Return on Investment: Making Remittances Work for Africa

June 16th, 2017

Vibrant social networks are what make Kenya unique and modern technology is making them functional.

Friends and family make for a happier and more fulfilled life but in Kenya, they’re also the key to survival. Social networks are often the difference between whether you make rent, get the surgery you need, or keep your children in school. In fact, the median Kenyan household gets 15% of their income from social networks, according to the Financial Diaries study.

There’s a lot about these social safety networks that work really well. Remittances are usually redistributive, flowing from those with slightly more resources to those with slightly less. Giving also seems to increase with need. These vibrant social networks are exactly what the tremendously popular M-PESA service tapped into: a huge network of informal flows from person-to-person keeps Kenya’s economy churning and people’s lives turning.

But humans are, well, human. Friends and family are subject to their own financial fluctuations and emotions: a parent’s lost job or a fight with a neighbor might mean that money isn’t available when you need it most. A common problem is that some fathers stop sending child support. As a result, Financial Diaries respondents live close to the edge when hit with even moderately sized shocks like an illness.

Sending and receiving money is also expensive, particularly when its coming from abroad. In Africa, and around the world, more money is sent in remittances than in aid. But sending money to Africa is more expensive than anywhere in the world, with the average cost of sending money from the United Kingdom to Africa being 10%, according to a new study by FSD Africa.

Exciting new technological developments mean that remittances can be sent digitally, or over mobile phones, increasing the amount of money that gets to the people who need it. Wave allows people to send money to East Africa over their phones, Bitpesa and TagPesa harness cryptocurrency for remittances, and Kendy allows users to send and receive money through M-PESA style agents.

Domestic remittances have the same potential for technological innovation to make them work better for the people who need them. FSD Kenya has had exciting preliminary results with Flexipay, which helps low-income families meet large financing needs, like school fees, partially by pooling resources from their social networks. Now that Kenya has the infrastructure, the potential is endless: What if those with jobs could opt into a digital savings scheme that created a cushion in case of a lost job? New e-government initiatives could improve child support by issuing monthly mobile bills, tracking payments and reporting defaulters to the credit bureau.

Vibrant social networks are what make Kenya unique and modern technology is making them functional. Because when people can take better care of their loved ones while also knowing their loved ones can support themselves, everyone wins.



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