RemittancesGateway.org

Kenyans pay steep price to send money home

Monday, 04 April 2011 08:22

Source: Business Daily
By: RAWLINGS OTINI

High money transfer charges by international and local service providers are swallowing a huge chunk of cash sent from Kenyans abroad, data from the World Bank shows.

The latest Remittance Price Comparison Database report indicates that sending money to Kenya is more expensive than sending the same amount to most other countries in the world.

A customer is served at a Western Union outlet. A study by the World Bank shows that companies that facilitate remittances to Kenya are some of the most expensive. Photo/FILE

Banks are the most expensive, charging an average of 13 per cent of the total amount, according to the survey.

Post offices and money-transfer operators charge nine and seven per cent, respectively.

At these rates, Kenyans who sent a total Sh144 billion home last year, were charged about Sh14 billion for the service.

It costs an industry average of $15 to send $200 from Britain to Kenya as compared to only $8.85, $9.8 and $12.6 to send the same amount to Pakistan, Sri Lanka and Nigeria respectively.

This shows that among the 14 key money transfer organisations working in Kenya, Western Union charges the highest rates for example to transfer money from Britain to Kenya, followed by MoneyGram and World Link Finance.

Money Xpress has the lowest rates at three Sterling pounds to send 120 sterling pounds to Kenya from Britain compared to 24 and 13 sterling pounds by Western Union and MoneyGram respectively.

M-Pesa charges an average of seven pounds to send the same amount. The charges include the exchange rate margin.

However, surveys have shown Western Union was still the most preferred method of transferring money from abroad while others use commercial banks.

Customer ignorance, said analysts, had, to a large extent, contributed to the high rates while the lack of sufficient information to compare the charges by different players was also an impediment.

Operators of forex bureaus said they offered the cheapest rates by only deriving returns from the foreign exchange spreads.

Local banks, they said, make huge profits by charging senders transaction fees and at the same time earning margins on the exchange rate.

Remittance inflows into Kenya have more than tripled in the last 10 years from Sh44 billion to Sh144 billion at current exchange rates representing 5.4 per cent of Kenya’s GDP.

This has provided big business for money transfer organisations (MTO).

The same period has seen a significant growth in the number of money transfer organisations positioning themselves in the source and recipient countries.

However, the charges have defied the growing competition to drop fast, although they have been falling from 2007.

The data also shows that the cost of sending money from Tanzania to Kenya and vice versa is the highest in the world.

Sending money from Europe, North America and Australia, the report says, is cheaper.

The data also shows that remittance costs have been dropping since 2007 but are still far from competitive.

Three years ago, sending $200 to Kenya attracted a charge of an average $47 compared to about $15 today from the United Kingdom.

Remittance inflows rose 31 per cent to Sh5 billion in February 2011 from Sh3.8 billion in a similar period last year, reflecting economic recovery in the source markets.

The beginning of the year has so far seen the highest remittances since 2004, according to official data from the Central Bank.

Relative to January 2011, remittances edged lower by 5.3 per cent in February 2011.

More that 53 per cent of the remittances come from North America while Europe is accounting for 27 per cent.

The rest come from other parts of the world including Saudi Arabia and Switzerland.

The World Bank has asked recipient countries to take advantage of remittances and come up with investment products to harness the resource for development.

Real estate

“One innovation worth considering are diaspora bonds, which are sold by governments or private companies to nationals living abroad,” said the Bank in a statement.

The amounts are spent on domestic budgets, invested at the Nairobi Stock Exchange, education, and real estate.

The Bank said these bonds have been successful in tapping into assets of Israeli and Indian citizens living abroad.

The Bank said 55 per cent of the remittances sent to Kenya are invested in real estate followed by education.

Observers have said remittances are a significant source of forex and official documents show they are in tandem with sectors like horticulture ad tourism.