8 On a per capita basis, the only African
country in the top 10 was Cape Verde on 9th rank (2000).9

For selected countries, remittances contribute substantially to the balance of payments. For
instance, during the 1980s international remittances covered 80% of the current account deficit in
Botswana; compared to almost three quarters (70%) of total commodity expert earnings in
Sudan; and constituted more than half of the forex earnings in Lesotho.10 As share of exports
and of GDP, remittances scored high for Eritrea with 194% and 19% respectively for 1999 and
was substantial for countries such as Cape Verde (51% and 12%), the Comoros (24% and 6%),
and even Egypt (26% and 4%) and Morocco (18% and 5%).11

African lower middle-income countries received the lion share over the past decade with close to
three quarters, compared to low income countries with close to one quarter. While this has
fluctuated somewhat, overall it has shifted in favour of low income countries.

This picture is, however,
somewhat skewed due to the Remittances to Developing Countries
low quality data and also lack of
in US$ million
1970 to 2001
data on remittances, especially
for Sub-Saharan Africa where
data is lacking for about two
80,000
thirds of the countries. (see
Annex 1) Moreover, informal
70,000
flows of remittances are likely
substantial.
60,000

While no estimates of informal
50,000
remittances are available for
Africa, in selected countries
40,000
such as Sudan, informal 30,000
remittances were estimated to
account for 85% of total
19
1
70
20,000
973
remittances.12 Overall relatively
197
19
6
weak financial systems and the
19
79
10,000
1985
82
high proportion of intra-regional
1988
19
migration in Africa suggest that
19
91
-
1
94
informal remittances are likely to
997
Al Al
200
l Devel
l AfAll Sub-
be a substantial share of total
0
rica
opin
Sa
remittances. Globally, informal
g
h
C
aran
remittance flows are estimated
ount
Af
r
ri
to more than double the officially
ies
ca
recorded US$ 80 billion (2002)
to developing countries to as
much as US$ 200 billion.
Figure 1
(Source: Sander, 2003a)

8 GDF, 2003. In Lesotho in the 1990s, Basotho mine workers' remittances from South Africa accounted for as much as
67% of GDP. (IOM, 2000)
9 IOM, 2000
10 de Haan, 2000
11 see Rapoport et al., 2001
12 A study incorporating unrecorded remittances into the national accounts in Sudan showed an increase of the
proportion of net current transfers from 6 per cent to 45 per cent of the adjusted Sudanese GNP in 1983-84. It also
adjusted Net Factor Incomes upwards to 17 per cent of adjusted GNP from 7 per cent of recorded GNP. (Brown, 1982,
cited in Puri et al., 1999)

4
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

Total Remittances to Africa
1990 to 2001
Remittances Africa Regional Distribution
2001
12,000
s
West Africa Central Africa
East Africa
n 10,000
Southern Africa
5%
0%
13%
8,000
7%
illio
6,000
m
$
4,000
S
2,000
U
-
91
2
95
96
97
00
01
1990 19
199 1993 1994 19
19
19
1998 1999 20
20
Year
Northern Africa
75%

Figure
2
Figure
3

Remittances by Region
Percentage Share of Total to Africa, 1990 to 2001
Remittance Receipts to Sub-Saharan Africa
90%
'Top 15 Recipient Countries'
80%
Annualised Cumulative Average 1990 to 2001
70%
Botsw ana
Mozambique
60%
Cape Verde
50%
Uganda
Benin
40%
South Africa
Burkina Faso
1990
30%
Mali
1991
1992
Eritrea
1993
20%
1994
Cote d'Ivoire
1995
Mauritius
1996
10%
1997
Senegal
1998
0%
Sudan
1999
Lesotho
2000
No
W
rth
e
e
2001
s
r
E
t
n
a
A
A
Nigeria
s
f
S
t
r
f

i
r
o
A
c
ic
ut
f
a
a
ri
Ce
h
c
n
e
a
t
r
r
n
a

l
Af

-
2,000
4,000
6,000
8,000
Af
ri
r
c
ic
a
a
US$ millions


Figure
4
Figure
5


Remittance Receiving Countries

Egypt is the single largest receiver, with Nigeria the largest in Sub-Saharan Africa, followed by
Lesotho, Sudan, Senegal, and Mauritius. Morocco and Egypt are the only countries from the
African continent which feature among the global top five remittance receiving developing
countries. (See Figure 5)


Remittance Source Countries

The top five remittance sending countries in Africa were South Africa, Ivory Coast, Angola, Egypt
and Botswana (see Figure 6, recorded as debits). Overseas, in terms of global flows, they were
the United States, Saudi Arabia, Germany, Belgium, Switzerland, and France – in descending
order for 2001 (see also Figure 7, recorded as debits). The US tops the list with $28.4 billion,
though some sources argue that this is grossly overreported as the US is the main hub of
correspondent bank transactions. In terms of remittances to Africa, while not specified in official
remittance data, based on migration flows, the list would certainly include North America, and

5
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

parts of Europe and the Middle East – countries such as the United States, Canada, France,
Germany, Italy, Spain, the United Kingdom and Saudi Arabia.


African Remittance Sending Countries
Top 10
annualised average 1990-2001
0
So
Co
An
Eg
Bo
G
C
M
a
Ug
Se
a
o
-100
ut
t
g
y
t
b
a
n
m
z
h
e
o
p
s
o
n
e
a


w
e
A
d
la
t,
a
n
d
ga
r
m
f
'
A
a
o
b
r
Iv
n
l
o
i
o
i
i
ra
a
n
q
-200
ca
re
b
u
R
e
n
s
ep.
llio -300
$
mi
S
U -400
-500
-600
Figure 6


Remittance Sending Countries Globally
Top 15
annualised average 1990-2001
0
Un S G B S F It J Is L O N K U S
i
a
e
e
w
r
a
a
r
u
m
e
u
n
p
t
a
e u
rm lg it
n
ly pa ae x
a
th w it
a
d di
e
i

a
iu ze ce
n
l
m
n
er ai e
t
d
n
-5000
S A
n
m
r
b
l

t
l
a
K
a r
y
a
o
n
i
t
a
n
u
n
e
b
d
d
g
s
ia
rg
s
dom
o
n
s
-10000
$
milli
S
U
-15000
-20000
Figure 7



Remittance Recipients & Uses

In the African context, especially intra-regional and domestic urban to rural remittances constitute
an important source of income to many households. This varies by country and region within the
country. Overseas remittances reach fewer households than those receiving domestic or intra-
regional remittances, but as they tend to be substantially higher in value than the latter, overseas
remittances typically add a larger portion to household income than other types of remittances.

As elsewhere in the developing world, the vast majority of remittances goes to parents or
spouses. The bulk of the funds, about four fifths, is used for consumption and investment in
human capital, such as school fees or medical expenses. Investment in land, livestock, and in
building or improving a home is also relatively common but secondary to daily needs and human
capital expenses. A much smaller portion of remittances is used for investments, such as in

6
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

savings13 or in business, or to repay debt, such as a loan for the expenses in going abroad.
Insecurity tends to be the main motivator for investment, and the type of insecurity affects the
type of investment.14

Typically remittances constitute a transfer from relatively richer to relatively poorer and often
female-headed households. The high proportion going to consumption is congruent with the
aspect that, to a great extent, migration and remittances are part of a livelihood and poverty
reduction strategy of the individual migrant and their families.15 The positive effect on livelihoods
and standard of living is fairly well documented through case studies. Studies show that
remittances are a net positive transfer and family welfare system which smoothes consumption,
alleviates liquidity constraints, and is a form of mutual insurance.16


Average Remittance Value & Transfer Cost

The amount migrants send per transaction typically
ranges between $100 and $1,000 for international
The use of remittances shows fairly
remittances; for intra-regional and domestic consistent patterns across a number of
remittances they are generally significantly lower.17
studies. The majority is used for:
GDF (2003) quotes $200 as a global average

transaction value. This tends to be based on quite
Daily needs and expenses (70-90%)
extensive research on remittances between the US
-- typically labelled as consumption
or as improving the standard of
and Latin America, whereas remittances to African
living
countries are less well researched.
Medical / health care expenses or

education – grouped together with
Though comprehensive data is lacking, the following
the above when seen as improving
are illustrative examples from selected studies:
the standard of living
Senegalese migrants in France sent around FF
Consumer durables (stereos,
8,000 annually (ca. 2002)18
televisions, washing machines, etc.)
Ghanaians sent home between US$ 1,000 and
Improving or building housing, or
14,000 annually (1999 & 2000); males sent
buying land or livestock
Investment in socio-cultural life
more than female migrants; family influenced
(birth, marriage, pilgrimage, death)
migrants sent more than those who were not
Loan repayments (often loans to
influenced
pay for cost of migration)
Migrants from Ivory Coast sent home between
Savings
US$ 6,000 to 9,300 annually (2000)19
Income or employment generating
migrants in South Africa sent home an average of
activities
R 2,300 (2000)20
Source: Sander, 2003a
Egyptians in the US sent home an average of
about US$ 30021

13 As land, livestock and buildings are typical ways to invest and save in many of the migrants’ home countries, the
distinction is one of saving within the financial system.
14 E.g. land rather than a financial investment if the currency is volatile or there is high inflation. Insecurity as the
motivator for investment is a point made by AFFORD (2001). Similarly, a study in Egypt in the early 1990s found that
remittances were invested primarily in land where the economic rates of return were higher than in other areas. (cited in
El-Sakka, 1997)
15 e.g. de Haan, 2000; or in Ghana: 70% for recurrent expenditure (school fees, health care, etc.), less than 30%
invested in assets (land, cattle, construction) (Eurostat, 2000); in Mali: 80-90% on consumption; moderate to no
investment in local business (Martin et al., 2002)
16 see also syntheses and discussions such as Buch et al., 2002; Rapoport et al., 2002, and Sander, 2003a and 2003b
17 This follows in part logically as income levels for migrants in industrialised countries tend to be higher than for domestic
or intra-regional migrants. See also, for instance, Cox, 2002 on Viet Nam and Sander et al., 2001 on Tanzania and
Uganda regarding lower values for domestic remittance transfers.
18 conversation with C. Diop, Senegal, July 2003; see also Eurostat, 2000
19 Tiemoko, 2003 – for bullet points on Ghana and Ivory Coast
20 Immigration Laws, 2000

7
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

Remittance Transfer Services & Transactions

Money transfer services to and within Africa include financial as well as non-financial service
providers.22 Formal channels include money transfer services by banks and post banks as well
as by non-bank financial institutions, such as forex bureaus or dedicated money transfer
operators. Best known among the latter are Western Union and MoneyGram. In domestic or
intra-regional markets, bus, coach, or courier companies can be found to offer money transfer or
transport services.23

Informal remittance systems in Africa tend to be similar to the elsewhere well documented
Hawala or Hundi style services with networks of agents or single destination services.24 Similarly,
still also very common are transfers or transport based on personal relationships through
business people, taxi, bus or truck drivers, friends, relatives, or carried by oneself.25 In several
studies around microfinance, savings, and money transfer in Africa there is, however, a
noticeable decline in trust in informal systems and heightened sense of insecurity due to theft and
robberies.26
Factors such as trust, familiarity, service in the migrant’s mother tongue, and having the service
within easy reach – in the neighbourhood or accessible as part of a regular shopping route – can
often be as important as the cost. The choice of service or channel is also influenced by factors
such as accessibility both at the sending as well as the receiving end. Many of the MTOs and
also the informal services are successful because they work with a market segment of migrants
who are located in ‘micro-markets’ – often certain cities and neighbourhoods within them.27 Thus,
for instance, Kenya Post Office Savings Bank, the main Western Union agent in Kenya,
organises regular marketing events with Kenyan diaspora in locations such as Minneapolis,
Minnesota, and Columbus, Ohio. They mentioned that the loss of a point of sale in a key area
has noticeably reduced the number of transactions.28 South Africa is a good example of a high
volume market where a dedicated financial institution, Teba Bank, is closely linked with the mine
workers and provides money transfer services to many migrant miners, both in South Africa and
across the borders.
While capitals and other urban centres have fairly good financial service availability, rural regions
tend to be much less well serviced by the financial industry. The choice of service can further be
limited by unfamiliarity with the service, or, for instance in the case of banks, due to perceived or
actual rejection of the potential client by the service provider. Banks can be intimidating to people
not used to dealing with them and banks typically prefer to target high net worth individuals and

21 Orozco, 2002
22 this section draws on Sander, 2003a and 2003b which can be referenced for examples from other developing regions;
examples here refer to Africa only; other key sources include Orozco, 2003; GDF, 2003; Genesis, 2003; Cross, 2003;
and Sander et al., 2001
23 the distinction between transfer and transport services is that the former books the transaction through some form of
accounts and system of reconciliation, whereas the latter involves physical transport of the valuta ; see also Sander et al.,
2001, where this distinction is made, and transport services, such as coaches and courier companies, are described
based on market research in Tanzania and Uganda.
24 see, for instance. El-Qorchi et al., 2002 for an excellent description and analysis of Hawala
25 see, for instance, Genesis, 2003; Sander et al., 2001
26 e.g. Sander et al., 2001; other information is based on research in East Africa as well as conversations with African
diaspora in UK; on Somali remittances and system, see especially also Omer, 2002. See Cross, 2003, on the effect of
theft and robbery in South Africa on rural post offices which as a result no longer offer the service. Similarly in Senegal, for
instance, there is indication of a preference for using formal services. (see Barro et al., 2003)
27 For instance, concentrations of Kenyan migrants can be found in Minneapolis in the US or in Tottenham, North of
London, in the UK. To capture their business, MTOs have to be present in their neighbourhoods. Western Union and its
Kenyan agent Kenya Post Office Savings Bank, for instance, seek out these communities for marketing trips and events.
28 conversation with KPOSB staff

8
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---

corporate clients; this is reflected in policies which create access barriers such as account fees
and/or minimum balances on accounts.29
The interface of formal international remittance services with service points in the sending and
receiving country is an important aspect. Many formal remittance channels weaken or break
down beyond an initial ‘arrival point’ in the migrant’s home country. For instance, only banks
which are part of international transfer systems such as SWIFT or who have correspondent banks
can have international transfers sent to them. In some countries this excludes post banks (for
instance in Kenya, which can receive transfers but only as an agent of Western Union). Similarly,
ATM systems, given the high set-up cost, are currently still viable only in high volume markets
with the requisite infrastructure. Where they have sprung up and are expanding, they are often
not yet integrated but either proprietary to a specific bank and for use only with their cards, or
limited to one or another network, such as either VISA or Mastercard (e.g. Uganda).30
Such constraints are costly to the sender and the receiver. A study in South Africa, for instance,
estimated that as much as 40% of the total value of a remittance of R200 to a rural recipient could
go towards banking charges and transport costs.31
Market failures, such as weak or mistrusted banking industries and inefficiencies in their transfer
systems, have prepared the ground for MTOs. Similarly, post offices, a prime service provider as
far as access or outreach is concerned, are often not used in receiving countries because clients
have experienced their services as inefficient and unfriendly. Experiences of insufficient cash on
hand or other delays in receiving the funds are commonly cited, for instance in East Africa. At the
same time, where post offices do operate effectively, such as in many parts of South Africa, post
office money orders are a preferred option for domestic remitters. Again because of cost and
risks involved, however, not all post offices in the country can handle money orders.32


Transfer Costs

Globally, studies indicate an average cost of about 13% of the remittance value. Though not
much documented research exists on costs for remittance transfers to African countries, some
general parameters are valid. Costs vary by amount remitted, service used, the destination, and
also from where it is sent; typically they range from a low of 0.2% to about 20% for average
remittance transactions.33 Costs tend to be highest for small transactions as most of the transfer
services charge a minimum fee. While some studies find that certain migrant groups show high
sensitivity towards cost, others find that familiarity or convenience can often lead to the use of a
more expensive service.34 (Please refer also to illustrative examples of percentage fee costs in
Annex 2.)

29 For instance, in looking at reasons why some individuals rely on informal means of transfers rather than the bank, even
though the bank transfers are usually less costly in South Africe, one study found the following explanations:

People who fall outside the formal economy often mistrust formal institutions such as banks;

Bank branches can be intimidating;

Senders/receivers could be concerned about privacy;

There could be a general lack of product knowledge because of lack of marketing by the formal institutions
and/or because of illiteracy of financial illiteracy among potential clients;

Consumer inertia, clients stop looking for alternative means of transfers. Informal systems are ‘easier to
understand’ because ‘that’s the way people always did it’. (Genesis (2003)
30 Similarly, for instance, the limited availability of bank branches and ATMs in rural towns is a big problem in South
Africa. In the Eastern Cape many rural branches had to close in the mid-1990s due to the general economic decline, the
rise in violent bank robberies, and the spread of internet banking among higher income groups, of which the latter
undercut the need for an expensive risky local bank structure accessible to the poor. However where available, ATMs are
becoming increasingly popular as a way of getting around restricted banking hours (Cross, 2003) (see also Genesis,
2003)
31 Cross, 2003
32 Cross, 2003; Nagarajan, 2003; Sander et al., 2001
33 GDF, 2003; Orozco, 2003; Sander et al., 2001
34 Puri et al., 1999

9
Migrant Remittances & Microfinance in Africa
Cerstin Sander, Bannock Consulting, July 2003

---