Uganda’s Remittance Corridors
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Box 4.1. The Wireless Situation in the Philippines In November 2004, two out of three wireless providers in the Philippines—Philippine Long Distance Telephone and Globe Telecom—had value transfer programs. Philippines Long Distance Telephone, the largest telecommunications company, was the parent company of Smart Telecoms that started Smart Padala, a bank-based remittance system in conjunction with local bank, Banco de Oro. The highly ranked Banco de Oro is a full-service bank. It offers a range of banking services, one of which is over-the-counter pickup. This allows a beneficiary to pick up funds in United States dollars or Philippine pesos from any branch of Banco de Oro or ShoeMart Services Counter. No bank account is needed, and funds are ready for pickup within twenty-four hours. Banco de Oro branches have extended banking hours (open until seven o’clock) with most branches open seven days a week (www.nybayremit.com/faq.htm). Globe Telecom is the second-largest wireless provider and the only one in 2004 with peer-topeer value transfer. Globe Telecom is a good, solid firm and was awarded a prize for its G-cash technology. In November 2004, Globe’s G-Cash had twenty thousand subscribers. By March 2005, it grew to three hundred and twenty thousand subscribers. By January 2006, the total registered users had grown to 1.2 million. Source: Forbes (2006).
in Uganda. A first step would be for banks to recognize remi ances as a stable source of income. The financial markets could develop new instruments specifically geared toward a racting remi ances. Most commercial banks do not appear to have incentive to develop a tailored product for remi ances. Lack of affordable and a ractive basic financial products is an obstacle to triggering economic impact from remi ances. As discussed, commercial banks have shown preference for low-risk liquid assets, such as T-Bills, rather than providing loans to the private sector. This preference seems to have resulted in lack of incentives for developing new retail products, especially remi ance products tailored to low-income people who depend on remi ances. This practice further inhibits the use of remi ances for investment purposes. Also, coupled with restricted geographic coverage by banks, the high cost of basic financial services discourages the use of formal financial services. Thus, basic financial services remain costly, and few financial products linked to remi ances have been developed. As a result, remi ances are distributed in cash rather than through accounts. Banks need to be innovative and develop remi ance-related products and take steps to bring down the overall cost of remi ances services, as practiced in the Philippines (Box 4.1). Uganda should take steps to provide the investment climate necessary to encourage investments so that remi ance funds could be channeled toward investment activities. These measures would increase the demand for remi ance services and encourage use of formal channels for remi ances. Whether remi ance flows provide sufficient basis for banks to develop commercially viable remi ance-related products should be viewed in tandem with the earning capacities of Ugandan people. Remi ance flows account for nearly 7 percent of the GDP and was around US$665 million in 2006. Average nominal wages in Uganda range from US$14 to US$153, for the low- to higher-waged jobs. Available data shows that average monthly remi ances from migrants in the United States range between US$500 and US$1,000. Lack of distribution channels in rural area contribute to risks of carrying cash, fraud by cash couriers, and increase in cost for receiving funds. Remi ance beneficiaries in rural areas o en do not know when and how much they receive in remi ances and, at times, could easily be cheated. Family members and cash couriers transfer remi ances from Kampala to rural locations. In some cases, family members and cash couriers skim off a portion of the remi ance. In addition to the secret deduction, they request a gratuity from