Remittances from South Africa to SADC

Geoff Orpen 26 March 2015

Making financial markets work for the poor

About FinMark Trust and its focus areas

• • • • • Independent trust formed in April 2002 Initial and core funding from the UKAid Mission: “Making Financial Markets Work for the Poor” Aim: Facilitating and catalysing development around access to financial services How: move beyond data production, with an increased focus on being a catalyst to systemic change in financial inclusion by providing support to transformation at a country level

Focus areas Information and Research Support Micro-insurance Consumer Financial Empowerment Financial Policy and Regulation Housing Finance Cross cutting themes: Savings Regional Financial Integration Retail payments systems Credit Rural / agricultural finance SMME access

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Coverage of our regional work

Remittances: An Overview

• • • •

Remittances are defined as

• non-reciprocal transfers from one person to another across a distance (generally cross-border) of relatively low value usually cash to cash Outcomes of recent Surveys on Remittances: • migrants send money home to service their family’s basis needs, to pay for school fees, rent or transport, or to meet unexpected costs • • • 80% of migrants send cash remittances at least once every three months (frequency depends largely on the remitters’ capacity to save enough money) average amounts sent home by migrants to be between R500 and R1,000 for each send only 2% of remittances are sent through official banking channels, almost 70% are sent via buses or taxi drivers, 20% are sent back with visiting family or friends and about 8% through other channels

Estimated size of the migrant population

Country of origin Angola Botswana Dem. Rep. of Congo Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles Swaziland Tanzania Zambia Zimbabwe Total Right to enter – Right to stay & work

A 61 7 017 797 79 132 1 077 563 81 692 163 14 473 79 972 12 597 198 624

No right to enter – Right to stay and work

B 6 125 28 309 160 000 646 484 840 918

Source: DNA calculations, drawing on various sources

No right to work

C 4 016 45 515 52 293 317 938 70 616 36 898 245 147 21 419 103 079 5 187 63 755 1 250 000 2 215 863

Total SADC immigrants

D=A+B+C 10 202 52 533 81 399 397 070 71 693 37 460 486 839 21 582 117 552 5 267 64 727 1 909 081 3 255 406

Estimated remittances from South Africa into SADC (Rm)

Country of origin Angola Botswana Dem. Rep. of Congo Lesotho Madagascar Malawi Mauritius Mozambique Namibia Seychelles Swaziland Tanzania Zambia Zimbabwe Total Migrant population estimate % remitting estimate

10 202 52 533 81 399 397 070 71 693 37 460 486 839 21 582 117 552 5 267 64 727 1 909 081 3 255 406 40.0% 55.0% 35.0% 55.0% 35.0% 35.0% 35.0% 55.0% 40.0% 35.0% 55.0% 35.0% 35.0% 75.0%

Total remittances high end estimate R million Total remittances low end estimate R million Total remittances – mid- point estimate R million

29.2 216.0 148.1 1 994.5 146.8 98.0 1 781.8 61.7 462.3 12.0 147.3 7 910.8 13 008.4 20.2 149.5 102.6 1 514.0 101.6 67.8 1 395.4 42.7 320.0 8.3 101.9 5 476.7 9 300.9 24.7 182.7 125.4 1 754.3 124.2 82.9 1 588.6 52.2 391.2 10.1 124.6 6 693.7 11 154.6

Remittances per country

Remittances between RSA and country as a % of the total of R7,56 billion informal remittances

Angola 0% Botswana 2% Dem. Rep. of Congo 1% Zimbabwe 58% Lesotho 18% Mozambique 11% Madagascar 0% Malawi 2% Mauritius 1% Zambia 2% Tanzania 0% Namibia 1% Seychelles 0% Swaziland 4%

Cost of Remittances

Cost of remittances to Malawi by institution

Shoprite Money Transfers The South Africa Case Study

The South African Market (2012)

• 13 million adults make up the unbanked market segment • • R19 billion is the estimated value of cash-to-cash person-to-person money transfers uncaptured by the formal sector (

Retailers , Taxis/buses/personal delivery, etc.)

Only 10% (R1.9 billion) is captured by the formal sector (Banks & Post Office)

Shoprite Domestic Money Transfers

• Shoprite, in association with eCentric and Capitec Bank, launched the domestic in store remittances service in 2006 • • By 2010, they manage to capture an estimated R10 billion of the market Annual volume growth rates are exceeding 25%, despite growing competition • Service used by more than 10 million individuals

Lesotho remittances-the impact

• • • • • • • • Population is 2 million 50% of the population have incomes below poverty line 400 000 migrants from Lesotho living in SA Total remittances from SA to Lesotho is R1.75bn

R1.4bn of the total remittances is remitted informally Using formal channels the cost to remit money is 16.43% of the value remitted If all remittances were formalised the cost would amount to R287 million New remittance corridor cost is R9.99 per transaction up to a max of R5000 per transaction

Shoprite - Money Markets

• • • “Money Market” service stations offer a comprehensive range of financial services and products to the Group’s customers through dedicated in-store service counters: •utility bill payments • bus and airline tickets • basic insurance policies tickets for major sporting and cultural events travel packages

MONEY TRANSFERS

Shoprite estimates more than 50% of its clients make use of the counter while in the store

Installed 642 new service points to meet demand

The Shoprite Money Transfers Model

FUNCTION CHARACTERISTICS Primary Service Point and Access Method Lowest Compliance Requirement Pricing Structure Model Revenue Opportunity

   Money Market Kiosks Shoprite, Checkers and Usave Stores Cash over the Counter     No bank account required by either sender or recipient Verify and hold copy of customer ID Sender pays flat fee of R9.99 per transfer Retailer led model with sponsoring bank providing regulatory cover and carrying risk   Bank holds trust account and earns interest on float Share in portion of customer fee

Live Domestic Service Countries CMA Pilot cross-border Domestic and Cross-border under application

    South Africa (April 2006) with Capitec Bank Zambia (Nov 2013) , Namibia (2014) Lesotho (March 2015) with Capitec Bank (FinMark Trust) Swaziland, with Standard Bank and FinMark Trust

Potential

 Angola, Nigeria, Botswana, Ghana, Malawi, Mozambique, Nigeria, Tanzania, Uganda, Zimbabwe with Standard Bank

Key areas addressed in the remittances project Component Affordability Ease of use Awareness and trust Compliance requirements Competition Financial Inclusion Problems Addressed

High fees (on average the cost is 20-25% of the value sent Large number of forms to be filled in Many people use informal channels because that is all they have known People in low income areas cannot generally supply documents required for FICA (no title deed, lack of bills reflecting address) Current players monopolise the remittance space hence can almost charge what they want to.

Financial sector excludes the poor to a large degree

Solution

Shoprite solution is R9.99

Easy to use (5 simple steps) Shoprite has 20 million customers hence people know and trust the brand Due to relatively low values remitted, FICA documentation not required (only need an ID) Market is now more competitive and diversified Migrant families are introduced to financial services

Key issues to be addressed

• • • • • In-country remittances scheduled for piloting in Swaziland (during 2015) Currently operational in Zambia ,RSA, Namibia and Lesotho Cross Border remittances currently operational in Lesotho (March 2015) Landscape of remittances is changing as a result of the new product (e.g. people depositing money before they get on a taxi to travel home at the end of a week’s work) Need to motivate for increased lenience with respect to Exemption 17 Cross Border remittance is currently limited to a remittance between RSA and another country (1 direction)-needs to allow for remittances between all countries in the region

Thank you

Making financial markets work for the poor