How cryptocurrencies can reconfigure the Zimbabwean remittance market

The just ended festive season brought cheers and relief to some Zimbabwean families reeling from the effects of the country’s ongoing economic recession. Family members working outside the country brought in the goodies while those that could not make it managed to send money.

So for that brief moment, Zimbabweans were able to forget about their financial misery, the money flowing in from out of the country once again proved instrumental.

The important role played by MTOs

Perhaps the least told story on all this is how global money transfer organizations (MTOs) played a part (and continue to play a part) in ensuring that each holiday season is a success.

Zimbabweans working overseas primarily use Western Union, MoneyGram or World Remit to send money home.

In addition, there is a significant number of migrant workers—most of them undocumented—residing or working in neighboring South Africa. A majority of these workers use a locally established MTO known as

Now for readers who are not familiar with Zimbabwe’s remittances industry, here is a bit of context. There are an estimated 3 million of the country’s citizens living and working abroad, with the majority of them residing in South Africa.

United Kingdom is the next popular destination for Zimbabwean migrants followed by European countries like the France, the Netherlands as well as Australasia. There is also a sizeable number living in the United States of America as well.

According to the Reserve Bank of Zimbabwe, the country’s formal remittances market recorded an inflow of nearly USD $1 billion in 2015, a figure which surpassed that of foreign direct investment. It gets scarier when one considers the fact that remittances sent via informal channels could be higher than the official channels.

For less viable economies like that of Zimbabwe, such an inflow of foreign currency helps to stabilize the national currency and the balance of payments position.

On a continental scale, the remittances market has grown to become a multi- billion dollar industry

As it stands now, MTOs enjoy a global goodwill because they do not impose or enforce the usual stringent requirements set forth by conventional financial institutions. For example, one does not need to have an account with Western Union for them to receive the sent funds.

Identification particulars and/or a mobile phone number are what is usually asked for before one gets access to the sent funds.

Furthermore, sending money via regular financial institutions is costly since there are a lot intermediaries involved who must be compensated for their efforts. MTOs on the other hand, use fewer intermediaries, something that ultimately lowers their costs and transaction time when compared to banks or regular financial institutions.

Problems faced when using registered MTOs

Nevertheless, some in the Diaspora are not very keen on utilizing this sending method due to the rigorous requirements set. Firstly, registered money transfer agencies require users to produce a government issued identification document before accessing the service. It is not possible to send money via Western Union or MoneyGram without official documents like a passport or a national identity card.

Consequently, this forces those without documents—and they are many—to seek informal alternatives, which require no such documents!

In addition to the documentation required, money sending fees can go as high as 10% of the value being sent, a figure which is very high when compared to a salary or earnings of the sender.

MTOs usually charge a fee for transferring funds on behalf of a sender. The recipient will get the full amount after presenting the right documentation.

The two explanations above support the widely held belief that the global informal remittances market is much bigger than the formal one. Undocumented immigrants—who cannot use formal channels when sending money—are known to be the biggest users of such informal channels.

Zimbabwean informal remittances

Informal sending methods vary depending on the proximity of the host country and the home country or the number of people regularly travelling between the two. For instance, Zimbabweans in South Africa are known to use drivers of public transport buses that ply the Harare/Johannesburg route as couriers.

Often drivers at reputable bus companies are trusted ahead of those working for smaller or unknown companies. Bus drivers can charge a flat fee which ranges from 10% to 20% of the value of funds being sent.

This method has been proven to be a reliable one for many years now although it is has its own limitations. For those that cannot use this form of remitting, the use of friends or relatives as couriers is another alternative which is also quite common.

From both illustrations, it is clear that trust between the sender and the courier is vital for this informal transferring of money to flourish. Unfortunately, there are countless examples of times when this trust gets destroyed with little or no possibility of a legal recourse.

This leaves a money sender with tough choices, either they continue to use formal money transfer companies, which are expensive but reliable nonetheless, or they opt for the less costly informal channels which are very risky.

This is a conundrum that has existed for decades before cryptocurrencies came to the fore.

Cryptocurrency based remittances are the future

Now since the advent of cryptocurrencies, undocumented immigrants now have an extra option when attempting to send money home. Cryptocurrencies, which are essentially borderless digital currencies, can be used to transfer funds to relatives or friends in ways that were previously not possible, via the internet.

Cryptocurrency payments are faster and convenient; you can do this from the comfort of your office or home as long as you have an active internet connection.  For instance, it takes the Stellar blockchain network between 2 and 5 seconds to complete a sending transaction at a just a fraction of a cent!

Moreover, cryptocurrencies are neither subject to national foreign currency regulations nor are they subject to nationalistic control measures imposed by financial regulators. More importantly, there are no intermediaries involved, particularly when the transferring of funds is between two peers.

Fewer or no intermediaries involved means the sending costs will be lower and this naturally should make remittances via cryptocurrencies the option of first choice.

For example, sending $100 worth of Ethereum or ETH costs a little fewer than 10 cents whereas one usually has to part with roughly $10 for sending the same amount via the popular MTOs. This negligible transaction fee shows why sending money via cryptocurrencies is the future.

Cryptocurrencies have many more unique features that make them especially suitable for the remittance business than the usual sending channels.

In addition, the sending of funds via cryptocurrencies directly to an intended beneficiary is a trustless and secure process. The sender is almost assured that the transfer will happen without hiccups. The mathematics and cryptography behind crypto transactions renders moot the need to trust a person.

This is what distinguishes cryptocurrencies from the conventional money transfer processes which can only happen if the intermediaries involved trust each other. Where there is no such trust, risk minimizing measures will be undertaken and these naturally lead to increased transacting fees for the sender.

It therefore stands to reason for not only Zimbabwean expatriates but the whole African Diaspora to switch to cryptocurrencies when remitting funds.

Zimbabweans not yet embracing cryptocurrency remittances

So far the biggest challenge is getting the Diaspora to understand the real benefits of using cryptocurrencies when sending funds to their loved ones. In some African countries, the use of cryptocurrencies when sending money across national borders has gained traction.

However, there is still a lot that needs to be done if crypto remittances are to gain ground. There should be more focus on education and the raising of awareness, this is the only way ordinary Zimbabweans will become more interested.