We have just released a Migration and Development brief prepared by our colleagues Jose Anson and Nils Clotteau of the Universal Postal Union (UPU) based in Berne, Switzerland. There are an estimated 660,000 post offices in the world, larger than all bank branches combined. In this brief, Jose and Nils explore the role that postal networks can play in providing money transfers (remittances) and basic financial services to low-income people living in developing countries, in particular those in countries in Sub-Saharan Africa.
Post offices typically have strong networks across the country, in part because of their strong orientation towards service, and are typically more familiar and accessible to the poorest living in remote, rural areas. In this study, Jose and Nils report that more than 80 percent of post offices in Sub-Saharan Africa are located outside the three largest cities in each country—in small and medium-sized towns and rural areas where more than four-fifth of the people in Africa live. This stands in sharp contrast to the mainstream commercial banks that are usually concentrated in the largest cities in Africa, and can appear forbidding and expensive for the poor, including migrants and remittance recipients. This provides postal networks a unique opportunity to become key players in both international and domestic remittances.
There is clearly a large potential for post offices to more fully participate in providing remittances and to bring the unbanked into the formal financial system. However, as the authors caution, there are several operational and policy constraints that must be overcome for posts to be able to realize this potential. Post offices often have outdated information technology (IT) systems and lack internet connectivity, for example, less than a fifth of post offices in Sub-Saharan Africa are equipped with computers. Posts are typically not linked to national payment, settlement and clearing systems, which can give rise to the problem of “empty cash drawer” in many post offices. Postal staff, who tend to be government or public sector employees, are often not sufficiently trained to handle financial transactions.
Many posts are not allowed to mobilize savings, an essential component of providing financial services. The application of anti-money-laundering regulations to small value cross-border transactions is often not proportional to the risk. There is need to clarify whether remittance and financial services offered by posts fall under the postal regulator or financial regulators. Finally, exclusivity arrangements of some post offices with international money-transfer companies (which can even cover branches of post offices that currently don’t provide any remittance services) can hinder effective competition in the remittances markets and contributes to high remittance costs (see GEP 2006).
Some questions for discussion:
- How can post offices be sufficiently equipped to handle remittances and financial transactions? What kind of training and support is necessary for postal stafff?
- What are the regulatory issues that need to be addressed for posts to handle cross-border remittances? How can they be allowed to handle foreign exchange transactions?
- How can exclusive partnerships between post offices and international money transfer operators be addressed?
- How can the international community support the participation of this key player in the area of remittances and financial inclusion?