Lesotho corridor allows remittances at low affordable rates

Johannesburg, 03 March 2015:Remittances from RSA to the SADC region are the most expensive in the world with fees in excess of 22% for remittance value of $200. The value of remittances from South Africa to other countries in the SADC region is large and a substantial portion of these remittances is informal – sent for example via cross-border mini-bus taxis or given to friends to pass on to next of kin.

The Lesotho remittances corridor  

Despite restrictive policy measures that are in place, the private sector works closely with FinMark Trust to implement initiatives that seek to formalise the remittance corridor. In South Africa, retailers under bank agency agreements have launched domestic in-store remittances services in 2006 and by 2013 captured an estimated R13 billion of the market (formalising informal domestic remittances).

In excess of 25 million transactions per year are completed in this way. This re-priced the market from R16.50 PLUS 3.5% in 2006 to less than R10 per transaction of up to R5, 000within three years. The average transaction value is approximately R550.

Currently FinMark Trust is working with Shoprite, Capitec and the regulators to ensure that the model used for domestic remittances can be replicated for cross-border remittances to ensure that ‘low cost’ cross-border remittances become a reality. The cross-border money transfer project is registered as a pilot by the SA Reserve Bank and initial piloting of the system was conducted on the 31st of December when money was successfully remitted from stores in South Africa to Shoprite stores in Lesotho. Employees working in the ‘Money Kiosks’ are currently undergoing ‘KYC’ training to ensure that there is an effective and efficient rollout of the project.  

Background context to the Lesotho corridor

The Lesotho cross-border money transfer project is the outcome of FinMark Trust continuous advocacy for cheaper official remittance channels in the SADC region. A study conducted in 2012 on the South Africa-SADC remittances channel revealed that the total value of remittances from South Africa into the SADC region is approximately R11.2 billion per annum of which approximately 68% is estimated to be remitted through informal channels.

The study also found that there are approximately 3.3 million SADC migrants living in South Africa and of these migrants, 68% are undocumented. The main source country for SADC migrants is Zimbabwe, accounting for 1.9 million migrants or 59% of the total. Most of the Zimbabwean migrants are, however, not documented, with only 35% having formal legal migration status. The study recommended that since low income migrants struggle with access to the formal financial system, both in terms of regulatory barriers and in terms of overall affordability, the formalisation of the remittance market would benefit both remitters and the regional macro economy.

Market and regulatory barriers are impediments to achieving greater levels of formalisation of the remittance market. Migrants, who are not able to attain a legal working status, have great difficulty in accessing formal financial systems. Therefore, the formalisation of the remittance market would be of benefit both to remitters themselves and to the macro economy of the region, as well as from a financial sector policy perspective.

Editorial contact:                

FinMark TrustNitha Ramnath (Ms), Communication ManagerTel:   011 315-9197 / 0829214769Email:  This email address is being protected from spambots. You need JavaScript enabled to view it.Website: www.finmark.org.za

About FinMark Trust

FinMark Trust, an independent trust based in Johannesburg, South Africa, was established in 2002, and is funded primarily by UKaid from the Department for International Development (DFID) through its Southern Africa office.  FinMark Trust’s purpose is ‘Making financial markets work for the poor, by promoting financial inclusion and regional financial integration’. FinMark Trust does this by conducting research to identify the systemic constraints that prevent financial markets from reaching out to these consumers and by advocating for change on the basis of research findings. Please visit www.finmark.org.za for more information.