IFAD, EU join forces to reduce cost of international remittances in Southern Africa

To address the lack of an effective and efficient payment infrastructure for low-value remittances in Southern Africa, the UN’s International Fund for Agricultural Development (IFAD) and the European Union (EU) have joined forces through the PRIME Africa initiative.

“Overall, this initiative aims to harness the potential of cross-border flows to promote socio-economic development and growth. Improvements in remittance services will significantly enhance the lives and financial well-being of migrant workers in South Africa and their families in the region,” said Francesco Rispoli, Country Director and Head of IFAD’s Southern Africa Multi-Country Office.

Notably, through the Prime Africa initiative, IFAD and the EU have teamed up with two leading private sector players in South Africa: BankservAfrica, dealing with payment systems, and Mama Money, a fintech company. Through their collaboration, they aim to reduce the cost of international remittances in Southern Africa and thereby reduce the loss of earnings being sent home by migrant workers.

Ruhling Herbst, BankservAfrica Executive Africa Business Development said: “By opening up the market to more players on an interoperable platform, this payment system enables both banks and non-banks (such as money transfer operators, or fintechs) to access regional cross border payment infrastructure.”

The absence of a suitable payment infrastructure for low-value remittances – that in fact represent the largest financial inflow into the Southern Africa region outside of South Africa – significantly inflates remittance transfer costs and thus erodes the potential development impact of such remittance flows in recipient countries.

Raphael Grojnowski, Mama Money’s Co-Founder, said that the transactional account called RemittancePlus, promoted by Prime Africa, “will encourage informal and cash-only senders to transition to digital channels. The transactional account will reduce the digital transfer cost, especially in the South Africa–Mozambique and South Africa–Zimbabwe corridors to 4% (compared to 10%, the current market average). The goal is to reach the 3% target set for 2030 by the international community as part of the Sustainable Development Goal number 10.”