Excessive fees on international money transfer services are preventing billions of remittance dollars from reaching developing nations – so says former Secretary-General of the United Nations, Kofi Annan, who is calling for City of London regulators to apply stricter standards to money transfer services.
The initiative has been launched as part of the Africa Progress Panel Report to determine why economic growth in Africa has failed to translate into proportionate reductions in poverty.
It's common practice for expatriatess from the developing world to work abroad in developed nations where wages are comparatively higher, and remit a portion of their earnings back to their families in their home country.
According to World Bank figures, India alone received a total of $71 billion in remittance payments of this type in 2013. Significant portions of the total $414 billion remitted to the developing world last year also flowed to China and the Philippines.
Only around $5 billion was remitted to Africa, and Annan is placing close scrutiny on the percentage of that figure that has been pocketed by money transfer services, noting that an estimated $1.85 billion of remitted payments to Africa is absorbed each year in the form of fees.
But official investigations are not the only threat to major money transfer players such as MoneyGram and Western Union. More expats are beginning to favour emerging low-fee services over the major banks and established transfer organizations.
With the World Bank estimating that the total remittance figure to the developing world will surpass $550 billion in 2014, there are plenty of new contenders willing to step in and offer consumers a better deal on transfers. In recent years new challengers like OrbitRemit have appeared on the scene offering rates up to 80% lower than what dominant players such as Western Union and the major banks are charging.
For some countries these remittance payments represent an essential pillar of their economic stability – Nepal, for example, attributes 25% of its annual GDP to international remittance payments.
Annan's demands for investigation into money transfer practices has brought new international attention to the issue, with the former UN head citing it as a contributing factor to the ongoing poverty crisis in many African nations.
Annan highlighted excessive transfer fees as a form of 'plunder' responsible in part for underinvestment in African infrastructure. The 2014 Africa Progress Report, entitled 'Grain, Fish, Money – Financing Africa's Green ad Blue Revolutions' also drew attention to ongoing problems in the development of African agriculture and fisheries.
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