Sending money between Tanzania and her East African neighbors incurs more than 30% in transactional costs, hindering regional economic growth, according to the IMF.
- Tanzanian remittances to Uganda, Kenya, and Rwanda incur transactional fees at 34%, 30%, and 29% respectively.
- The IMF has also pointed out that these figures can be attributed to costly bank-to-bank money transfers across the region.
- East African banks acting as intermediaries in cross-border trade charge high fees to convert currencies and perform other wire services.
“Such bank fees tend to be much lower for transfers originating in advanced economies where foreign-exchange margins can be 50 percent or more of the cost in some corridors,” the IMF stated.
IMF also states that the global average cost of cross-border payments stands at 6.25%. About$12.50 was charged for every $200 sent from one country to another in the first quarter of 2023.
The G20 targets transaction costs below 3% by 2030. This is following the goals set in 2020, looking to wider financial inclusion and accelerated commercial links. A report from the Financial Stability Board identifies Wholesale, Retail, and Remittances as factors that lead to steep costs in cross-border payments.
Some businesses are now exploring alternative solutions to evade high bank-to-bank fees. Innovative startups are blooming across the continent to enable businesses to receive payments from customers from different countries at low costs.
The adoption of Cryptocurrency could also reduce the dependence on traditional financial institutions. Bitcoin and Ethereum are making inroads into the continent’s most vibrant economies hoping to offer traders a decentralized platform that will facilitate cross-border payments at no cost and within a short period.
However, the uncertainty in regulating digital currencies and Fintech solutions create a sceptical mood in Africa’s business environment. This further solidifies reliance on reputable financial institutions which continue to charge high fees for transactions.
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