Paper

Passing the Buck in East Africa: The Money Transfer Practice and Potential for Services in Kenya, Tanzania, and Uganda

What is the scope for MFIs to offer money transfer services?
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This paper synthesizes the findings of MicroSave market research studies on remittance markets in East African economies from 2001 to 2004. The paper describes the current money transfer channels. These include:

  • Formal channels:
    • Domestic: Account transfers, cheques and postal money orders;
    • International: Transfer through Western Union and MoneyGram.
  • Informal:
    • Domestic: Physical delivery by self, friends or relatives;
    • International: Hawala transfer;
    • Intraregional: Share taxis and bus or courier companies, overland coaches.

The paper further comments on the money transfer service fees. It highlights:

  • Cost is a major deterrent in using transfer services;
  • Service fees are 35% in Tanzania and Uganda and 30% in Kenya;
  • For very small transactions, fees can exceed the value of the amount to be sent;
  • Informal service providers charge between 3% and 10%.

The paper defines the scope for microfinance institutions (MFIs) to offer money transfer services. It highlights:

  • Weak financial infrastructures in East Africa leave a gap in the market for money transfer services;
  • Serving the domestic transfer market is the more realistic option for most MFIs in the region.

The paper concludes that market opportunities exist for MFIs with sound systems and the capacity to move into money transfer. This can be an attractive business and valuable additional financial service for their clients.

About this Publication

By Sander, C.
Published