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African cash switch firms thrive when pandemics encourage on-line transfers

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© Reuters. Brighton Takawira uses the Mukuru Transfer App, which allows him to send money and groceries home to the family in Zimbabwe

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By Joe Bavier and MacDonald Dzirutwe

JOHANNESBURG / HARARE (Reuters) – Brighton Takawira had fled an economic implosion in his home country of Zimbabwe and was able to support his mother at home with a modest income from a small perfume shop he founded in South Africa.

Then the pandemic struck. Borders closed. The buses with which he had sent his money no longer ran.

"I had to send something, even a few dollars," said Takawira, although sometimes it meant going without bread. So, on a friend's recommendation, he tried an online money transfer company.

He is one of many African migrants who are often pushed towards digital transfer services for the first time during the pandemic.

This is creating a boom for Africa-focused money transfer companies, despite the World Bank forecast that remittances to poorer countries have fallen 20% to $ 445 billion this year due to a global economic slump caused by the pandemic.

"We saw an increase in transfers when the diaspora wanted to help their families," said Patrick Roussel, head of mobile financial services for the Middle East and Africa at French telecommunications company Orange (PA 🙂 – a dominant player in French-speaking Africa.

Like Takawira, many have had to plunge into savings or make other sacrifices, analysts and company officials say.

The pandemic gave remittance companies an edge over their main competition in Africa: the vast informal networks of traders, bus drivers and travelers that many migrants have used to send money home.

"We have seen an influx of new customers and we see that they are mainly coming to us from the informal market," said Andy Jury, general manager of Mukuru, the company Takawira now uses.

The judges and other industry executives say the shift is likely to be permanent, as digital remittance services are typically cheaper, faster, and more secure than informal networks that are difficult for governments to regulate.

Mukuru, which primarily focuses on African remittances and enables customers to send both cash and groceries, saw growth accelerate around 75% year over year.

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According to the World Bank, remittances to sub-Saharan Africa officially totaled $ 48 billion last year. However, experts say that the character only tells part of the story.

Much of the money that Africans send home via informal networks is missing from official data.

When those networks stalled during the lockdown, formal money transfer companies – especially digital platforms – suddenly became the only game in town.

According to the Kenyan Central Bank, transfers to Kenya rose 6.5% in August compared to the same period last year. Remittance inflows to Zimbabwe rose 33% through July.

Online remittance company WorldRemit reported last week that remittances to Zimbabwe through its service had doubled in the past six months.

Azimo, a UK-based remittance company whose main African markets include Nigeria, Ghana and Kenya, saw nearly 200% growth over the expected number of new customers in April, May and June.

"I wouldn't exchange it for a pandemic any day of the week," Azimo CEO Michael Kent told Reuters. "But given what is happening, I think you are seeing digital adoption in financial services everywhere."

Remittance companies got an extra boost at the start of the pandemic when African central banks cut fees and eased restrictions on digital transactions to encourage the public to use digital services to facilitate social distancing.

"I would probably agree with the World Bank that the total amount (of remittances) will go down," said Dare Okoudjou, founder of MFS Africa. "But anyone who is digital would actually gain market share and see their volume increase."

The company, which operates networks in 36 African countries to channel transfers between mobile money accounts, saw transaction growth of over 90% year over year in 2020.

According to analysts, the industry is now at a turning point.

"If we can get money flowing with less friction, it will be better for everyone. That's the silver lining," said Timothy Ogden, executive director of the Financial Access Initiative at New York University.

Takawira, whose brother also works in South Africa, says he now uses Mukuru every month to send cash and groceries to his 60-year-old mother in rural Zimbabwe, where inflation tops 650%.

"My salary doesn't buy a lot … If the boys send me money, it helps a lot," his mother Gladys Muzira told Reuters.

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