Mining diaspora jewels calls for strategic local financial solutions

BY ALICE KIMUHU

Kenyans living in the diaspora have played a significant role in the growth and resilience of Kenya’s GDP. Diaspora communities wield a significant amount of financial and human capital, as well as considerable interest in investing in their home country to address economic and social challenges.

Growing inflows 

In the past 5 years, total diaspora remittances into Kenya have grown by at least 150% overtaking tea and horticulture as the country’s top foreign exchange earner. The inflows tend to be a more stable source of foreign exchange as their variation is often countercyclical which helps sustain consumption. They are also not susceptible to changes in weather and world prices, which have seen tea and horticulture lose their top status.

Against this backdrop of growing diaspora remittances, several challenges abound, key among which is prohibitive cost of remitting funds. According to the World Bank, the Sub Saharan region has always recorded the highest remittance costs in the world.

Other challenges faced by diaspora investors include; insufficient information on investment options, strict legislation around investor qualifications for Kenyans in the Diaspora and high compliance costs faced by Kenyan banks and investment intermediaries.

Kenyan Financial intermediaries, in their effort to collaborate with Kenyan diaspora investors, must find ways to democratize investment and donation vehicles so that all interested Kenyans in the Diaspora may be able to participate.

Financial flow transparency and securitization

It is equally important for these institutions embrace and institutionalize transparency, for instance by creating formal vetting and ratings structures for funding recipients. This will meet the needs of diasporans, and in turn incentivize them to invest in and donate to their countries of origin.

Remittances are in many instances the only relationship that many financially excluded individuals and families dependent on Kenyans in the diaspora have with the formal financial system. Where remittances are channeled through banks or other financial intermediaries, there is a high likelihood that some part of the remittance will be kept as savings.

Financial institutions could use the steady stream of remittance receipts as a factor in evaluating the creditworthiness of recipients for microloans, consumer loans, and small business loans. This then gives these institutions an opportunity to work with both the Kenyans in the diaspora and their dependents in Kenya and drive use of remittances to more structured investment vehicles.

Remittances also play a role in smoothing the income stream of poor households that face high income volatility and shocks. This reduced income volatility can make them more attractive borrowers. Households that receive international remittances typically have better access to financial services, such as bank accounts and credit facilities.

Remittances flow securitization, if adopted, can enable regional banks to raise funds at advantageous rates because these future-flow transactions depend upon the bank's capacity to retain or grow its market share of the cash flow securitized and present an opportunity to ensure better services and lower costs to remittance senders and receivers.

Reducing costs and diversifying investments

Local banks have continually worked with different government bodies and diaspora associations to provide immediacy of required services and ease access to financial services for Kenyans in the diaspora and their dependents back home. National Bank, for instance, has consistently worked to provide well-structured and transparent services to Kenyans in the diaspora, and the wide array of financial products and services enables participation across all income levels.

In the last few years, the bank has signed various remittance partnerships in an effort to drive down remittances costs in line with SDG 10c and is continually engaging like-minded partners to play an active part in the achievement of this goal.

The bank offers the diaspora market a diverse range of investment plans that are attractive for the short term, and have the potential to yield more returns including short term investments in stocks, treasury bonds, treasury bills, money markets, REITS, mutual funds etc. In addition, Kenyans in the diaspora have access to advisory, portfolio management services and investment options offered by the Bank.

Diaspora remittances are an integral part of the economy and if utilized well can contribute largely to the socioeconomic development of the Kenyan people. Remittances to Kenya as recorded by the Central bank of Kenya hit an all-time high of Kes 21.2B in February 2018 which in comparison with 2017 same period is a 47.5% growth.

The laudable move by the Kenyan government seeking to cut the charges on sending money home from foreign countries to less than three per cent of the amount transacted will go a long way in helping grow the diaspora remittances.

Alice Kimuhu is National Bank Head of Personal Banking