Remittances as Enablers of Financial Inclusion

Financial inclusion refers to businesses and individuals having access to affordable and useful financial services and products that serve their needs. According to The Kenyan Economic Report 2020, 17% of Kenyans are excluded from access to formal financial services. Instead, they need to use informal methods to save and borrow money. This hinders their ability to manage their financial capital and to contribute to economic growth. Low penetration of bank accounts in Africa is partially attributed to the low income levels that reduce saving possibilities, limited physical access points, and the high costs of maintaining bank accounts.

Throughout the last decade, digitalization has accelerated the provision of financial services. Mobile money has contributed to unprecedented growth in the number of bank account-holders, from 26.7% in 2006 to over 75% in 2016. This has enhanced financial inclusion, in particular among women and the rural poor, who finally obtained easier access to bank accounts.

How Do Remittances Contribute to Financial Inclusion?

International remittances are the transfer of funds from migrants to their loved ones, who remained in the country of origin. Globally, international migrants are estimated to be 280 million, 60% of whom send money home, supporting roughly 800 million families worldwide. Remittance inflows to Africa have increased over the last decade and have had a significant impact on the continent’s GDP, recording higher than Direct Foreign Investments and Grants to Africa.

Remittances can have a significant impact on the receivers’ well-being. In fact, some studies have shown that families receiving migrant remittances can access better health facilities, obtain a better education, and have better financial access and lower poverty levels than those that do not receive such remittances (Uzochukwu and Chukwunonso, 2014; Dilip, 2013; Reanne et al., 2009). Remittances through formal channels provide opportunities for encouraging savings, increasing deposits, and deepening financial inclusion (Al-Tarawneh, 2016; Meyer and Shera, 2016; Shera and Meyer, 2013).

One of the main reasons for individuals being financially excluded is the lack of regular income. With no money to save and earn interest, the possibilities of getting credit facilities from a financial service provider are highly limited. There is a direct correlation between poverty and financial exclusion. Remittances can, however, act as a substitute to a regular income, and help in eradicating poverty.

Moreover, remittances can incentivize the 1.7 billion people who are still unbanked to either open a bank account or own a mobile money account. Both senders and receivers need to have this kind of account to enter the formal remittance environment. Once individuals become accustomed to being in contact with financial businesses for remittance purposes, they are also more likely to gain access to supplementary products offered by the financial provider such as savings, insurance, credit, airtime and data remittance and bill/utility payments, among alternative digital remittance channels. In this way, the recipient’s financial products literacy and usage are increased.

Some remitters prefer having control over the usage of the funds remitted and hence will send remittances in kind to achieve the intended purpose of funds. Remittances sent in kind facilitate the intake of adjacent financial services by offering different payout options such as into a savings or mortgage account, education fee account, insurance premium, and directly into bill payment (Airtime, electricity, water, etc.). Such remittances contribute to financial inclusion by facilitating the uptake of financial products.

Even though digital remittances are now a lot more mainstream, a large portion of people still prefers cash remittances. This is primarily true in countries where the financial sector is unstable and people do not trust digital channels. However, the digitalization of remittances has brought a new approach to financial inclusion by making transactions cheaper, more convenient, and more secure. Digital remittances reduce the cost of remittances by cutting down costs such as transportation fees to collect remittances at a payout location.

Flex Money transfer Limited is one of the leading Remittance Service Providers in Kenya, regulated by the Central Bank of Kenya. Flex Money Transfer Limited has invested in cutting-edge technology by integrating its services to major banks and mobile money operators in Kenya and throughout the world to facilitate the transfer of funds inbound, outbound, and within the country.

The Central Bank of Kenya recently granted a partnership approval between Flex Money Transfer Limited and ACE money transfer limited, which is a remittance company based in the United Kingdom. The partnership will facilitate mobile, bank, and cash pick-up transfers from the United Kingdom into Kenya. Both Remittance Service Providers are excited to embark on this partnership as they believe it will provide a perfect avenue for secure, reliable, and convenient transfer of funds that will also enhance the financial inclusivity of their customers.