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Despite mounting difficulties and spiralling non-compliance penalties, global remittances grew by 10% in 2018. The increase slowed in 2019, with the final figure expected to be 3.7%. But a slower increase is still an increase; international remittances continue to grow, reaching US$715 billion last year. More than three-quarters of this figure was in transfers to developing nations.
Emigrants working overseas are a vital support mechanism for struggling countries. Remittances from expatriates represent more than 25% of Somalia's GDP, and 40% of the Somalian population depends on this support. The USA and UK are the main sources of these resources, with approximately US$500 million being remitted annually from the UK alone.
Historically, many of these remittances have been from individuals - in fact it was these transfers that spurred our parent, Choice International, to develop the better-than-bank compliance platform that now forms the core of biz.Clarency. But, as noted by Ethical Payments Foundation, emerging economies in Africa are booming, leading to something of a gold rush by entrepreneurial companies in the established world. There are huge rewards to be had from dealing with African nations, and the early movers will be the ones with most to gain. This is a situation that strongly favours fast-moving SMEs.
And there lies a potential problem.
Emerging economies are fragile. Many of Africa's top performing countries remain hotbeds for money laundering and terrorism - Mozambique, in fact, has the doubtful honour of leading the world in this field. South Sudan, which led the African continent's excellent figures, has only recently emerged from civil war, and its GDP has actually fallen over the last ten years. This isn't intended to put a damper on Africa's prosperity, nor is it a criticism of the many excellent businesses that are fuelling economic growth. But pitfalls are there in abundance for the unwary, under-informed or under-prepared.
The multi-billion dollar penalties levied on banks and financial institutions for compliance failure have been widely reported. While painful, these fines haven't so far exceeded the means of such large international organisations. But a half-million dollar fine - almost back pocket change compared to the penalties imposed in recent years - could wipe out an SME at a single stroke.
Many SMEs will deal through a financial organisation who will take care of compliance, protecting the customer from most - though not necessarily all - regulatory penalties. But that protection comes at a cost. Onboarding a customer for international transactions with emerging countries can cost as much as $25,000, and the process can take months to complete. Even ignoring the potential for missed opportunity, that cost has to be passed on, and transfer charges inevitably eat into the profitability at both ends of the deal.
And what happens if the deal goes sour? A bank may keep you legal, but it's unlikely to be able to help if the goods you paid for go astray, or the products you provided aren't paid for.
The opportunities are huge, but failing to protect your company properly would be unwise in the extreme.
SMEs need diligence systems that fit their business model. When opportunities appear, they need to be able to seize them without delay. They need KYC fees that allow them to remain competitive and profitable, and they need assurance that the transaction will complete satisfactorily. The outdated, cumbersome systems used by too many financial institutions are no longer fit for purpose.
Africa's expanding economies will benefit most from businesses with the agility and responsiveness to adapt to a new business landscape. And those businesses that are able to seize the opportunities will reap excellent rewards, provided they protect themselves with due diligence processes that:
The system that delivers all of the above is available now to SMEs as well as money service bureaux and the global financial institutions. It's a proven technology, developed from more than fifteen years of experience in remittances to and from many of the world's most challenging jurisdictions. It's provided safe, compliant lifelines worth more than US$2 billion a year to needy families in deprived countries, and now it's opening up business opportunities by connecting companies in the emerging and established commercial world to new opportunities.