When the pandemic started, the World Bank predicted a historical drop of 20% in remittances to the low and middle-income countries. Well, a global economic slump indeed followed the outbreak of Covid-19. But experts observed an increase in remittances; the primary reason behind the rise is that the diaspora wanted to provide financial assistance to their family during those uncertain times.
In this article, we will analyse how the pandemic shaped the African digital remittance market.
Informal channels prevailed in Africa during the pre-pandemic times. For example, most Africans used the informal remittance network to send money back home. This informal network included traders, bus drivers, people travelling to their home countries and other informal mechanisms.
There is no way to determine the volume of funds sent through these informal channels because these transfers are not on the books. But during the pandemic-induced global lockdown, these informal channels had to shut down their operation.
With the informal channels out of the picture, the migrants needed another remittance channel. With more and more migrants switching to formal channels, the formal remittance sector in Africa started booming.
Thriving Remittance Firms
According to the World Bank, remittances to the sub-Saharan countries officially totalled $48 billion, but the figure only tells part of the story. Africa-focused remittance companies saw a significant rise in transactions amid the pandemic despite predictions made by the World Bank.
Many service providers witnessed significant growth in transactions. Mainly digital service providers and companies that provide mobile wallets saw a significant increase in transactions. In addition, according to the World Bank, many African countries saw a rise in remittances. Some of these countries are Zambia, Mozambique, Kenya, and Ghana, where remittances grew by 37%, 16%, 9%, and 5%.
This period also saw a change in customer behaviour among those who preferred formal channels of remittance. Many customers shifted to the digital channels with all the restrictions in travelling and the social distancing rules. While this shift was out of necessity, many customers realised all the advantages of digital channels of remittances. Advantages like lower wire transfer fees, favourable exchange rates and faster transfer time.
As mentioned above, more people shifted to digital channels to send or transfer money because of restricted mobility during the pandemic. Digital channels can benefit the migrants on a human level by offering lower fees and a faster transfer.
Keeping the UN’s sustainable development goal in mind is to decrease the average remittance cost to below 3%. The promotion of digital technology is a step in that direction.
Also, reducing remittance costs is a critical issue for Africa. African remittance fees are the highest in the world. Today the global average for remittance fees is 6%; in contrast, the average cost in Africa is almost 9%. With digital service providers offering competitive prices, the people of Africa can enjoy affordable remittances.
Covid-19 had a substantial impact on remittances in Africa. Although the World Bank predicted a significant slump in remittances, the market weathered the pandemic and managed to grow in those tough times. Digital Remittance service providers witnessed positive growth in terms of transactions and users. Down the line, this positive growth may also lead to changes in how the people in Africa finance.
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