REMITTANCES FOR FINANCIAL INCLUSION AND DEVELOPMENT

. The Business Case for Banks: Linking Remittances to other Financial Services. Success Factors and Challenges for Banks in offering Remittance Services

By Stella Okojie, Head, Retail Payments and Remittances

7th July, 2011

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For Africa, Remittances have become one of the most significant sources of foreign exchange e.g in 2010 WB reported that Remittances to Nigeria hint $10b constituting 4% of the country’s GDP i.e. 50% of earnings from OIL!

It is a well established fact that Remittances contribute to the economic growth and well being of the people of Africa.

Remittance business in Africa remains the exclusive right of banks in most countries as dictated by most

regulations. Experience has shown that remittance receivers often have a higher propensity to own a bank account or use

any of the bank’s financial services thereby promoting access to financial services for the receiver as well as the sender.

There will continue to exist outward movement of Africans whether without or within Africa with subsequent sustainable growth in African Remittances.

Therefore, it is in order to posit that if the attributes of African Remittances are adequately harnessed and leveraged,

can lead to increased financial , development, as well as social inclusions

Linking Remittances to other Financial Services.S

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Remittances channelled through bank accounts can serve as one of the major drivers for Remittances inclusion.. A typical example is the case of UBA AfriCash with person2account business module.

Access to the bank’s supplementary products and services; Remittances are also supposed to improve financial inclusion by providing the medium to access affordable financial services within the formal financial system to those who tend to be underserved ie the low income band.

The Desire to capture Remittance Money Flows; Commercial banks, recognizing the vast size of remittance flows are increasingly interested in targeting this new market segment  despite the fact that the size of each remittance is mall.

Cross selling opportunities; the Remittance channel naturally creates a platform to sell financial service-packages geared towards low-income individuals.  UBA plays strongly in this segment both on domestic level and intra regional level

The Sender’s financial service needs; Remittance senders, need at least one financial service to carry through his / her Remittance transaction and the Sender’s financial service choice or attribute most times down tails to the Recipient financial services propensity.

The receiver’s financial need; at the other end of the transaction, the need to receive remittances may induce recipients to establish contact with a financial service provider and it is observed that the Sender has great influence over the financial service choice of the recipient.

Linking Remittances to other Financial Services (Cont)

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Creating payout options for Recipients such as Mortgages, Asset Finance, Short time credits etc to the remitted amount is a key driver at linking Remittances to Financial services. UBA plays strongly in this regard.

Developing formal Remittances channels that are competitive with informal ones; Recipient are encouraged to access their Remittances through the official channels knowing that their are incentives for doing so ie opportunities to access other financial services/ products , UBA AfriCash has a success story in this regards.

Adequate government policies geared towards integrating Remittances into the formal economy; Governments can influence access to formal financial services in Africa by stimulating remittance sending through formal channels CBN has played significantly in this regard.eg exclusivity outlaw, relaxing policies to encourage intra regional outward Remittances.

Active and dynamic participations of intermediaries – Post Offices, MFIs (MFBs), Bureau De Changes which have the potential to vastly improve access to both remittances and broader financial services such as low-cost savings and credit products, for African migrants and remittance recipients in African countries.

Availability of innovative technologies have been seen in some African countries to vastly expand the remittances and financial services.

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For me and for UBA, Remittance success factors and indeed financial inclusions could only have been achieved

through the facilitation of flexible, objective and rational government regulations, policies and market provisions

in Africa, geared towards integrating Remittances both at the country and intra-regional levels. Therefore, my 4

Point Success Factors for banks offering Remittance Services in Africa are all anchored on adequate government

regulations and policies as follows;

Flexible regulations that have ensured the banking of recipients goes beyond channeling remittances to be paid through financial institutions. Flexibility in Banking reforms encourages banks to implement banking strategies that ensures recipients have seamless access to financial services on the low retail ends such as low income credits, savings , NRA products incentives etc UBA plays strongly in this segment by developing specific retail products targeted at these customers.

Implementation of rational policies that have seen to the removal of MTO exclusivity arrangements in few African countries; the actions have greatly opened up these countries to huge Remittances volumes main because exclusivity limits competition, creates barriers to entry and kill new opportunities as well as generate unhealthy hardships for the senders while indirectly encouraging growth in the informal channels. Nigeria is a key example of this success factor effect where exclusivity was outlawed in late December, 2008, banks used the whole of 2009 to ratify existing contracts while negotiating new contracts with other MTOs and by 2010, the divided of the removing MTO restrictions was already globally enjoyed.

Flexible policies that have encouraged regional participation of financial institutions in promoting financial inclusion and regional financial integration within the economic zones eg liberalization of Remittance policies within the CFA economic zones with ease of fund transfers and settlement aided by the single currency cooperation. UBA is also playing strongly in this using its AfriCash with the seamlessness at carrying out cross border transactions within the zones.

Objective and adequate policies that have encouraged financial institutions to formulate strategies which have been pursued to support the development of retail payments systems/markets. A typical example is UBA AfriCash Money Transfer which was birth of African government regulatory reforms.

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Success Factors for Banks in Offering Remittance Services.

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Lack of adequate settlement system ; high cost of settlement procedures characterized by exchange rate fluctuations. The rest of Africa economic regions can surmount this problem taking actions to unite in regional organizations to push forth their economic aspirations. A clue has been set by the CFA Franc zone in this regards.

Immature credit and investment systems ; this has greatly limited the bank’s participations in creating financial options to recipients. Issues ranging from lack of proper credit monitoring structures, to identification structure, poor savings culture/information etc. The governments of Africa can develop policies that will encourage strong investments on credit infrastructures; policies that will drive SME schemes to the underserved through aggressive information/awareness dissemination platforms.

Prevalence of fraudulent activities; Consumer fraud in this instance. African governments can join strong forces with the MTO to control these activities.

Huge cost of Remittances brand development and sustenance in Africa especially for banks with extensive platforms. Eg curbing of frauds- PIN Pad usage, human resource needs, technology etc

Huge cost of Entry Marketing Funds imposed by some MTOs which has caused a great burden on Banks desiring to stage entries into the Remittance business through the MTOs.

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Challenges for Banks in Offering Remittance Services

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Can Africa attain the level of Remittance Success recorded in Mexico, India and the rest of the world?

Yes it can!!!

Thank you