Lenders prioritise diaspora remittances as govt seeks to grow industry to Sh1 trillion

Credit Bank

Credit Bank Plc Chief Executive Officer Betty Korir (right) shakes hands with IFAD-FFR Remittances and Inclusive Digital Finance Officer David Berno during the launch of the Affordable Remittances and enhanced financial inclusion program targeted at the Rural Communities at the Serena Hotel on April 25, 2023.

Photo credit: Francis Nderitu | Nation Media Group

What you need to know:

  • At least four institutions entered into a partnership to boost diaspora remittances into the country.
  • Key among issues players are competing to address is the cost people incur while remitting money from abroad.

Lenders are growing interest in Kenya’s diaspora remittances - the country’s top foreign exchange earner last year - indicating a change of tune in their attention to the growing market, amid the government’s strategic policy to grow remittances to Sh1 trillion next year.

In an industry that banks have largely ignored in the past, banks and Saccos are now preparing for a potential bloom of the industry, with new partnerships emerging as they line up for a share of one of Kenya’s largest industries currently.

At least four institutions entered into a partnership to boost diaspora remittances into the country by addressing cost and efficiency concerns last week, led by Kenyan lender, Credit Bank and International Fund for Agricultural Development (IFAD). They launched a programme to achieve affordable remittances and enhanced financial inclusion, through promoting more remittances to rural Kenya.

The programme targets to bridge Kenya’s urban/rural gap by promoting more remittances to rural areas and growing the share of remittances that is invested in productive economic activities, as opposed to the current situation where at least 75 per cent of remittances goes into welfare needs of families of those working abroad.

“With an estimated $4 billion sent back home each year, diaspora remittances present a crucial source for foreign exchange and capital flows into the Country. What we now need is to channel this crucial lifeline to our rural communities to facilitate the productive process that will boost the economy at large,” said Credit Bank CEO Betty Korir, during launch of the partnership.

The partnership also included three Savings and Credit Cooperative Societies (Saccos), multinational payment solutions firm, Interswitch, the Kenya Diaspora Alliance and real estate player, Nyumba Mkononi.

“We believe that we can take advantage of our wide Sacco networks within our rural communities to make remittances more accessible at the least cost. Under this project, we will initially work with three Saccoss for the next 16months and onboard an additional seven Saccos in the next 36months,” Ms Korir said.

Key among issues players are competing to address is the cost people incur while remitting money from abroad, which has been a big concern for many clients.

Shared services platform

The Affordable Remittances and Enhanced Financial Inclusion Program by the close to 10 players said it had brought down the charges to 2 per cent of the remittance value, from highs of 9 per cent in the past.

But the initiative is just setting the stage for a fierce battle among players in the different segments of the financial services sector, who will be fighting for a share of the pie, as the government mobilizes more remittances through the new Ministry of Diaspora and Foreign Affairs, observe players in the economy.

Already, the government has laid down an elaborate plan to grow the industry, with an announcement this week that it will sign at least 10 bilateral agreements with other countries where it plans to export labour, in an aggressive drive to grow the number of Kenyans leaving the country for jobs abroad from an average of 400 weekly up to 5,000.

Solution Sacco Chief Executive Daniel Marette says Saccos are also waiting with bated breath for the government to fast track the roll out of a shared services platform that will enable them to be part of national payments system, a key step to seeing Saccos receive remittances directly.

“It will be a game changer as you will not have to pass through banks for remittances to hit accounts,” Mr Marette says, indicating that most Saccos have established self-regulatory mechanisms and are ready to compete with banks in the sector.

The Sacco executive also says the government should enhance regulations in the sector as it mobilizes more remittances, to avoid cases where rogue players could go under with people’s money.

Cost of remittances

Kenya Diaspora Alliance Director Kent Libiso observes that after neglecting remittances for many years, banks are waking up to the reality of the magnitude of the industry and that as they increase their investment and attention to the business line, competition will be fierce, as they will face other players including mobile money and apps that are already eating the cake.

“In our opinion, we can bypass the Sh1 trillion government target by far. To achieve the Sh1 trillion target, we will need to leverage a lot on professionals and highly skilled Kenyans working abroad, whose remittances are largely on investment as opposed to welfare,” Mr Libiso says.

A technical group constituting the ministries of Foreign Affairs, Treasury and Trade has already been established to find out ways to increase diaspora remittances and improve their investment component from a quarter currently.

EU and IFAD are co-funding €50 million (about Sh7.5 billion) to some seven African countries towards projects and programmes that exhibit innovation through a project dubbed ‘Prime Africa’, and the partnership between Credit bank and the three institutions is a beneficiary.

David Berno, the Remittances and Inclusive Digital Finance Officer at IFAD- FFR (Financing Facility for Remittances), says the institution targets to see cost of remittances within Africa brought down from highs of 8 per cent to the global average of 6 per cent, with people living in rural areas benefitting.

“We wish to support initiatives that showcase the possibility of reducing the cost of sending money home from Europe within Africa. We are also supporting initiatives that are extending remittance link service provisions to meet additional needs of sending money back home,” Mr Berno says.

The two development institutions recognise that there exist multiple challenges facing people who remit or receive remittances in the country, which have to be addressed.

Interswitch also indicates that the partnership is its flagship project in Kenya, in the line of remittances but admits that partnering with Sacco is key to unlocking many challenges that have been faced in the sector.

“Saccos form an important part of our financial services in Kenya where we come together to save money and improve the quality of our lives through lower interest rates loans to acquire important purchases like land, homes, educate our children, improve our businesses and much more,” said Interswitch Country General Manager, Romana Rajput.