The exaggerated cost of remittances, or sending money, has become a burden for sub-Saharan Africa and its people. In a report published in July 2014, the World Bank reported that the average total cost of transferring money to and within Africa was 11.01% of the amount sent in Q2 2014. 
The fees charged for remittances vary widely, depending on the country and provider. For example, the average commission for money transfers from Canada to Kenya is 12.23%. In contrast, a transfer from the United States to Nigeria costs just 3.2%. These highly pronounced inequalities in the financial services market stem from the fact that the financial services sector is underdeveloped in Africa. 

African Migrants Pay a Remittance “Super Tax”

There is little competition between different money transfer services in Africa, leaving the field to big companies like Western Union and Moneygram, which enjoy a duopoly and demand very high fees for their services. African expatriates lose an estimated $1.8 billion per year in transfer fees. To escape these predatory fees, many Africans rely on informal money transfer channels, such as sending money by bus or through friends and family members. Another factor that inhibits the use of money transfer services in Africa is the weakness of services offered by banks in countries where the money is sent. 
In Africa, the remittance market remains relatively underdeveloped. According to a report by the World Bank, a large share of Africa’s cross-border remittances flows through informal channels. This indicates that the financial networks in some African countries have atrophied and that there are business opportunities for a market to be developed. 

Transforming the Way Africans Transfer Funds with Mobile Money

In a region where there are 253 million cell phone subscribers and that number grows by about 18% per year, a new era of banking services is looming before us. Kenya leads the way in this transformation. Kenya’s successful M-PESA mobile phone-based money transfer service entered the market in 2007. With over 17 million customers, this service has deeply changed the habits of Kenyans. An estimated 25% of Kenya’s gross national product flows through the channel. 
Mobile money is an innovative money transfer method for African countries, which not only have minimal access to financial services but also lack the necessary security. In a region where it is dangerous to move money physically and traditional banking services are very expensive, mobile money puts the future of banking in the pockets of Africans. Companies like Safaricom are innovating in this direction, leading the way towards safer and cheaper money transfers in Africa. Mobile money also enhances the ability of African migrants to respond to emergencies at home. Hopefully, other African nations will follow Kenya’s example, further transforming the way money is sent in Africa and opening up Africa investment opportunities.  
Have you tried using mobile money in Africa or elsewhere? What was your experience? 

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