Mobile banking for catalysing diaspora investment: a leapfrogging development opportunity for the ACP and DRC
The size of the diaspora is huge; through a more pro-active involvement, it could play a catalytic role to ensure the realisation of entrepreneurial income-generating activities in its home countries. As just one example, there were 913,000 Congolese migrants in 2010 and a recent study made a conservative estimate of around 40,000 first- and second-generation Congolese immigrants in Belgium alone. This number is growing, as families around the African continent invest in strategies that allow for at least one member to migrate.
The real question which the heads of state, political and civil-society leaders attending the Summit should address is: how can home African countries make the most of this potentially important external development-finance resource?
The value of remittances to poor countries is enormous. Since 1996 they have been worth more than all official development assistance. In 2010 the official estimate of remittances sent by migrants to developing countries was $325 billion. That is almost equivalent to the total amount of foreign direct investment (FDI) flowing to developing economies ($574 billion) in 2010, which together with the transition economies – for the first time – received a higher share (52%) of the global inflow of FDI than the developed economies (48%)!
Unlike many other African countries, where diaspora remittances are used for development, in the DRC remittances still serve mostly to help families cope with everyday poverty. In order to reverse this trend – which does little to create wealth – on November 2011 the Congolese Central Bank (BCC) allowed banking services to be provided by the mobile-phone operators, addressing what had been a regulatory gap. The BCC believes that this measure could revolutionise the financial sector in DRC by increasing the number of bank accounts from less than one to more than 15 million within the next two years, while ensuring cost-effective transfers of funds from Europe and their allocation towards financing both economic and social activities. It is hoped that the use of innovative tools will not only accelerate financial inclusion but also address the difficulties and expensiveness associated with the sending of money. Compared to the least costly corridors, in Africa the diaspora has to pay 6-15 times more for the same-size transfer compared to Asia/Europe.
Several innovative business models for securing cash flow for income-generating activities were recently presented at the second edition of the Economic Forum for Congolese in the European Union (FECUE), funded by the ACP’s Improvement of Business Climate tool. These all aimed to replace the current slow, expensive and dangerous scenario (in person, via agent, through money transfer organisation (MTO) to MTO to agent to person) with a new person to person (P2P) scenario. Some examples included:
- the British African Business Alliance’s new fully regulated Rainbow Interchange Solution Architecture, which works for people, banks, MTOs, businesses and microfinance institutions (MFIs).
- Homestring, which offers investment opportunities directed at productive sectors such as infrastructure for diaspora finance, facilitated via internet or mobile technology. Homestring has circumvented the regulations between the diaspora and traditional development finance institutions (DFIs) by aggregating funds, and investing them on behalf of the diaspora on equal footing with the DFIs.
- BICS has a platform for sending money that also delivers reliable international telecommunication services and solutions that enable its customers to grow their businesses and improve end-user value.
- Tigo presented its Mobile Money Solution, which was successfully launched in DRC recently, as one of the last countries on the African continent.
- Attention was also drawn to the important role of diaspora bonds in terms of addressing the untapped potential of Diaspora savings and remittances.
Mobile banking is therefore a sector that is going to generate many activities with private enterprises, which in turn could improve the living conditions of the population in the ACP in general and in DRC in particular. However, some key questions still remain to be answered if the DRC is to take full advantage of solutions offered by this leap-frogging development instrument.
- Technology - having in place a reliable network of agents and a critical mass of frequent users is considered a precondition for ensuring mobile money can provide a large pay-out network for remittances, as found by Development Market Associates (DMA).
- Business regulation –often an impediment to accessing finance, and therefore law-makers sensitive to winning votes need to gain a greater understanding of how changing business law could lead to job creation through enterprises development, so they can get re-elected.
- How to ensure the ability to distribute money – . Western Union’s experience tells us it is essential to have a good domestically functioning payment market in order to capitalise from cross-border business. It is wrong to assume that cross-border business will drive the domestic business. Today, only 4 of the 59 mobile money products in Africa offer a cross-border ‘cash out’ pay-out option and most of those transactions only involve Western Union, according to DMA.
- Could the private savings of the diaspora be transferred much faster towards productive projects in Africa, and would this entail both higher social benefits and higher economic returns to the investments?
Hitherto, the diaspora in Europe has had trouble sending money home using the existing expensive services. At FECUE the potential advantages of new mobile banking platforms were unequivocally demonstrated, especially because these new platforms offer the opportunity to bring the informal remittances flows into the wealth creation in both the formal and informal sectors.
This post features the author's personal view and does not represent the view of ODI.