Migrants’ remittances and the role of post offices in rural development

Written by Mauro Martini

Post offices can play a powerful role in rural development by performing key financial services such as
 extending access to remittances sent by migrants.
4 May 2016 - For hundreds of millions of Africans, post offices play a crucial role in daily life, for sending and picking up parcels or letters, but also for financial services such as receiving or sending money, paying bills, opening savings accounts, or buying insurance products.

Unlike banks, post offices can rely on an impressive network of branches, out of which 80 per cent are located in rural areas. Moreover, post offices often enjoy a high level of trust, especially by the underbanked who tend to avoid banks.

In 2015 alone, the African continent received an impressive US$65 billion in remittances from over 20 million of its citizens working abroad, contributing to the livelihood of their families and communities back home.

IFAD, in partnership with the European Union, has seen in the postal networks a unique opportunity to extend access to remittances, cashless payments and secure affordable financial services to the rural population in Africa.

On these promising basis IFAD and the EU have jointly agree to engage in the provision of concrete support to post offices through the African Postal Financial Services Initiative.

The level of remittance dependency for many African states is extremely high; in certain cases accounting for almost 20 per cent of their GDP.

The cost of sending money back home 

Furthermore, while the global average cost of sending remittances is still at 7.4 per cent, Sub-Saharan Africa remains the most costly region in the world to send remittances to, with an average cost of 9.5 per cent in 2015 and many of the most expensive remittance corridors.

Post offices have a distinct comparative advantage in the remittance market in Africa. With a vast network of branches in remote towns and villages, coupled with a trained workforce, post offices provide remittance services (and in several countries also banking services) to rural Africans better than anyone.

In a recent baseline survey, IFAD measured the demand-side perspective about receiving and sending money via postal networks in peri-urban and rural areas of 11 African countries.

The findings were enlightening.

Not only remittance transactions were among the main reasons for using post offices in Africa, but also, in the choice of a remittance services provider, proximity, and reliability of pay-out locations were even more relevant than transaction costs alone.

In conclusion, rural African population are largely enthusiastic about the possibility of receiving remittances through their post offices, especially if this will enable them to access a broader range of financial services.

Strengthening the role of post offices

With the financial contribution of the European Union, IFAD and its partners (including the World Bank, Universal Postal Union, United Nations Capital Fund for Development, and the World Savings and Retail Banking Institute), have joined forces in four countries (Benin, Ghana, Madagascar and Senegal) to strengthen the position and role of the national post offices in providing remittances.

The aim is to provide remittances which are cheaper, faster, accessible in the most remote rural areas and, above all, with the possibility for the recipient to link them to additional financial services.

Direct technical assistance, provision of new technical equipment, operational support in remittance processes and staff training, coupled with the development of new marketing strategies and the forging of new partnerships with financial services providers, money transfer operators and mobile companies.

This is how IFAD and its partners are currently supporting the modernization of the four African postal operators in the four selected countries.

This will provide better access to remittances for rural households as well as access to other financial services, such as savings and investment schemes, consequently improving their livelihoods.

Launching new financial products 

Post offices have a distinct comparative advantage in the remittance market in Africa. 

The level of development and modernization of post offices in the four countries differs significantly. In this respect, while maintaining a common vision and approach, IFAD and its partners designed specific interventions taking into consideration each country’s existing remittance market.

In Senegal, the Initiative is supporting La Poste du Sénégal in opening new corridors and launching new financial products (e.g. a new card-based remittance transfer service linked with mobile systems, and insurance products).

In Benin, connectivity of post offices is a major issue; not all post offices are inter-connected, and the majority of work in rural branches is still on paper. The Initiative is supporting  La Poste du Bénin in the modernization of its postal network to improve remittance operations by reducing processing time.

In Ghana, one of the main objectives of GhanaPost is to enable a larger number of post offices to provide remittance services.

With the assistance of IFAD and its partners, GhanaPost recently approved a plan for 2016 which includes more than 40 new offices enabled for processing international remittances and the activation of around 80 additional locations for remittances services by 2018.

Madagascar is one of the poorest countries of the South African region. Postal capacity is limited and cash management remains a factor of risk. The initiative addressed this aspect accompanying Paositra Malagasy in the development of a new cash management strategy which takes into account all aspects of the cash flow, from security to operational processes.

Certainly, some challenges still exist. Postal operators are aged public institutions and often reluctant to change. Given the size of their network of post offices, the structural weight and the high number of staff involved, strategic changes take time, and the concrete impact is not immediately visible.

However, the African continent is in continuous evolution - especially when it comes to new technologies - and African postal operators are willing to accept those challenges which will undoubtedly lead to modernization, bringing remittances and financial services closer to the rural poor.

Mauro Martini is the Remittances and Development Officer at IFAD.