Attracting remittance through formal system: Make inflow process flexible, less costly — Yaw Lartey

Financial Advisory Partner at Deloitte Ghana, Yaw Lartey, wants the Bank of Ghana to establish a more flexible and less costly regime to entice people to remit funds into the country through the formal system.

According to him, as much as billions in foreign currency are remitted into the country, only about half goes through the formal processes at the central bank, leaving a chunk through the informal system.

Speaking at the Graphic Business/Stanbic Bank Breakfast Meeting, quarter three edition, at the Labadi Beach Hotel in Accra last Tuesday, he argued that this is money lost to the state which could have been gained to shore up the country’s reserves and strengthen the value of the local currency against the major foreign trading currencies.

He was of the view that should the system be made attractive and less costly, for security's sake, many more people would route their funds through the formal system.

To place his call in the right perspective, Mr Lartey used a report from the World Bank which indicated that Ghana, in 2023, recorded remittance-to-gross domestic product (GDP) of $4.89 billion, signalling that remittances play a key role in supporting the livelihood of individuals living in the country and represented 6.4 per cent of GDP.

However, BoG reported a little below $3 billion, an indication that a large portion of the money came in through the informal sector for varied reasons, some of which are not in the best interest of the country and its image.

Backing

Mr Lartey’s observation had earlier been buttressed by Banking and Corporate Governance Consultant Dr Richmond Atuahene, who in his analysis pointed to World Bank data on inward remittance, which showed that Ghana has witnessed a substantial rise in remittance inflows from US$2 billion in 2014, US$5 billion in 2015, US$3 billion in 2016, US$3.5 billion in 2017 to US$4.5 billion in 2021 and further to US$4.7 billion in 2022 (World Banks’ Country Reports on Ghana’s Inward Remittances (2016-2022)).

However, according to him, the Auditor-General’s Report on the Consolidated Statements of Foreign Exchange Receipts: Schedule of earnings from 23 authorised dealer commercial banks between 2016 to 2022: Transfers Inward Remittances 

• $ 1,837,506,014.80 in 2016, 

• $ 3,766,037,529.00 in 2017, 

• $1,021,916,059.59 in 2018;

• $2,005,542,497.90 in 2019, 

• $2,310,586,691.47 in 2020, 

• $ 2,110,512,179.69 in 2021, 

• $2,121,081,266.78 in 2022. 

This shows marked discrepancies between the World Bank’s data on inward remittances and the Bank of Ghana’s data over the period from 2016-2022.

Other analysts have argued that with each flight entering the country daily, millions of dollars are remitted into the system without going through the formal structure.

According to them, a large portion of the amount could be used to fuel activities of illegal currency traders (black market) while the remaining goes to relatives, families and friends as support to set up a business, fend for themselves or many other purposes.

Tracking inflows

On how to track inflows, Mr Lartey stressed the need for Ghana to develop and implement avenues that efficiently track the flow of remittances in and out of the country. 

“These avenues should verify the identity of each customer, monitor transactions and flag any suspicious activities to prevent money laundering and terrorist financing,” he said.

For widespread understanding and acceptance, Mr Lartey also urged the government to implement initiatives to educate the public, especially individuals in rural areas, on the benefits of using formal remittance channels and put measures in place to ensure a seamless transaction from unofficial to official channels. 

Compliance

While supporting strict compliance to rules governing remittance inflows, Mr Lartey also sounded cautious arguing that strict remittance regulations often increase the compliance costs for remittance institutions, which translates into higher fees for individuals who patronise these institutions,

According to him, such an action may result in a shift in the use of official sources to unofficial sources, which may be cheaper but are harder to track. 

“Strict remittance regulations increase the scrutiny of transactions, which may result in delays in the processing of transactions, impacting the speed of remittance transfers. 

Strict remittance regulations limit the availability of remittance services to the unbanked population and rural areas, thus reducing access to remittance services,” Mr Lartey said.

Remittance inflows

Also speaking at the event, Dr Atuahene advised the government to establish a separate institution or department with people who have the technical capacity and knowledge to track and monitor remittance inflows in the country.

He said the Bank of Ghana must also develop competencies to be able to track all the remittances that went through financial technology (fintechs) systems.

“About GH₵57 billion was brought in from the fintechs in 2023, but ask yourself how much went to the central bank; nothing,” he said.

He said the country would benefit more if the central bank was able to capture all the remittances that came through the fintechs.
 

Forex inflows

The Head of Personal and Private Banking at Stanbic Bank Ghana, Reynell Badoe, added that remittances were structured to provide a steady flow of foreign exchange to any economy.

He pointed out that Ghana was second only to Nigeria regarding remittances in Sub-Saharan Africa.

“As a country, we sought help from the International Monetary Fund and we are looking at getting $3 billion over three years. However, in 2023 alone, remittances brought in $4.8 billion,” Mr Badoe said.

“This tells you how significant the remittance business is,” he added.

Mr Badoe, however, pointed out that the regulatory environment was stifling the growth of remittances in the country.