REMITTANCES | High Banking Fees Drive Up Remittance Alternatives Such as Hawala in Kenya

Kenyans living and working abroad have been opting for alternative money transfer methods, such as Hawala, instead of traditional banks, when sending money back home.

Regions where #Hawala, an informal channel of transferring funds regardless of transaction or location, is prevalent #NorthAfrica #Somalia

— BitKE (@BitcoinKE) December 16, 2023

According to the World Bank, the high cash transfer fees imposed by the banking sector, coupled with lower exchange rates, are key factors driving the increasing adoption of traditional money transfer methods by Kenyans living abroad.

It costs Kenyans $11.14 (KES 1549) to transfer $200 (KES 27,806) from the United States to Kenya, the World Bank says.

As a result, while remittances via the banking system remain dominant, informal channels including sending money through friends and relatives, personally carrying cash, and Hawala are increasing in popularity.


“A perceived, forex shortage may also partly explain weaker recorded remittances which were increasingly channelled outside the formal banking sector as the spread between the official and market exchange rates widened,” said the World Bank in a 2023 Kenyan Economic Update report.


A separate study conducted by the Central Bank of Kenya (CBK) estimated the average cost of sending funds, when using mobile money operators, money transfer companies, and banks, to be in the range of four to five percent of the remitted amount.

“The use of courier companies was established to be the most expensive channel of sending money in 2019, costing 29.2 percent of the value remitted. Moreover, some informal channels provide cheaper options for remitting cash compared to formal channels,” said the CBK in the survey.


The use of Hawala as a trust-based money transfer system has been a long-standing practice in various countries, including Pakistan. However, Western nations, including the United States, have expressed concerns and discomfort regarding the global use of Hawala. These concerns primarily stem from the potential risks associated with money laundering, terrorist financing, and the lack of transparency in Hawala transactions.

The process typically involves a network of trusted intermediaries who facilitate the transfer of funds on behalf of customers. These intermediaries settle the transactions through mutual trust and established relationships, often without the need for physical movement of money across borders.

Overall, CBK data shows that remittances dropped 3.1 percent to Sh185.74 billion ($1.336 billion) in April 2023 compared to the same month a year earlier.




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