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Remittance Markets in Africa
To the extent that the informal sector fills gaps in access to formal remittance services, it also complicates data capture and policy transmission.10 Most formal RSPs do not consider the informal sector to be a formidable competitor, but informal players are serving a large market share of cost-conscious remittance patrons who cannot meet formal RSPs’ identification requirements for various reasons. It is difficult to simplify the identification process to deal with informal flows without compromising the AML and KYC rules, so a one-off identification of the sort needed for account opening (entitling the recipient of remittances to an account and subsequent rights of an account holder) can help to resolve the dilemma. The system needn’t treat every remittance transaction as a one-off event, but it should encourage and reward the regular use of formal banking services in remittance transactions. Licensing MFIs can help to increase rural outlets for remittance services given that some of the most regular remittance recipients are rural residents. In addition, the central bank can provide incentives (for example, tax waivers) to encourage RSPs and banks to establish remittance disbursement points (not necessarily bank branches) near remote villages.
Enhance the Use of Remittance Proceeds Related to the access issues are challenges involving Nigeria’s cash-based payment system in which remittance services are primarily cash-to-cash transfers. Strengthening the card and credit system and promoting their use in remittance transfers will go a long way toward increasing remittance volume, reducing remittance costs, and using remittance proceeds with greater effect on national growth and development. Without question, remittances are a potential source of development capital for the continent. For example, the Nigerian stock market has been a major destination of remittances in recent years (Agu 2010). Therefore, the Nigerian government, the central bank, and RSPs must explore these ways of ensuring that remittances benefit the entire country: • Provide incentives and otherwise urge banks to package remittance-specific instruments exclusively for remittance patrons, not just for regular bank customers. For example, in response to Obasanjo’s Nigerians in Diaspora Organization (NIDO),11 the United Bank for Africa designed a “nonresident Nigerian” banking service, offering products such as local account maintenance, loan facilities for real estate development, asset management products, and private equity facilities (Kimani-Lucas 2007).