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Postal Initiative: Helping Rural Africans Receive Remittances

Rural AfricansAlthough remittances are a lifeline for many people in Africa, collecting money from abroad has long been a challenge for rural Africans. Postal systems in remote areas are unable to process money transfers because of operational constraints.

Many post offices in sub-Saharan Africa lack computers, Internet access and other modern technologies necessary to provide financial services. The World Bank has reported that postal employees also often have little to no experience in handling transfers.

In an effort to improve access to remittance payments, the International Federation of Agricultural Development (IFAD) is implementing the African Postal Financial Services Initiative. According to IFAD, the initiative which is being implemented in 10 African countries will provide post offices with the technology, business model and expertise necessary to process remittance payments and offer other services in an efficient and safe manner.

Africa is among the world’s leaders in receiving money from remittances—of the $431.6 billion transferred to and within developing countries from abroad in 2015, Africa received $65 billion. Remittances also make up at least five percent of GDP in 14 African states, including Liberia and Mali.

However, high transaction fees have reduced the value of remittances for many Africans. According to the World Bank, sub-Saharan Africa is the most expensive region in the world to send remittances with an average cost of 9.5 percent in 2015. In Western Africa, the cost of collecting remittances can exceed 10 percent.

The high fees are set by money-transfer operators and are in part a result of a lack of competition in the remittance market. Two of the largest money transmitters, Western Union and MoneyGram, have relied on exclusivity agreements that prevent competitors from partnering with banks and other remittance payout agents.

The overall cost of collecting remittances is higher for rural Africans who must sacrifice time at work and risk their safety to travel long distances to and from financial service providers.

The IFAD and World Bank believe that remittance services would become more efficient and less costly once more postal offices in remote sub-Saharan areas are able to process money transfers.

Unlike commercial banks, which are mainly concentrated in sub-Saharan Africa’s largest cities, 80 percent of post offices operate in sparsely-populated areas where they are more accessible for rural Africans. Post offices also enjoy high levels of trust by people who would rather avoid banks, the World Bank has reported.

Postal systems that process remittances transfers and offer financial services are common and have been beneficial in other developing countries around the world. In India, the India Post has nearly 139,000 post offices in rural areas that offer savings accounts and act as an agent for partner institutions. Brazil’s postal operator, Correios, also has a financial operations branch that process remittances and provides basic banking services.

Sam Turken

Photo: DAWN