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The promoter of the African Diaspora Investment Bank (ADIB) is the London-based Senegalese banker Sanou Mbaye, a former member of the senior management team of the African Development Bank, and the author of “L’Afrique au secours de l’Afrique” (Africa to the Rescue of Africa).
African migrant remittances to their country of origin is such an important source of finance that they are at the centre of numerous initiatives from various financial organisations with the view to capturing them. Even for some countries, these funds far outstrip official development assistance. It is, indeed, important to lower the cost of their transfers, but it is also of paramount importance to channel them to fund productive investments in sustainable projects for the development of the African continent. Several international financial institutions including the African development bank (ADB), the European Investment Bank (EIB), the International Finance Corporation (IFC) and the Banque Ouest Africaine de Développement (BOAD) have expressed their interests in the project provided that a high street bank familiar with remittance transfer and management join the project as a strategic partner and carry out the feasibility study. African governments including Senegal, Togo and Gabon have equally endorsed the project of creating the ADIB.
African migrants’ remittances are at the centre of numerous initiatives. Associations are being set up, studies carried out 1, meetings, fairs, conferences and workshops are happening everywhere, and bank projects, credit unions, and other movements are taking place in Europe and the United States. There is a real need to organise, rationalise and enhance the value of migrant savings, and to provide creative management in order to give better value to all those involved in the process: migrants, benefiting households, countries of origin, governments, and all transfer bodies and agencies controlling the overall financial flows from the Diaspora: banks, money transfer companies, post offices, informal operators.
For historical and linguistic reasons, France remains the main host country for migrants from the member countries of the Franc Zone 2, the Comoros and Madagascar. Notwithstanding the increasing importance of new corridors from Italy, Spain and the United States, in absolute terms the largest share of remittances originates from France. The Franc Zone is characterised by an absence of investment banks. The banking system is dominated by a network of commercial banks whose main activities are centred on short term financing of trade, and consumption to cater for the needs of their customers, especially governments, public companies and the elite. Although realising handsome profits from their trade and constantly running a surplus of liquidities, these banks contribute little to the productive investments that these countries desperately need.
There is, therefore, in the Franc Zone a real need for the establishment of a medium and long term financing institution in order to stimulate the development of a banking mentality among the population and to increase saving rates. It would also meet the needs of the Diaspora, the benefiting households, and the Franc Zone States themselves, in terms of banking services, real estate and productive investments, insurance products, body repatriation and burial expenses, co-development, pension plans, mortgages, technical assistance, and the modernisation of the informal sector.
The project for creating an African Diaspora Investment Bank seeks to meet these demands. The objective is threefold:
1. Putting in place an important network of offices, branches, representations, collection and distribution agencies in France, Europe, the USA and Africa in order to capture the flow of migrant remittances;
2. Proposing the most competitive, adapted and performing products, tailored to the needs of African immigrants;
3. Financing, in the most favourable conditions, projects contributing to the fulfilment of the objectives of regional bodies such as: West African Economic and Monetary Union (WAEMU), Economic Community of Central Africa (ECCA), Economic Community of West African States (ECOWAS), COMESA, South African Development Community (SADC), Arab Maghreb Union (UMA) whose mandate is to foster economic integration policies.
The capital of the African Diaspora Investment Bank will be open to the Diaspora through African financial institutions, and the international financial institutions wishing to take part such as the African Development Bank, Banque Ouest Africaine de Développement (BOAD), Banque de Développement des Etats de l’Afrique Centrale (BDEAC), Afreximbank, Agence Francaise de Développement (AFD), KFW, European Investment Bank (EIB), International Finance Corporation (IFC), etc. The declared aim is to assemble a shareholding that guarantees an excellent financial appraisal from rating agencies, bearing in mind that, in addition to its own resources, the African Diaspora Investment Bank will mobilise resources from international and regional capital markets to finance its investment programmes. The Bank will enjoy legal status and financial autonomy, and act in strict compliance with best banking practices. It will rely on a highly valuable human capital and will work in close collaboration with the banking world. Its organisation, structures and operation procedures will be close to those of the European Investment Bank (EIB).
A multi-disciplinary engineering and advisory Bureau will be integrated to the structures of the bank to serve as a think tank. Its purpose will be to provide technical assistance to both migrants and benefiting households in developing and spearheading innovative and specific banking products, and set up an efficient market monitoring mechanism to help adapt the bank ‘s strategies to its customers’ needs.
In short, the role of the bank will be to:
- Promote savings and investment among members of the Diaspora living in Europe and the USA;
- Develop full banking packages integrating a whole range of special products attractive to migrants: such as transfers, double accounts in foreign exchange, mortgage loans, credit cards, and pension plans;
- Mobilise and invest migrants’ medium and long-term savings in productive investments tailored to their needs: such as trade, services, real estate, education, health, collective infrastructures, and productive projects;
- Combine Official Development Assistance (ODA) funds and migrants remittances to promote and finance sustainable co-development projects;
- Promote the creation of integrated financial markets in the region;
- Implement a corporate culture that is in harmony with the policies of economic integration advocated by the countries of the region;
- Negotiate mutual arrangements with banking agencies, post offices, microfinance institutions, mutual savings and credits, money transfer companies, francophone consular chambers, and professional bodies in order to set up a vast network of representations, collection and distribution agencies;
- Cooperate with Moroccan, Tunisian, Nigerian, Ghanaian, or South-African initiatives to bring suitable solutions to the needs of African migrants
- Increase its own resources to a level that will attract the capital needed to finance its lending programmes;
- Associate with major financial and industrial groups in their investments in Africa;
- Forge alliances with companies specialising in securitised payments systems: such as Eurocard, Mastercard, Visacard, Orange, Western Union, and MoneyGram, in order to develop the role of new technologies in money transfers and provide quick and securitised fund transfers at the most competitive fees;
- Promote the access to banking of benefiting households and informal sector actors;
- Facilitate African countries’ access to international and African capital markets using structured finance techniques to allow them to borrow in foreign and local currencies. The aim would be to support essential trade and project ventures in the continent, using as collateral the forecast amount of the transfers made by their migrant citizens;
- Create a dynamic for the return of exiled capital by offering more attractive and adapted products whose returns are equivalent or superior to those expected elsewhere by the owners of these expatriated funds;
African migrant remittances and Official Development Assistance (ODA) are the most important sources of external development finance available to African countries. International migrant inflows contribute to the financing of imports as well as external debt servicing. Remittances also contribute to improving a country’s creditworthiness and thereby enhancing its access to international capital markets.
All the data collected from consulates, ministries concerned, central banks, surveys, and studies demonstrates the importance of these transfers. Annual amounts are estimated to be between 30 to 40 billion dollars for Africa. According to the World Bank, for sub-Saharan African countries, they increased from 3.113 million dollars in 1995 to 18.586 million dollars in 2007, representing between 9% to 24% of their GDP, and 80% to 750% of the ODA they receive, underscoring the social, economic and financial importance of migrant remittances in recipient countries, the migrants representing, de facto, their first fund providers.
Remittances finance household consumption in the beneficiary countries: food, education, health, emergency assistance, and expenses related to religious or community ceremonies. However, remittances earmarked for individual savings, real estate investment, productive investments and business creation are growing, accounting for 25-60% of transfers. Unfortunately, the benefiting households often have little access to financial services, and the lack of a network of investment banks in the Franc Zone are the major stumbling blocks in converting these funds to medium and long term productive investments in order to generate added-value, wealth, jobs, economic growth, and development.
African migrant remittances market
In the migrant remittances market, migrant behaviour is essentially dictated by the quality of products and services offered by banks, money transfer companies and informal operators in relation to speed of service, collection times, cost, security, accessibility of agencies and coverage. The number of remittance deposit points in host countries is another important factor.
The Franc Zone is characterised by the overwhelming domination of the banking sector by two French commercial banks: BNP-Paribas and Société Générale. The quasi-monopoly they enjoy explains the excessive cost of transfers and abusive commissions. So far, all other banks operating in the area have adopted the same practice instead of enhancing competition by lowering cost. This explains the high level of the un-banked population and the local entrepreneurs’ lack of access to financial services, in spite of a thriving informal sector that contributes to the generation of up to 90% of jobs created in most of these countries.
Money Transfer Companies (MTC) were set up in Africa in the late 1990s to meet the needs of the largely under-banked beneficiaries of migrant remittances in absorbing the bulk of informal flows. This market segment is dominated by two major players: Western Union and MoneyGram which, between them, control 85-100% of the total formal transfer volume. They are characterised by the high cost of their money transfers fees, averaging 5-20%.
With regard to informal transfers, the volume going through that channel varies between 20% and 80% depending on the countries involved. The less the market is subject to concurrence, the less the benefiting households are “bankarised”, and the more these transfers transit through informal channels. As a rule, it has been observed that the volume of informal transfers is inversely proportional to the level of “bankarisation” of benefiting households.
This situation is in stark contrast with that prevailing elsewhere with regard to international migrant transfers and resource mobilisation. The Anglophone approach is focused on freeing up the market by encouraging competition, relaxing regulatory constraints for non-bank operators, offering financial incentives to encourage the development of technical and financial innovations, and encouraging collaboration among the market players. This approach, adopted also by Italy, contributes to reducing costs, removing barriers to free competition, and generating an increase in the overall volume of funds for beneficiaries.
The Hispanic approach emphasizes scaling up the involvement in banking of migrants, proposing a range of banking services available in both the country of origin and the host country, developing products of specific interest to the migrant, and charging as low a commission as possible on foreign transfers. This approach, widely developed by Morocco and the Portuguese-speaking world, remains the best international reference.
Since their independences, member-countries of the Franc Zone have scarcely had access to international capital markets. Official development assistance has been their sole long-term source for financing their development. This situation is currently changing. Several countries among them have received financial evaluations from the rating agencies which help open up world financial centres for them. In some cases, these ratings have proved higher or equivalent to the ratings of countries such as Turkey or Argentina. In September 2007, Gabon raised one billion dollars from these capital markets.
Stock exchanges are being established across the continent. The European Investment Bank (EIB), the Bank of Africa (BOA) and the telecommunication company Sonatel, for example, have made good use of these regional capital markets to raise hundreds of millions dollars in local currencies. This mobilisation of local savings was largely successful. In order to finance their economies, African countries ought also to issue bonds to raise money.
Many factors have contributed to economic growth in these countries. There is, first, the rise in raw material prices which, albeit erratic by nature, are nonetheless at a level well above what they have been during the last few decades. Another lever of economic growth in the Franc Zone is related to the rural exodus and the urbanisation that stemmed from it: giving birth to a dynamic informal sector. An Increase in food production, inter-regional trade, debt cancellation, a better use of ODA funds, thriving telecommunications and housing markets, and migrant transfers are among the others engines driving economic growth in the Franc Zone. The ambition of the African Diaspora Investment Bank will be to pursue and amplify the use of regional and international capital markets to finance its activities, and to encourage the States to do the same in order to modernise and diversify their economies.
However, there is a real need to reform the banking and monetary institutions of the Franc Zone, especially with regard to exchange rate, reduction of fees and commissions. The creation of the African Diaspora investment Bank, combined with strategic partnerships with banks and financial institutions of the Franc Zone, and of the rest of Africa and Europe, will act as a trigger for reforms, enable competition, restructure and fructify migrant savings. It will also contribute to the creation of hundreds of jobs in Europe, the USA and Africa in these times of economic and financial crisis.
- Banque africaine de Développement (2008)
« Les transferts de fonds des migrants, un enjeu de développement »
Bulletin de la Banque de France • N° 173 • Mai-juin 2008
Les transferts de revenus des migrants : quel impact sur le développement
économique et financier des pays d’Afrique subsaharienne ?
Banque mondiale (2006)
“Economic implications of remittances and migration”
“Sending money home: a survey of remittance products
and services in the United Kingdom”
Migrations, transferts de fonds et développement
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