The UN International Fund for Agricultural Development (IFAD) and the European Union have unveiled two new initiatives today in Kenya that aim at boosting rural development by making the use of digital remittance flows faster, safer and cheaper.
The collaboration will focus on cutting transaction costs, and promoting financial inclusion in rural areas. To further the reach in rural areas, the initiative will leverage the power of Savings and Credit Cooperative Organizations (SACCOs).
Under the EU-funded PRIME Africa initiative, IFAD has allocated two grants to Credit Bank and Financial Sector Deepening Kenya (FSD Kenya). The grant projects aim to empower rural communities and stimulate economic growth, while they complement the ongoing regional project, which is carried out in collaboration with MFS Africa.
“Digital technologies are driving transformative change and opening avenues towards economic growth and efficiency, but they do not automatically benefit all in the same way. As Team Europe in Kenya, we want to offer the means to create a digital future where technology truly serves the people.
This action, co-funded by the EU under the PRIME Africa initiative, is a great example of leveraging partnerships between SACCOs, Fintech and Banks to deliver better financial inclusion and cheaper remittances in line with our SDG commitments,” said Henriette Geiger, EU ambassador to Kenya.
Kenyans living and working abroad send money back home offering a lifeline to millions of families in low and middle-income areas.
A significant number of population in rural Kenya are face vulnerabilities such as climate-related crises and economic difficulties. According to Kenya’s Central Bank, East Africa’s largest economy is the third-largest recipient of remittances in sub-Saharan Africa.
Last year, international remittance flows to Kenya hit record $4.02 billion, representing 3 percent of the nation’s GDP.
“We are committed to promote faster, safer and cheaper transfer of remittances. Digital remittances are key to foster financial inclusion while they pave the way for migrants and diasporas to fully contribute to the sustainable development in their countries of origin,” said Pedro de Vasconcelos, Manager of the Financing Facility for Remittances at IFAD.
FSD Kenya statistics show that as of 2021, nearly 80 percent of Kenyans possess a mobile money account. Mobile money and digital financial services have driven up Kenya’s financial inclusion rate to 84 per cent, one of the highest in Africa.
However, about 30 per cent of international remittances are still paid in cash, and most mobile money remittances are instantly withdrawn in cash. Enhancing financial intermediation of migrant’s earnings abroad is key to unlocking their potential to invest back home, generate wealth, and build their return strategy.
The impact of money sent home from migrant workers abroad on rural areas in Kenya is hindered by high remittance costs, inadequate financial inclusion and digitalization, limited data availability, and a scarcity of SACCOs engaged in remittance services.
To address these challenges, Credit Bank will onboard rural SACCOs as sub-agents, enabling their members to access cash sent from abroad.
Further, a customized financial literacy curriculum will empower rural residents by imparting knowledge about budgeting, financial tools, payments, remittances, and savings. Unbanked remittance recipients will have the opportunity to open entry-level accounts with Credit Bank, facilitating easy savings.
What’s more, FSD Kenya, in liaison with regulator SASRA, will undertake extensive research to evaluate the capabilities of SACCOs in catering to remittance users in rural Kenya. The findings will play a crucial role in shaping public policies and identifying innovative models that enable SACCOs, alongside their financial partners such as banks and fintech companies, to facilitate greater access to digital remittances for rural SACCO members.
These efforts align with the objectives outlined in the Sustainable Development Goals (Goal 10c), which strives to achieve remittance fees of no more than 3 per cent by 2030, as also identified in the goals established by the Global Compact on Migration (Objectives 19 and 20).