Friday, February 22, 2013
The Malawi Diaspora prefers informal channels, banks are just too uncompetitive
Over the years various governments and international institutions have recognised the role diaspora citizens play in developing their home countries. Put it simply, nationals working overseas do regularly remit funds to their families back home. Malawi is no exception. Philippines is well renowned for its diaspora community to the extent remittances constitute over half of GDP. A proliferation of the money transfer businesses across the country, particularly Western Union and Money Gram is a great sign funds are coming in the country. Government recently established a diaspora desk in its Foreign Affairs Ministry, though the venture remains unfunded to-date. Nonetheless, it is a candid recognition that Malawian citizens beyond the border, irrespective of their jobs, are a critical aspect, particularly in addressing foreign exchange shortages. With tobacco revenues, fast a thing of the past, the Malawian diaspora is infact our export of labour. Bankers have also recognised the diaspora as a key player in their business. Former Reserve Bank Governor made some visits to some countries abroad and met Malawians. The gist of Ligoya’s meetings were to encourage Malawians living abroad to open foreign currency denominated accounts in Malawian banks. To make issues attractive, RBM relaxed some controls to the extent holders of foreign currency accounts can withdraw their money in a currency of their account and not necessary the kwacha equivalent. Standard Bank Malawi bankers too joined the fray and went abroad to market foreign currency accounts to citizens living overseas. One is not sure the impact of such efforts with respect to a surge in foreign currency denominated accounts. There are a number of issues our diaspora community struggles with. Nonetheless there is a lot of money coming into the country, but outside the banking system. It remains crude reasoning that people will open foreign accounts simply because they are Malawians or better citizens. Other factors are considered such as interest rates on offer and the expected return on their money. Usually, the people we are encouraging to open foreign currency our accounts in our banks have alternative banks wherever they are. Rationally, their funds will be put in a bank or a country where it earns more interest, and easily accessible. Nationalism is not a factor and therefore foolhardily to use it as a tool to woo potential clients to transact in uncompetitive foreign currency products. The world has become so global and everyone is looking for a bargain somewhere, not necessarily their country of origin. Currently no bank offers more that 2% on foreign currency accounts in this country. Now consider the way banks transact their international business. All banks have various foreign currency accounts with their correspondent banks all over the world. Usually the foreign currency expected from diaspora citizens is held in such accounts where our banks earn more with respect to interest rates. Rationally it makes sense for a Malawian diaspora in Australia to keep their money in Sydney where some Malawian bank has an account, and both earn a higher rate. It doesn’t make sense to let a local finance institution bank on your behalf in a competitive market and pay you peanuts in return. In the same way banks behave, individual persons act similarly, rationally to be precise. Sometimes we need not be surprised that despite calls to encourage our diaspora to open accounts, responses remain lukewarm given the uncompetitive nature of foreign currency banking in our institutions and the tedious processes of opening such accounts to existing customers. Informal channels of money transfer have increased as a result of the way the banking system operates. It is an open secret that people make arrangements to procure goods and services overseas using their diaspora networks and simply transfer cash to family member or friends. For instance a Malawian in London might simply purchase equipment on behalf of a friend in Lilongwe at their own agreed exchange rate. The person in Lilongwe simply gives kwachas to a family member or relation within town. Goods arrive from the UK and duty is paid at Mwanza, and the deal is done. The Malawi banking system consequently looses out on forex simple. It is norm of transacting to avoid the uncompetitive rates currently on offer. And recently, Minister of Information went all over town schooling us on the importance of information technology in national development. Now I find such talk very cheap particularly with respect to issues of the diaspora as potential sources of foreign exchange. No government business is transacted online at this stage, a loss of foreign exchange to the guy on the street. Just a few examples. For instance, if diaspora citizens can pay for certain services online such as driving licenses, utility connections among others through various credit cards linked to Malawian banks, forex would find its way into our official system, not informal channels as the example I narrate above. Otherwise public offices are more than happy for someone to travel from London and queue to pay some kwacha. Banks are also part of the equation in the way they deliver some of their services. All Malawian banks up to this day do not have a facility where an existing customer can open an account online. I am talking about clients that have accounts and have been identified through all the screening that comes with opening a first account. Such clients are known by the bank and some even use their internet banking facilities. If they are in the diaspora, and intend to open foreign currency accounts, our banks expect them to print some PDF forms, ink filled, scanned and emailed to some manager that will take days before attending to them and weeks before an account is opened. It’s a long process but can be made efficient if technology is properly embraced and old habits of paperwork are thrown into the bin. Potential clients of such accounts have no reason to open the not only uncompetitive foreign currency accounts, but also avoid a tedious archaic application process. Otherwise the Malawian diaspora is remitting money in this country on a daily basis, unfortunately outside the banking system.