Bitcoin start-ups could transform diaspora remittances – the practice of sending money abroad by Africans in diaspora. This is an important source of income for millions of families in Africa. There are over 30 million Africans living in the diaspora. These Africans send a significant amount of money back home annually.

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Remittances have an impact on the extent to which families get access to education, healthcare or good nutrition. Remittances are also invested in start-ups or established businesses back home while some diasporans invest directly by starting their own businesses back home.

Africans send a significant amount of money back home annually


Remittances to Africa has grown significantly over the years. In 2014, diasporans sent almost $40bn (£26.5bn) home. These figures represent money sent through official channels. However, for a second consecutive year in 2016, money sent to developing countries fell. The reduction in remittance flows can have a negative impact on the well-being of people especially the poor who depend on money sent to them from family and friends abroad. Remittances to developing countries showed a 2.4 percent decline from $440 billion in 2015 to $429 billion in 2016. The decline in remittance flows to Sub-Saharan Africa is estimated to be 6.1% to $33 billion in 2016. The top remittance receiving African countries also witnessed a fall: Nigeria with a decrease of 10% and Egypt 9.5%. Slow economic growth in remittance-sending countries, decline in commodity prices – especially oil impacted remittance receiving countries – and the controlled exchange rate regimes in countries such as Nigeria also resulted in the diversion of remittances to informal channels.

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Bitcoin start-ups  are the market entrants trying to solve the problem of the very high cost of remittances to Africa. They are beginning to take opportunity of the remittance market and penetrating it along with international remittance companies such as Western Union.

Bitcoin start-ups could transform the remittances market in the following ways:

1. Bitcoin is driving entrepreneurship.
Bitcoin start-ups are using bitcoin to give people in developing countries, especial rural areas, a better deal on the money they receive from abroad. Through innovation in the delivery and the possibility of initiating international transactions over the internet in different forms, bitcoin start-ups are increasing the speed of international money transfer and reducing the cost. This could also increase the annual growth of the remittance market.

2. Faster and cheaper means of money transfer.
On international transfers, banks can charge as much as 19.8%, Western Union and MoneyGram both charge rates as high as 9.2% on international transfers. Some Bitcoin  start-ups  are offering a 3% cut-rate fee on all transfers – presenting a medium of sending fast money transactions to Africa at lower cost.

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3. Enabling a wide range of deposit and withdrawal methods.
The start-ups can provide a wide range of options for local users through partnership with banks, local remittance companies, convenience stores and other companies. This enables the development of payment methods that suit the needs of local recipients.

4. Unify competing private currencies.
The mobile digital currency payment networks offer a transmission mechanism for uniting competing private currencies under a common framework. A start-up offers a trading platform that allows bitcoin to be used locally without actual bitcoin trading. People can cash out their bitcoins at a local shop and convert their money back into the desired local currency afterwards.

Tight regulations and policies on international payments have made sending money through companies such as Western Union expensive. Bitcoin start-ups can significantly reduce operating and regulatory costs because each account or bitcoin wallet address are readily available for verification through Know-Your-Customer (KYC) and Anti – Money Laundering (AML) compliance programs.



Categories: Diaspora

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