The Inter-Governmental Authority for Development (Igad) has called upon its member countries to align diaspora transaction fees in an effort to increase remittance inflows. During a meeting with central bank governors from Igad member states in Nairobi, Igad executive secretary Workneh Gebeyehu highlighted that despite the region receiving substantial remittances from abroad, transaction rates remain significantly higher than the global average.
Comprising Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan, and Uganda, the Igad states currently face an average cost of 8.9 percent for receiving remittances, compared to the global average of 6.5 percent. This rate is nearly three times the target rate set by the Sustainable Development Goals, which aims for transaction fees below three percent.
Moreover, the cost of transferring remittances within the Igad region stands at 10.6 percent, higher than the rate for sending money to the region. This makes intra-regional transfers more expensive, presenting a challenge for individuals seeking to send money among member states. Many remittances to the Igad region are still conducted through informal channels, such as carrying cash across borders or using unlicensed money transfer operators, which are not only costly but also unregulated and pose risks of fraud and exploitation.
The World Bank reports that despite the global economic disruption caused by the Covid-19 pandemic, remittances to low and middle-income countries reached a record high of $540 billion. Recent studies indicate that globally, approximately four percent of the world’s population, or 281 million people, live outside their country of origin. In 2021 alone, they sent a staggering $781 billion in remittances.
Dr. Patrick Njoroge, the host governor, also emphasized the need to revise transaction thresholds to include smaller ticket sizes. He noted that remittances do not necessarily need to be large sums, and even smaller amounts such as $20 or $10 can make a significant impact. Dr. Njoroge highlighted the importance of catering to the needs of individuals within the bottom of the pyramid and those with lower income levels.
By harmonizing diaspora transaction fees and promoting formal channels for remittances, Igad aims to enhance financial inclusion, reduce costs, and create a safer environment for senders and recipients. These efforts align with global trends in increasing remittance flows and recognizing the importance of diaspora contributions to economic development.
