CBK finds courier services most expensive channel for diaspora inflows

The Central Bank of Kenya (CBK) has identified courier services as the most expensive channel to send money back home for Kenyans living abroad.

The Diapora Remittances Survey conducted by the banking regulator between March and May 2021 and which covers 2019 inflows found out that the average cost of sending money in that year using courier companies was 29.2% of the value being remitted.

Courier firms were deemed most expensive when compared to mobile money operators where the average cost of remitting was 4.7% of the amount being remitted while the cost for money transfer companies was 4% and banks 3.7%.

For instance, to send $500, Kenyans in the diaspora spend at least $146 just to transfer the funds using courier services when compared to $23.5 for mobile money and $18.5 when using banks.

The survey further indicates that average cost of cash remittances through transport operators, Credit Union, Postal network and Hawala operators stood at 3.8%, 3.4%, 3.2% and 3% respectively.

“The Survey revealed that over 70% of respondents reported remitting cash mainly sent through formal channels, predominantly money transfer companies, banks and mobile money operators. Remittances were sent to meet the basic needs of nuclear family members of the respondents. Notably, cash was remitted, typically on a monthly basis, for the purpose of purchasing food and household goods, to offset medical expenses, meet education expenses, for payment of rent and household utilities, and farming needs,” CBK stated.

It was however cheaper to carry the cash when travelling or using friends and relatives as average cost of remitting significantly dropped to 2.5% of the amount.

Hundi operators emerged as the cheapest channel to remit cash as it cost an average of $10 to send $500 back home.

Europe-Kenya and Asia-Kenya corridors had a relatively higher cost of remitting averaging 6% of the value of remittances when compared to rest of Africa-Kenya, Latin-America and Caribbean-Kenya and North-America-Kenya corridors which averaged 4%, 3% and 2% respectively.

Safaricom Plc’s M-Pesa emerged as the most preferred channel of sending money back home accounting for 25% share, banks 16%, WorldRemit 14%, Wave 9%, Sendwave 8%, Western Union 8% and other channels 20%.

“The main reasons for using these channels were convenience, favorable transaction charges, favorable exchange rates, security and safety. The respondents however highlighted that they faced certain challenges while remitting cash including cost, hidden charges and fees, accessibility of service and privacy.”

Despite being the most expensive channel, courier firms were the least preferred channel for sending cash.

According to the survey, majority of respondents at 72% indicated that funds sent are received in real time, and are usually available on the same day to recipients, thus confirming the efficiency of these channels.

Nonetheless, remittance inflows have continued to grow despite COVID-19 effects with total remittances in 2021 reaching a record $3.7 billion surpassing 2020 record of $3.1 billion.