Insights | IFAD and Onafriq: A ground-breaking partnership to unlock remittances across Sub-Saharan Africa
Onafriq’s (Formerly MFS Africa) raison-d'être has always been Making Borders Matter Less. We believe that borders shouldn’t hinder individuals and businesses in exchanging value and culture. Our organisation’s commitment to enhancing remittances recently resulted in securing a $1.3 million European Union-funded grant from the United Nation’s International Fund for Agricultural Development (IFAD). The grant is a result of a fruitful partnership with IFAD’s Financing Facility for Remittances (FFR) team and is the largest award allocated by FFR to a private organisation.
The grant will enable Onafriq and its partners to co-finance a multi-year project that aims to enable and scale digital international remittances for thirteen international remittance corridors[1]. Eleven of these cover EU-Africa[2] remittance routes with huge growth potential. The remaining two are intra-African[3] corridors with promising outlooks.
The rationale for the grant is simple: financial access, awareness and resilience when sending money to loved ones should be the norm for Africans. However, digital international remittances are a combination of complex phenomena: the relatively low adoption of digital financial services, the lack of access to convenient cash-in and cash-out points, the lack of required identity documentation, and low levels of trust in formal financial services. All this is compounded into the high cost of formal remittances that marginalises many would-be users. In 2022, the average cost of sending money to Sub-Saharan Africa was 8.46% (Remittance Prices Worldwide [RPW], 2022), with countries like The Gambia reaching up to 12% (RemitScope, 2022).
In light of this, what should be done to bring efficiency to international remittances between African diasporas and their loved ones? Remittance providers should prioritise digital channels, which are usually cheaper than cash. Cash-to-cash transfers cost an average of 9.61%, while digital transfers are significantly cheaper at an average of 6.22% (RPW, 2022). As access to financial services is growing, there is an increasing need to go beyond access, towards financial resilience. For households, the next step is their ability to effectively navigate and withstand unexpected shocks (e.g., accidents, job losses and natural disasters) through bundled services such savings, loans and most notably insurance. Finally, financial education complements financial inclusion and resilience as it allows households gain and maintain the knowledge and skills required to make well-informed decisions.
Against this backdrop, pursuing the following objectives will help to overcome the pain points in the remittances value chain:
- Enabling low-cost, digital remittances solutions that extend the reach of formal remittances;
- Promoting formal and digital channels through diaspora engagement and financial education; and
- Building financial resilience by bundling insurance with remittances to cover recipients against unexpected shocks.
Through customer awareness and diaspora engagement campaigns, the project aims to shift cash-based informal channels towards formal, digital channels. These campaigns will be facilitated by MFS Africa’s sending partner Paysend, one of the fastest growing digital money transfer operators (MTOs) in Europe, and mobile network operators (MNOs) such as MTN Group, Afrimoney Gambia and Orange Senegal.
The emphasis on financial literacy is crucial, particularly in The Gambia where only 2% of the population have access to a mobile money account (RemitScope, 2022) and only about half the adult population is literate. To tackle this barrier, grant activities will include a localised digital financial literacy strategy through community-based workshops and customer training sessions run by Afrimoney Gambia ambassadors. Customer education will be complemented by the MNO’s plan to expand its agent network to rural areas and run agent training workshops aimed at supporting agents in adapting to the specific challenges they and their customers face.
Onafriq’s strategic partnership with Inclusivity Solutions – an insurance provider for the connected but unprotected – aims to improve households’ financial resilience by embedding insurance at the point of sending remittances. Through this partnership, an existing embedded insurance product in Rwanda will be further enhanced. Research and development for a similar EU-Africa embedded insurance product will also be funded by the grant, aiming to launch an updated MTO-led product in the second year of the grant.
The overall aim of the project is to enhance the financial resilience and economic empowerment of remittance senders and recipients by providing them with convenient and cost-effective digital channels to send and receive funds while safeguarding remittance flows. As part of this and throughout the lifecycle of this project, insights on the behaviours, patterns, language diversity, and the needs of African diasporas in the EU and in Africa will be disseminated as a part of Onafriq’s commitment to share knowledge. The project’s activities will target an estimated 111,800 new remittance senders and recipients. Meanwhile, the insurance products aim to cover an additional 34,300 individuals.
Stay tuned to this blog series to find out more about the project on Onafriq’s website!
[1] When funds (usually from one individual to a household) flow from one country to another, it is usually referred to as a remittance routes
[2] Germany - The Gambia; Germany - Kenya ; Germany – Ghana ; Italy – The Gambia; Italy – Senegal ; Italy – Ghana ; The Netherlands – Ghana ; Sweden – Uganda ; Sweden – The Gambia ; Spain – The Gambia ; Spain – Senegal ;
[3] Rwanda - Uganda ; The Gambia - Senegal
