According to the most recent World Bank data, the cost that African migrants or expatriates incur when sending money through the so-called formal corridors is still significantly higher than the UN target of less than 3%. However, when cryptocurrencies are used, the cost is much lower than the target.
The most expensive region to send money to is once again Sub-Saharan Africa, according to the most recent World Bank (WB) remittance data. The region received $49 billion in remittances in 2021, only 0.4 percent more than in 2020, with an average cost of 7.8 percent for every $200 sent.
Remittances into Nigeria, which make up the majority of those sent to the area, increased by 11.2 percent. The World Bank claims that the policies of the nation, which encourage recipients to cash out at regulated platforms, are to blame for the increase in the value of remittances sent to Nigeria through official channels. Other nations in the region that experienced significant growth in remittance inflows include Cabo Verde, where it increased by 23.3 percent, and Gambia,(31%), and Kenya (20.1%).
Globally, the average cost of remitting funds across borders stood at 6% during the same period. According to the World Bank, both Sub-Saharan Africa and the global average transacting costs are still much higher than the Sustainable Development Goal (SDG) 10.3 target of under 3%.
Yet, despite the ongoing efforts to lower this figure, the cost of moving funds across borders simply remains high and has been for years. This implies that the goal to attain the United Nations SDG 10.3 target of reducing the transaction costs of migrant remittances to less than 3% by 2030 is unlikely to be achieved. Similarly, the UN’s mission of eliminating remittance corridors with costs higher than 5 percent appears unattainable.
Migrants Are Turning to Crypto
Meanwhile, the high cost of sending remittances via formal channels and the accompanying rigorous KYC standards that are applied often force migrants to look for more convenient and less cumbersome channels. Couriers, cross-border trucks, or bus drivers are some of the informal ways migrants use to send funds to their loved ones. However, such informal methods have their own challenges with the main one being the security of the funds.
So while cryptocurrencies were not initially created to solve this dilemma, their growing use by migrants remitting money to their loved ones shows that they can be part of the solution. As the 2021 Geography of Cryptocurrency report by the blockchain intelligence firm Chainalysis will attest, a growing number of African migrants could now be using peer-to-peer crypto exchange platforms when sending funds back home.
To illustrate, the intelligence firm’s data suggests that between July 2020 and June 2021, a total of $105.6 billion worth of cryptocurrency was sent to recipients on the African continent. Out of this total, cross-region transfers accounted for nearly 96%.
The number of incoming transfers that are below $1,000 is the other metric used in the report, which again supports the assertion that African migrants are using digital currencies to remit funds. According to Chainalysis, the number of such transfers went past the 200,000 mark for the first time in May 2020 and has stayed above this level since. In fact, by May 2021, the number of transfers below $1,000 was just under 800,000.
Besides being a faster and perhaps more secure way of sending funds, cryptocurrencies are noticeably much cheaper when compared to the so-called formal channels. While it may cost as much as $10 (10%) to move $100 from South Africa to Zimbabwe when using regular corridors, it costs approximately $0.01 to send $200 via the BCH network or less than one per cent, for instance. It even costs much less than one cent to transfer the same value on the Stellar network. Besides these two examples, there are several more examples which prove that cryptocurrencies can be a better alternative to regular remittances channels.