Barriers To The Effectiveness of International Remittances: A Case Study of UK/Nigeria Corridor.

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Barriers To The Effectiveness of International Remittances: A Case Study of UK/Nigeria Corridor.

Category: Banking

Subcategory: Business

Level: Masters

Pages: 44

Words: 12100

A Master Thesis
Submitted to the Faculty
American Public University
In Partial Fulfillment of the
Requirements for the Degree
Master of Arts
September 5th, 2018
ABSTRACTThe research base is on the Nigeria-UK remittance corridor with the main purpose of determining the barriers that reduce the efficiency of international remittance. The data is mined from Central bank of Nigeria, International monetary fund, World Bank, International organization for migration as well as Organization for economic co-operation and development. The major challenges that have been attributed to the difficulties in the remittance transfer are discussed in detail giving further examples from other remittance corridors. Even though there is the lack of a final unit of measuring the significant impact of remittances in the developing nations, the emphasis has been given to the major economic constraints as well as discussing how the remittance transfers help to resolve these issues. The study also explores the role of emerging technologies, as cryptocurrencies in ensuring that remittance flow has been simplified to the click of a button. The text further considers other remittances corridors in determining the general grounds of remittances transfer on the different corridors available. The findings in this research are to be used to improve remittance transfer in this corridor by presenting the findings to the relevant authorities for policy and regulatory reforms.
Keywords: Remittance, Migration, Immigration

Table of Contents
TOC o “1-3” h z u ABSTRACT PAGEREF _Toc524622706 h 2CHAPTER ONE PAGEREF _Toc524622707 h 71.0Introduction PAGEREF _Toc524622708 h 71.1Research background PAGEREF _Toc524622709 h 71.2 Research problem PAGEREF _Toc524622710 h 111.3 Research Aims and Objectives PAGEREF _Toc524622711 h 111.4 Research questions PAGEREF _Toc524622712 h 121.5 The rationale of the study PAGEREF _Toc524622713 h 141.6 Theoretical framework PAGEREF _Toc524622714 h 151.7 Limitation of the study PAGEREF _Toc524622715 h 17CHAPTER TWO PAGEREF _Toc524622716 h 182.0 Introduction PAGEREF _Toc524622717 h 182.1 Immigration and Remittance Nexus PAGEREF _Toc524622718 h 182.2 Remittance concept and definitions PAGEREF _Toc524622719 h 20`2.3 Key Characteristics of remittances flows PAGEREF _Toc524622720 h 212.4 Formal and Informal remittances flow –magnitude & direction PAGEREF _Toc524622721 h 222.5. Challenges of formal and informal flow PAGEREF _Toc524622722 h 242.6 Senders of remittance, methods, and challenges PAGEREF _Toc524622723 h 252.7 cost of sending and receiving remittance PAGEREF _Toc524622724 h 272.7.1. Inform the diaspora about the existing remittance transfer PAGEREF _Toc524622725 h 282.7.2 Creation of more efficient channels of sending remittances PAGEREF _Toc524622726 h 292.7.3 Bank the unbanked PAGEREF _Toc524622727 h 292.8 Securitization of remittance PAGEREF _Toc524622728 h 302.8.1. Asset-backed securities. (ABS). PAGEREF _Toc524622729 h 322.8.2 Mortgage-backed security. (MBS) PAGEREF _Toc524622730 h 322.8.3 Future flows backed securities. (FFS) PAGEREF _Toc524622731 h 322.8.4 Effects of the crisis on the remittance-linked products and programs. PAGEREF _Toc524622732 h 332.8.5 Regulatory issues are critical to the success of remittance activities PAGEREF _Toc524622733 h 332.8.6 Savings-based products are an important supplement to remittance financial products PAGEREF _Toc524622734 h 342.9. Increase competition among remittance transfer agents/legal restraints PAGEREF _Toc524622735 h 342.9.1 The global players PAGEREF _Toc524622736 h 372.9.2 Economics of remittance PAGEREF _Toc524622737 h 372.9.3 Strict regulations PAGEREF _Toc524622738 h 372.9.4 Medium sized and new players PAGEREF _Toc524622739 h 382.9.5 Exclusive distribution contracts PAGEREF _Toc524622740 h 382.10 Technological options PAGEREF _Toc524622741 h 402.11 Crypto Currency and remittances PAGEREF _Toc524622742 h 43RESEARCH METHODOLOGY PAGEREF _Toc524622743 h 443.1 INTRODUCTION PAGEREF _Toc524622744 h 443.2 Research design PAGEREF _Toc524622745 h 443.3 Data collection PAGEREF _Toc524622746 h 443.4 Data analysis PAGEREF _Toc524622747 h 45CHAPTER FOUR PAGEREF _Toc524622748 h 46DATA ANALYSIS, RESULTS AND DISCUSSION PAGEREF _Toc524622749 h 464.1 INTRODUCTION PAGEREF _Toc524622750 h 464.2 Barriers to the free flow of remittance PAGEREF _Toc524622751 h 464.3 Improving effectiveness of remittance through competition and introduction of new technology PAGEREF _Toc524622752 h 525.0 CHAPTER FIVE PAGEREF _Toc524622753 h 56CONCLUSIONS AND RECOMMENDATIONS PAGEREF _Toc524622754 h 56RECOMMENDATIONS PAGEREF _Toc524622755 h 60References PAGEREF _Toc524622756 h 64
List of tables and figures
TOC h z c “figure1.” figure1. 1 Remittance as %of GDP to African Countries PAGEREF _Toc525070673 h 9 TOC h z c “figure 4.”
figure 4. 1 Remittance as %of GDP to African Countries PAGEREF _Toc525070686 h 47 HYPERLINK l “_Toc525070687” figure 4. 2 remittance cost for selected sources TOC h z c “table 4.”
table 4. 1 Home remittance through MTOs by country of origin PAGEREF _Toc525071181 h 46table 4. 2 Remitance transfer fee from the UK PAGEREF _Toc525071182 h 49table 4. 3 Transfer cost of $ 1000 from UK to Nigeria PAGEREF _Toc525071183 h 50 PAGEREF _Toc525070687 h 48
figure 4. 3 Remittance value chain PAGEREF _Toc525070688 h 51
CHAPTER ONEIntroductionThis section constitutes the main gateway to the research. For simplicity purposes, the section has been divided into some subsections that address the different parts of the research introduction by the provided structure. The research problems, the aims, and objectives of the research have been explained in details. The author goes further to break down the rationale for the study. The proposed theoretical framework has also been discussed, and key components of the research design explored. The sections further include an explanation of the limitations sections where the challenges that were faced by the researchers during the fieldwork as well as during the analysis of the collected data. The sections closed with a definition of terms section.
Research backgroundInternational remittance refers to the funds that are citizens of a nation, who work outside the nation, send home to their banks or families. The immigrants remit funds to the beneficiaries in the respective countries of origin which raise the GDP which intern raises the level of livelihood of the beneficiaries and also develops the institutions of banking involved. The foreign remittances reflect positive impacts in the growing nations. The explanation here is simple, the citizens of a developing nation leave their countries and seek employment abroad among the developed countries but most importantly invests their capital earnings back home. One can also quickly derive the relationship between the foreign remittances and the fast developing nations. For the simplest example, the remitter sends the cash through some financial system of an institution such as a bank of branchless mobile banks. The recipient of the remittance is expected to hold an account with the financial institution that was either used to send the money a related body to access it. Upon the completion of the transactions, the country gains some revenue in the form of taxes that may be charged on such transfers as well as transfer costs between the two countries. The growth of the financial infrastructure in the recipient country is perhaps another advantage since the receivers may be required to have necessary banks accounts to complete the transactions and receive the money sent. On the further scale, the individual may decide to open up some business or build some structure that shall be able to offer some revenue as well as create employment to the citizens of that country. Many mobile-money transfer systems and companies have also largely benefited from the foreign remittances Rotman and Thomas (2012). By the year 2011, the funds to developing nations across the world had been estimated to be $35i billion Rotman and Thomas (2012).
According to Fayissah and Asia (2010), the constant flow of capital into the developing countries regarding remittances is not studied adequately until the year 2005 when the remittances total up to $181 billion which is a double increase in the remittances as compared to the other previous years. Also, the author explains that there is a likelihood of the amount to be higher than 94 billion dollars due to the unaccounted money transfers. This amount doubles the amount of foreign direct investments into the economies of the developing countries Barajas and Fullenkamp (2009). A recent study has shown that the cash flow from the foreign remittances to the upcoming nations has by far surpassed the threshold previously set by the DFI, revenues from exported good as well as money from the foreign aid (Giuliano and Ruiz-Arranz, 2005). In the year 2005 alone, the amount of the remittances international cash flow into the developing nations appears to double the foreign aid assistance made available to these countries (Gupta et al., 2007). Importantly, the growth trend in the international remittance to glowing countries also held true for Africa. The overall remittances to the Sub Saharan Africa increased to 55% which translated into $7 billion between the years 1990 and 2005 (Gupta et al., 2007). When these figures are rationalized according to what each the country received with respect to the GDP, a clear trend was drawn with Lesotho being on top of the countries followed by Cape Verde with Mali and Nigeria taking the last positions in the list with a ratio of 5% (Gupta et al., 2007).
Figure 1Remittance as %of GDP to African Countries
figure1. SEQ figure1. * ARABIC 1 Remittance as %of GDP to African Countries
The following section explores some of the established literature further on this subject as well as explain the major challenges to international remittances both in the past and the difficulties prospected in the future taking the case study of Nigeria the UK corridor.
1.2 Research problem International remittance is a global issue and usually involves the transfer of money between different countries. This money transfer is transacted from the developed countries to third world countries and is done by migrants who send the money to their families back at home. Therefore since this process involves different countries, it has to meet the standard guidelines of monetary transfers, and this is where it faces a lot of challenges. In this case, the study of Nigeria and the UK, the major setbacks that limit this process is explored since there is an apparent gap in the whole process of international remittance both to the agencies, administrative and beneficiaries.
Migrants find difficulty in this process due to the many and lengthy procedures that accompany the whole process of money transfer. It is important to outline this to find a better solution for the entire process and improve the current situation. The goal is to achieve better and easy monetary transfer procedures in the future. This goal should facilitate the smooth transfer of remittances between the sender and recipient. Hence the beneficiaries will have full access to the funds without struggling. The final result is a significant improvement in their lives.
It is important to provide adequate knowledge and understanding of the whole process of international remittance as it will be of benefit to both countries and individuals involved and a possibility of total elimination of the challenges it faces.
1.3 Research Aims and Objectives
To formulate lasting solutions to the challenges affecting international remittances, the study has shed light on some of the governance and policy issues that are a must to address. This section has gained support from a recent study by Udah and Ebb (2011), in which the author’s sort to look into the nexus between governance and systems of money transfer in developing countries. The significance of each of these critical challenges to the success of international remittance transfer shall be analyzed. The results could be made known to the stakeholders involved, and thus they can formulate policies that are achievable. The objectives can are as per the below summery as:
To evaluate the effect of new technologies introduced to the efficiency on remittances across nations.
To evaluate how the adaptation of technological innovations and competition affects efficiencies of international remittance
To find whether cryptocurrency can help solve the major constraints facing international remittance.
The formulation of the hypotheses revolves around the easing of the processes involved in remittances transfers as well as facilitation from both the governments and private sectors.
1.4 Research questionsThis research will find possible answers to the following questions:
What are the barriers to effectiveness and the free flow of remittances and how are they affecting the remittance within the UK-Nigeria corridor?
This question explores the specific constraints to international remittance hence giving a more in-depth explanation of the main constraints. This detailed breakdown of the question provides a broader perspective and understanding to the nature of barriers that normally affect efficient remittance process, especially between Nigeria and the United Kingdom. This research further highlights an in-depth knowledge of the major differences between the sender and the receiving country such as technology that can directly affect remittance between the two countries. By answering this question, a critical part of this study shall have become to completion since the differences in the structural processes between the remittance countries is a major problem to remittance transfers. By exhaustively conducting a review of the available literature about this matter from books, articles, and online journals, this questions is both intensively and extensively addressed.
How can competition and the introduction of new technology in international remittance business improve the efficiencies in the Market?
The existence of competition affects the transfer of remittances within different corridors. In this case study, the text shall provide a deeper understanding on how this competition poses a challenge to remittance transfers. The text also explores detailed methods and procedures on how to overcome navigate the competition challenges while ensuring that healthy competition prospers. Technology also influences remittance thus it is very crucial to outline and explain how this specifically affects remittance flow and transfer(Hernández-Coss, 2006). The study aims at answering this question through clearly pointing out to the competition level as well as explore alternative measures applicable in the market to ensure that the regulation is healthily made. The analysis of this question focuses on providing an overview of the secondary data that available in different formats such as books, International Monetary Fund (IMF), journals and World Bank as (Lewis,2013) advocates for in cases of qualitative research.
Can cryptocurrency solve the challenges of international remittance?
Cryptocurrency transfers money digitally using cryptography, and therefore it does not involve government agencies and authorities. It is an almost flawless currency that can achieve both flexibilities as well as security for all its customers. Even though there is still some major critic of the whole idea surrounding cryptocurrency, major experts in the world, as well as other users, have continued to illustrate that cryptocurrency is the ultimate cashless-world solution. The blockchain is an incorruptible virtual ledger system that is used to record all the transactions that are carried out using cryptocurrency. This research aims to analyze its effectiveness and provide an explanation as to whether it can help eliminate the barriers found in international remittance, therefore, it is going to explore its use and accuracy and whether it can prove to be the best alternative for the remittance transfer. The question is reflected upon in this research through the analysis of existing information and publication on various websites books, journals and other forms of secondary sources.
1.5 The rationale of the study According to World Bank (2010), Nigeria is the seventh biggest recipient of international remittance with an estimated value of $10 billion most of it originating from the United Kingdom. This assertion implies international remittance is a major contributor to the economic growth of Nigeria, and this affects the level of livelihood of its citizens as it makes up to 40% of household income, it is, therefore, important to provide a clear understanding and linkages of the whole process that is involved. The relative stability and growth of international remittance during times of natural disasters and economic downturns makes it an important tool on per capita basis (Maiga et al., 2010). A significant number of Nigerian living in the UK prefers to remit finances through informal means regardless of the many financial institutions in place. A good explanation of this situation may be the lengthy processes involved often when making some committing remittance from the UK to Nigeria. Needless to state, these processes are time-consuming as well as expensive especially for the migrants on the casual labor. Osili (2007) explains that TT would seem a cheaper option to send a friend to deliver some form of remittances to family members back at home rather than to pay for the high costs that are mandatory to incur when using the available formal means of remittances. The relations observed among the Nigerian Immigrants in the UK provides a basis of evaluating whether they prefer the formal or the informal means of remitting finances and other valuables. A major challenge is a lack of faith by the migrants in their established financial institutions as a result of some experience that the particular individual had or corruption cases in the banking and financial sectors in Nigeria as Soludo (2004) discusses. The negligence by the Nigerian government to establish stronger financial systems (Nwankwo, G.O, 1980) and infrastructure as well as the adoption of technology also contributes to the challenges faced by both the migrants and the government of Nigeria concerning the subject of remittance transactions.
This study seeks to shed light upon the issues discussed above and in so doing, propose amicable solutions to these challenges. The inferences shall be made only upon some critical examination of the challenges.
1.6 Theoretical framework According to IMF (2009) remittance is cross-border payments made by foreigners that have stayed in a country for at least one year to their home countries but they do not necessarily have to cross the border but migrate to another country or region, these transfers are goods and finances. Remittance has a link to theories of migration which directly links it to its motives, uses, effects, and channels of transfers. It is usually both in monetary and non-monetary values that migrants send back to their home country (Tewolde, 2005). The classical theory states that large capital transfers and industrialization resulted in fast growth and development of the economy alongside the advancement of the technology in a state. The witnessed change is brought about by the growth and differentiation of the communities involved concerning the advancement in the education sector, health and research and eventually, the democratization of the whole or a good proportion of the said population (Englama, 2009). According to Englane (2009), the wage graphs are expected to show some rise in those countries that countries that are the recipients from the migrants more so when there no labor-constrained migration (Englana, 2009). This theory views migration as optimal allocation of production factors between the sending the recipient countries thus striking a balance between the two. This migration creates some shift of energy regarding able men and women who continue to develop these urban areas and therefore contributing to the overall economic growth of the country ( Hass, 2010).
The main motive behind remittance is supported since its main goal is to remit some of the money to their home country which is mainly the case under temporary labor migration as Page and Plaza (2006) conclude. Remittance is a way in which migrants maintain contact with their home country, the combination of the World Bank as well as other monetary agencies around the world regarding offering support to the documentation of the transactions made via remittances in liaison with other national and central banks has contributed to an increase in remittance data. (Rahman and Fee, 2014). When migrants go to a host country where their economic performance is still uncertain, they tend to make remittance and savings decisions much early and thus adjust their return plans (Delpierre, 2014).
There are several motives as to why an immigrant chooses to remit, Theory of self-interest motive states that an individual remits for personal gain such as to build a house, buy land reimburse past expenditure or increase their visibility at home hence the possibility of inheritance (Miller, 2001). The other theory based on motives is the theory of informal contacts of insurance which states that a migrant will remit to cover incidences of shock so that if it occurs the family back at home will be at a position to adjust and continue with the normal norm of life. (Englama, 2009).
1.7 Limitation of the study Remittance between Nigeria and the United Kingdom in itself presents a difficulty in access to the main information since there is limited research conducted on the actual barriers that affect the remittance. The nature of the barriers and its implementation is sophisticated; it is quite difficult to handle the different agencies involved in acquiring the information. Thus lack of corporation between various stakeholder is the key challenge.
In remittance, there are difficulties in measurement of the propensity of how time frame will affect the way a migrant will remit hence it will lead to variation in the amount and the general trend and information on remittance.

CHAPTER TWO2.0 Introduction
This section presents sources, i.e., the sources of information put into consideration during the research and preparation of this report. The section makes use of books, credited articles, journals as well as books surrounding the subject area; Barriers to International remittance while also drawing a clear relation of the findings from these materials to the case study in question, Nigeria and the UK corridor.
2.1 Immigration and Remittance NexusRoughly defined, with regards to the context of this piece of text, immigration refers to the action of people moving from their home country to another foreign currently where they intend to establish their new settlement indelible settlement in that foreign country. Nexus is simply a connection between objects or relationships between variables. Olney (2013) explains that People immigrate for different reasons, but all immigrants have a common purpose for their action in that they are trying to shape or reshaping their lives by working in the resource foreign countries.
The immigration of people is determined directly by the prevailing push and pull factors with the given geographical jurisdiction (Rosenberg, 2018). The push factors refer to those elements that tend move people away from one region to another while the pull factors refer to that aspect that tends to attract people into a certain geographical jurisdiction (Rosenberg, 2018). When people immigrate to new locations and succeed in their quest for better livelihoods, they can engage their relatives and continue being a part of them by way of supporting them. It is imperative to state here that more often than not, the push factors are always negative factors and may be constituted of political upheavals hence causing unrest in the immigrants’ origin, economic factors due to high inflation rates (Rosenberg, 2018). According to the UN, form all the population of the world, there were 214 million people who were residing in a country different from their birth country (UN, 2011). According to the social capital theory, the movement of people may be influenced by different factors that may not necessarily include the violent push factors (Becerra & Kienhe, 2016).
The number of migrants in a given country is directly proportional to the number of remittance transfers that occur in that particular country. When the number of migrants is high, then the remittances transfers are also higher (Girma and Ababa, 2016). This relationship holds true more so when the source country is richer and thus has better wages for the employed migrants. It is important to state that even though there is an increase in remittances to the receiving country, the consumption of the source country also increases as the migrants also have to spend substantial amounts of their wages towards their living cost when in the source country. According to the study that they conducted, a finding is made that for every 1% increase in the remittances to a country; there is also a 0.06% decrease on the wage of the average worker in the host country (Girma & ABABA, 2016).
Piana (2007) goes further to illustrate and document the relationship between the number migrants and remittances as follows;
Proportionality between the immigrant population and remittances occur in any given country
The higher the incomes either regarding wages or salaries for immigrants in a given country, the higher the transacted finances through remittances.
(World Bank, 2017) Supports this argument through the most recent reports indicating that among all African countries, Nigeria receives the highest amount of remittance a fact that can be supported by the high number of Nigerians living abroad. The World Bank released a report asserting that Nigeria received a recorded $20 billion in remittances between 2011 and 2013 (World Bank, 2017). There is an estimation that over 5 million Nigerians live abroad, another supporting evidence as to why Nigeria has made it to the first rank despite being last some years back (Vanguard, 2016).
The World Bank (2017) further states that the general witnessed growth regarding remittances to different countries is as a result of growth in the European Union, Russian Federation, and the United States.
2.2 Remittance concept and definitionsThe concept of the remittance is simple; immigrants send back money to their developing countries which in turn builds upon the country’s GDP. Unfortunately, lack of documentary evidence on the direct impact of remittances to the GDP of a recipient country makes it not possible to establish an empirical formula of quantifying the contribution that remittances have on developing countries. Remittance money is used to eradicate poverty as well as fostering development in the receiving country (Piana, 2007). The definition of the remittance may vary in accordance to an individual’s interpretation of the same terms. For example, most of the analysts only focus on the monies sent back to the immigrants’ country to determine the impact of the immigrants’ remittances on their countries of origin. Failure to acknowledge the expenditure transactions that the immigrants make in the source country results in inaccurate information synthesized by weighing one side of the variables only.
`2.3 Key Characteristics of remittances flowsSome researchers have been able to establish the behavioral trend in the remittances flow to different countries in the world. According to a research that carried out by Gandiwa et al. (2016), some of the characteristics that are witnessed in South Africa when Zimbabweans immigrate to the nation are subjected to analysis and inference made. Some factors affect the remittances flow to the developing counties as discussed in below.
From the analyzed results Yang (2011) determines that the older people sent money back home more than the young people. Married people are also observed to send remittances back home more often as compared to those who were single (Gandiwa et al., 2016). The married immigrants also have a return plan as compared to many of the single immigrants that were single.
The subject matter, Nigerian migrants in the UK, has also established some patterns in the flows of their remittances. According to Hernandez & Egwuagu (2006), the migrants who are involved in this study speak about the paramount duty to support their families back in Nigeria using remittances. The Nigerian migrant community in the UK has also had an impact on the remittance approach that was considered by the migrants. The community has formed a support stem that can hold the migrants together regarding supporting one another and the less fortunate in the group (Hernandez & Egwuagu, 2006). Also, It is observed that the less fortunate members rely on some of the Nigerians returning home to send their remittances. These kinds of remittances are unofficial, and delivery is by way of hand to the family members back at home. The established migrants use official means such as MTOs that are linked to a bank back in Nigeria from where the family members can collect their remittances by showing an identification card and a unique code that is shared by the person who initiated the transaction in the UK (Hernandez & Egwuagu, 2006).
Sometimes the remittances may include other kind items such as clothing, watches, phones, etc. These are mostly delivered using the migrants visiting their families in Nigeria except for the case of larger presents such as cars. The remittance from this group of Nigerians is therefore characterized by;
Formal and informal remittance flows as explained above
Participation by all the migrants whether a casual laborer or a professional
There are difficulties in the transfer of the cash due to the cost of sending the remittances
2.4 Formal and Informal remittances flow –magnitude & directionFormal remittances are those remittances that are sent back to the migrant’s country of origin through the established legalized means by the government. The formal remittances thereby include all the funds that are sent through the financial systems of a country and are traceable through records.
Informal remittances refer to the opposite of the formal remittances, in that they comprise of the remittances that enter the migrant’s country from the migrant through other means other than the established mechanisms of entry about such remittances. An example of informal remittances includes the monies that are delivered by way of hand by a friend or even a relative. Informal remittances miss to be put into records, and therefore the exact value of such remittances cannot be established.
According to SSRC (2009), the informal remittances account for more than 35% of the total formal remittances and may at times surpass the formal remittances. Due to the unrecorded nature of informal remittances, it is not possible to fully establish the exact value or amount and or the direction that the trend of these remittances may take.
There are several reasons why some of the migrants decide to use the informal means to see their remittances through to their home countries. A good example is the previously discussed complexity of the available systems as well as the costs that are involved in succeeding a single transaction. There exist no empirical studies establishing the strength and force that shapes the remittances through the informal means. However, some studies exist conducted in the past that can give preliminary findings on the subject mentioned and shedding a little light on it. According to Ratha and Mohapatra (2007), the type of immigrant in question may influence the direction of the formal or informal remittances. According to the study, there are two categories of migrants namely internal and international migrants (Ratha and Mohapatra, 2007).The study establishes that for 1% of internal migrants who chose to use the formal means, there was a counter 43% of the international migrants who chose to transact through the formal legal means. Nkoro, Emeka, and Allen Owusibo Furo (2012) back up the study that the informal remittances are higher and more difficult to be empirically accounted for.
2.5. Challenges of formal and informal flowLots of challenges couple the formal transfer of remittance as it involves a systematic procedure and thus there are standards to be attained and followed strictly. According to De Haas, Hein (2006), data connotates that the major challenges that it encounters include: formal channels of remittance transfer do not recognize undocumented migrants. The undocumented migrants are a challenge especially when it comes to estimating the actual amount of the informal remittances that are transacted using these undocumented channels as they are unlawful (Mephosa, 2007). Sending money through formal means has a low level of awareness on the side of the public since most people do not have the correct and accurate information about the banking system, this causes some level of mistrust, and thus they cannot opt to use this channel (Habib, 2017). Banking systems are unwilling to work and has put in place strict banking regulations; Evidence exists that shows that approximately 32 billion dollars fail to reach to the targeted recipient due to the high transfer charges involved in the process (Edwards, 2016). De-risking or rather de-banking is a challenge facing remittance where the bank closes the accounts of people who are perceived to be of high risk. This approach is used to curb terrorism as the money transfer is prone to possible attack. The use of technology to transfer money is not secure enough as it is prone to error and failure, and thus they can be compromised through a cyber-attack, technology can become tampered with through hacking hence it does not guarantee satisfaction to both the sender and the recipient.
Formal means of transfer involves a lot of processes and procedure that are lengthy and tiresome, and thus it consumes a lot of time. Most of the people want to avoid the procedures as they high cost as one has to pay for the services provided posing an added burden to the sender. Thus increasing the total cost of money that the migrant has to cut off to remit is a challenge as well. The current cost of transfer stands at 7.4% of the total cost being transferred (Edwards.S, 2016). On the side of the recipient, he or she also has to find some extra cash to travel to an urban area from a rural area to access the banking system to withdraw the money.
As much as the formal sector faces challenges so does informal means too. Informal means of transfer is not perfect. First, the migrant has to look for someone they can trust and who is from the home country to send the remittance through him, and this requires a high level of honesty and trust, on the side of migrant remitting the cash he or she is not guaranteed the satisfaction on the service. The informal sector is inefficient regarding time since the person expected to take the remittance might decide to reschedule the traveling back home and thus cannot deliver the remittance in time (Maimbo, 2004). Informal means of money transfer do not have official signatures or agreement documents. The informal remittance transfer is risky for the sender and the recipient especially if the deliverer decides to channel the remittance for their gains. Informal means is also inappropriate in cases of a lump sum amount of money to intended to be remitted since it has no security and therefore is prone to possible loss.
2.6 Senders of remittance, methods, and challengesDFID (2005) records an estimate of 90,000 migrants residing in the UK from Nigeria and remitting for some decades. This figure does not include the undocumented migrants in the UK or those on a temporary basis such as students; This is an evident prooving that the number of immigrants living in the UK is quite high. A study done by Gapen(2009) backs up the idea that the economic growth of the immigrants country can, in a way, is attributed to a large number of the immigrants in the UK. This growth holds true since the more the migrants, the more the remittance transfer back to their country. The Nigerians are brought up in a social setting where the fortunate members if the community takes care of their less fortunate relatives. In 2004, the UK recorded a flow of US$4.4billion. A substantial proportion of this amount, between 10-15%, was transferred to Nigeria. Nigerians have a long history of migrating to the UK that spans 50 years. This facts about the immigrants could point out to the existence of a noticeable a country’s remittance inflow as a direct result of citizens living abroad.
Coss (2007) records Lagos to be the main destination of remittance in Nigeria with an estimate of 50% and Abuja with 16%. Others are Benin, Ikeja, Enugu, Ibadan, Owerri, Warri, Port Harcourt, Kanu, and Kaduna. Most beneficiaries of the remittances have been found to live in both the southwest and southeast regions of Nigeria translating to the fact that most of the residents from the forenamed two places moved to the UK. Some migrants remit to their relatives as a way of paying back their loan since they supported them when they were traveling to the UK and after they have settled and become successful they have to remit back home.
Remittance transfer involves different methods, and the transfers are usually either in cash or kind, an in-kind method of transfer is normal goods such as cars, clothes many others. The cash method of transfer mostly deals with the banks which occur in many forms and can be in bank cheques, electronic transfer, and others. There are four main methods of transfer which are banks, western unions, PayPal, and e-transfers. Band transfer occurs through bank cheque is a cheque which is payable by a bank itself, a customer obtains it from the bank, Mail transfer is another method where the cash is transferred through the mail to a person with a bank account in the same bank either within or in another country. Western Union is another method of remittance that transfers money overseas, and its charges depend on the time frame that you want the money to be delivered and the distance, it is highly convenient. E-transfers allows one to remit money online where one is required to have an account number and banking route number. For international transfer, one should have IBAN and the account holders number, it is less expensive. Paypal allows one to send money electronically where it does not charge a fee to send but the recipient will be charged a fee to cash the payment (Fowler, 2011). Therefore, the different methods of remittance transfer give the remitter an added advantage of choosing from the many options and thus may find one that is cheaper and reliable or convenient for use.
2.7 cost of sending and receiving remittanceAccording to DFID (2005a), remittance transfer cost especially through MTOs is for every $100 the rate was 5% -12% and 4% – 6% for every $500. Therefore, for every dollar that remitted the sender has to put into consideration the cost transfer whether formal or informal. The government and the involved parties and institutions need to establish collaborations and agreements which will facilitate the reduction of transfer costs (World Bank, 2005).
Coss and Bun (2007) explain that the struggle faced in the distribution of remittances have been a factor that has maintained the cost and charges high between Nigeria and the UK. The absence of innovation in the payment instruments and exceptional contacts between Nigerian banks and the money transfer operations (MTOs). The cost of sending remittance implies that migrants in the UK who receive high income can still afford to send a high amount of remittance while those with low-income level remit little money, the cost of remitting money from Uk is estimated to be 7% to 10% of the total amount being remitted (World Bank, 2010). When low numbers of migrants transfer formally, it implies that the banks will be operating at a very low margin of profit as only a little transaction will flow through their systems. The financial banks, as well as other legal entities, need to corporate in the effort of reduction of the transfer costs which is the major turn off for potential remittance transfer clients. The reduced transfer cost will mean that more people are attracted to conduct transactions which will include even the immigrants consequently improving the profit margins for the intermediary bodies as Koechlin, V., and Leon (2007) supports. Creation of public awareness both to the sender and the recipient on the information regarding remittance transfer cost enables migrants to make informed decisions on their remittance. It is difficult to estimate the cost of informal remittance since there is no documented information on it and normally the sender might just come to an agreement with the person taking the remittance to the beneficiaries and normally it is goodwill and incurs no payment.
The following key issues reduce the remittance transfer cost and enhance efficiency in remittance flow:
2.7.1. Inform the diaspora about the existing remittance transferMonopoly in any given market gives the supplier an added advantage of dictating the prices of commodities same scenario applied in the remittance transfer system, where few channel transfer raises the cost of remittance transfer, therefore, it is important to encourage more legitimate channel transfer to create competition and thus reducing the cost of transfer in the long run. Educating the migrants on the various channels that exist enables them to choose the best channel that serves their needs. When the number of channels increases, there is an improvement in transparency since the cost of transfer will be made public to all. This transparency can be successfully achieved through the introduction of a launch card which ranks the transfer fees in different money operations and banks according to predetermined criteria and found in different websites, and therefore the senders can compare the fees charged for remittance and thus improving transparency (Agunias and Newland, 2006).
2.7.2 Creation of more efficient channels of sending remittancesWhen the channel used to remit is efficient the cost of remitting shall in turn drop. Efficient channels mean that the transfer agents incur less cost in the transaction placing then in a better position to reduce the cost for their customers without having an impact on their profit margin. Collaboration between the UK and Nigeria government will reduce the remittance transfer cost and increase efficiency. The government, in this case, plays a vital role in setting up regulations and policies that govern the taxes and other deductions subjected to the profits and transactions that the remittance transfer agents incur. The regulations may include a deduction of the taxes per transactions or tax-free transactions for some financial transaction amounting to a certain government determined the amount. When the government makes it easy for the smooth operation of banking organizations efficiency is improved even to the quality of services that the customers receive. For example, linking of the postal services and bank accounts between the two leads to reduced cost of remittance as backed up by Carling (2014). Carling explains that easily linking up of different accounts with efficient transfer of funds with reasonable charges will encourage more formal remittances by the immigrants regardless of the number of their earnings.
2.7.3 Bank the unbanked Unbanked are the persons who do not own bank accounts and have not expressed the interest in doing so. Increasing the population size with bank accounts implies easy access to services that are digitized by the bank such as e-transaction. E-transactions are more affordable and more efficient than other means.
2.8 Securitization of remittance According to Hughes (2011), remittance securitization as a securitization of diversified payment rights which are the rights that the bank has over the fund it receives and remitted to the beneficiaries, the bank receipts of orders are separate from its obligation to pay the beneficiary. Hughes (2011) outlines that the financial institutions will always find a way to leverage the remittance that it receives to deliver to the beneficiaries. Securitization comes from the concept of converting something into an asset. Banks securitize during the crisis. Securitization maintains employment, investment, and access to the capital market (Ketkar et al., 2005). Securitization enables the bank to have access to foreign borrowing through remittance flow. Therefore, it is where debt service matches against the flow of remittance. Nigeria banks receive a high amount of remittance regularly. Therefore, it implies that it continues to enjoy its presence in the remittance business. Therefore, it can borrow high efficient rates from international markets (Ketkar, 2001). The bank needs to put up measures that ensure continuity if the flow of remittances to maintain the target margins. The measures should be made in a manner that attracts more remittances through the formal means which would appear more safe and efficient than the informal.
Shimeles (2010) suggests securitization as an innovative ways used to capitalize on remittance and future exports and tourism, estimated at $17 billion to be potential securitizations, $2 billion is to be raised from future remittances, Shimeles, A. records that Afreximbank in Nigeria obtains a $50 million loans through MoneyGram that is currently under securitization against the remittance flow. Some factors inhibit full exploitation of securitization flow such as weak working relationships, inadequate experience in international markets and low capacity to enforce contracts. Successful remittance securitization requires maintenance of its presence in the market. The maintenance implies that there has to be consistent in remittance flow for a good duration of time such as three years and above. Only then can it gain its base to compete and access international securitization remittance loan. A strong profit margin is an important attribute as it enables a country to improve in it market scale and thus a given bank can obtain a high percentage of securitization remittance. Good management enables a bank to maintain a steady flow of remittance and thus to boost it securitization; high brand value endorses a bank with the added advantage over remittance securitization as they are the trusted ones in the international market (Kothari, 2006). Therefore, securitization contributes to the development of the country’s economy.
According to Mohapatra (2008), the trend in the global market is well bucked up by the emerging trends that are well performing in the remittance securitization flow. The existing crisis in the international market is driving developing countries to find cheaper and long lasting external financing whose achievement can only be through marketable collateral (Adams, 2009). World Bank (2006) indicates that there is a good performance in the remittance flow due to the countercyclical nature of remittances this implies that when a country is undergoing economic crisis migrants tend to remit the high amount of money.
Following the U.S Congress that deregulated the financial systems and relaxed the Federal Reserve rules popularization of securitized instruments increased, the competition of savings and loan institutions for the commercial banks also increases (Kregel, 2008; Kendall and Fishman, 1996). Securitization takes place in the following three key categories:
2.8.1. Asset-backed securities. (ABS).An asset-backed security is a financial instrument that gives the investors the right to collect interest and principal payment generated by a pool of loans other than the mortgage loans.
2.8.2 Mortgage-backed security. (MBS)A mortgage-backed security is a form of securitization that is only backed by packing mortgage loans which include the commercial and the residential.
2.8.3 Future flows backed securities. (FFS)The FFS is securitization that gives the right to the investor to claim revenues expected to be generated from the originator’s normal course of operation. According to how Ketkar and Ratha view it, the exposure too much risk of the developing country is eliminated by how the FFS structure is set up. The structure ensures that the receivable is paid for before it gets to the recipient before all the requirement, and the obligations usually set by a bond of investors are met fully. Securitization structure has a critical effect reduction of risk involved in the pathway of converting the funds from the foreign currency to the local home currency in addition to the transferring of the funds to the intent ended beneficiary. All these measures ensure that the credit rating is over sovereigns appropriately and acceptable.
The remittance given by one person is normally very little in itself but when all the remittance from all migrants are combined then it even more than the international aid given to a country and are more consistent compared to the private capital flows. Ratha, an experienced economist who works for the World Bank, argues that a relationship initiates between any borrowing country and international creditors. The borrowing creates securitization between the involved parties in that accessing a loan in the future is easier. Also, the borrowing builds up a credit history for the involved countries and institutions which significantly eases accessibility of the financial markets in future in case any party needs to transact. Further, Ratha explains that the credit history may be factored in establishing the cost charged to access the markets and any records may be an added advantage to have a reduced or subsidized cost.
Achieving the remittance securitization has proved to be a difficult task owing to the factors discussed below.
2.8.4 Effects of the crisis on the remittance-linked products and programs. Remittance flow tends to drop by a large percentage during a crisis. Crisis causes unemployment to many migrants. Unemployment reduces projected loans in the international market (Ikuomola, 2009). Remittance-backed products withstand a financial crisis, which reduces associated risks as Donna and Williams (2016) discuss. For example, housing microfinance projects lower the risk to financial institutions.
2.8.5 Regulatory issues are critical to the success of remittance activities Any company or investor must put effort to attain some regulations and standards set up by the host government to function in those particular foreign countries. A country sets its standard to limit immigrant’s exploitation of its resources to their advantage. The regulations may also be put in place to curb any illegal businesses or undocumented transactions that robs the government a great opportunity to extract revenue. The government should strike a balance to ensure that the immigrants and the host countries both reap from the transactions. For example, some countries regulatory procedures inhibit marketing of remittance backed mortgages and loans. Therefore, designing a remittance project, it is important to put into consideration the regulatory laws and framework for remittances.
2.8.6 Savings-based products are an important supplement to remittance financial productsSome products can stand in for equivalent financial products. The product is likely to be a property, a valuable item or can assume any form of a financial equivalent that immigrants can use to remit back money without necessarily involving finances in the process. In this manner, the charges could be regulated or avoided to in extreme cases where there exist no charges for such savings-based products. Also, the immigrants should be encouraged to continue paying for mortgages regardless of a financial crisis through a well-defined savings plan prior made. The saving plan plays a vital role in moments of financial downfalls such as when someone loses their source of earnings due to various circumstances. The immigrants should consider alternative savings based products in their remittances are for saving.
2.9. Increase competition among remittance transfer agents/legal restraintsIncreasing competition implies that more agents be encouraged to offer a similar service increasing the supply and therefore automatically the competition increases. An increase in condition among remittance transfer agents would be seen in an improvement in the quality of services regarding effectiveness and accessibility (Pianha, 2007). An increase in accessibility can be achieved by establishing reasonable charges that can encourage more immigrants to transact formally through the agents. A high supply will also push the remittance transfer agent to the innovation of better services and adaptation of technology inclined technology in the attempt of securing a market space for their products and services. The improved services and the reduced cost of transfer would attract more immigrants to transact through them, therefore, a higher clientele bringing reasonable margins for the suppliers.
UK main remittance transfer agents include the banks, MTOS, and the informal providers, MTO s are in a way considered to the cheaper than the banks. Banks as the main agents of MTOs, and Bureau de changes being the main institution in the remittance market of Nigeria leads in the number of remittances received from international MTOs as well as interbank transfers. Bureau de changes operations involves buying of foreign currencies from recipients of remittances as well as selling them to those immigrating or traveling to the corresponding countries; It is important to note that the main aim of setting up the institution, in 1989, was to enhance the foreign exchange market as well as increases and ease the accessibility of hard currency. To date, there are approximately 293 licenses BDCs in Nigeria.The model below illustrates the formal remitance process and the agents involved.
figure2. SEQ figure2. * ARABIC 1 Remittance value chain

According to Olowa, (2004), Remittance transfer in Nigeria is majorly hindered by the constrained competitive environment. This constraint is best illustrated by the near-monopolistic money transfer organization (MTOs) and also by having the banks being the only authorized institution legally mandated to carry out international payments. This scenario in remittance transfer in Nigeria allows for competitive advantage.
The model of competitive behavior outlines that the entrants of agents into the market maintains the profit at the normal range in the UK-Nigeria corridor. There is a product differentiation due to increased commoditization of basic services enhancing the introduction of newly evolved tools and services in the market. Nigeria and UK experience competition equally. Factors causing competition both in Nigeria and the UK requires a detailed study and research. Competition is associated with challenges such as poor infrastructure, lack of physical address, demand, and supply of mainstream financial services, regulatory burdens, and the market power. According to Sudi (2007). Competition is mostly an attribute of the following factors:
2.9.1 The global players.
The cost charges by global players in the UK-Nigeria corridor is high. Competition is slowly translating to higher market power. Strong transfer agents that have a good brand globally tend always to exploit the migrants remitting by charging a relatively high amount for remittance, and this causes inefficient remittance transfer process and high costs.
2.9.2 Economics of remittanceEconomics of remittance industry presents a challenge structurally in the competition such as poor infructuous in Nigeria and geographical fragmentation of the remittance market. The number of migrants in the UK affects the demand for remittance transfer services. The migrants choose a convenient way to remit based on their trust and efficiency of a given agent or service. Therefore, it is crucial for agents to offer efficient services such as reduced cost and time frame for remitting and also improving then infrastructure relating to remittance transfer.
2.9.3 Strict regulationsThe regulatory framework in Nigeria poses a threat and increase competition by restricting the entrance of new players into the market. Regulations in the remittance transfer tend to influence competition in the market. If the regulations are restricting entrants from entering the market, it means that the number of agents in the market will be lesser. Thus, the level of competition will be the low and thus the high cost of a remittance transfer. Therefore, a need exists of adjusting and bringing into harmony all the regulations put up to govern the remittance market encompassing the sending and receiving of money markets. This improvement shall allow free entry into the market and thus offering a conducive environment and thus triggering healthy competition that is neither dictated nor influenced by the regulations and rules.
2.9.4 Medium sized and new playersA remittance transfer is facing stiff competition from the small and the medium-sized agents as they are favorable to remittance of the small amount of money. When the number of new entrants increases, a hiked competition occurs in the market of remittance transfer as they will be competing for customers and in the course of action, the cost of remittance transfer will reduce.
2.9.5 Exclusive distribution contractsTransfer agents with exclusive contracts tend to interfere with competition as they reduce distribution points. This challenge implies that the number of agents will reduce and thus high cost of remittance transfer and hence the competition will reduce.
Remittance has received public attention from the international agencies who are more inclined to the international transfers which could be a source of revenue and enhance international trade by providing a more convenient pathway for transactions. The private sector as well is attracted by international remittance evidence by the interest of supplying more reliable remittance means as a method of winning a market segment and maintenance of individual private sector position in the financial market. Further, civil societies and public authorities are attracted by the signals the remittances are emitting and are more interested in getting involved to defend the rights of the people by ensuring that the customers are not overcharged or overcharged to the extent that they prefer the informal less trustworthy means of remitting. The three entities discussed collaboratively boost information sharing about the industry and the opportunities it presents which in turn has increased the competition to provide the services as seen in the UK-Nigeria corridor as (Piana,2007) supports. There has been active involvement of the multilateral donor and remittance related institutions who have formulated policies that directly relate to competitive landscape of remittance moreover on the efficient payments of remittances (Coss, 2006). Competition may improve by forcing firms to calibrate their commissions and foreign exchange separately through modification of regulations to allow senders and recipients of remittance to specify their foreign currency separately. This change would have an effect of removing one profit source from MTOs; it also increases competition in the sense that it favors firms that already have access to foreign exchange versus the incumbent that do not have access (Suki, 2007). MTOs competition relies on thousands of agents who create acquisition and distribution networks. Transfer agents face competition due to their nature of services in that they are convenient, they manage finance professionally and can manage disbursement liquidity. The large and extensive network connection by Money Transfer Organizations is an important factor in determining their competition power in the remittance market as explained by Andreassen, 2006. Anderson further explains that any organizations which deal with completion evaluation and regulations such as the Competition authorities need to keep a record of updated market pricing as well as the market share portion in the remittance market. The possession of day to day pricing and market share information is vital in understanding the market forces surrounding completion imposed through pricing as well as that which is imposed by other non-price related factors.
2.10 Technological optionsEmerging technologies will change the future of money transfer. Currently, the level of technology globally has risen, and therefore the remittance transfer needs to adjust and consider technological methods of operation, technology is more efficient and saves time and as well as cost. In the remittances world the following technologies can be applied to improve its efficiency:
telecommunication network improvement,
Nigeria needs to improve its infrastructural system to ensure the development of good roads as Nilsen (2014) observed.
Access to electricity and access to telephone landlines this will reduce the transfer cost as more beneficiaries shall be able to connect to the formal financial systems (Coss and Bun, 2007).
With the availability of mobile technology, there is a possibility that remittance transfer will soon shift to the use of mobile phones such as smartphones and tablets which is more convenient, quick and cheap. The beneficiaries will not have to go to the bank to withdraw the money which is accompanied by long waiting queues, and the higher cost of the transaction, hence it has real chances of replacing the current existing forms of a remittance transfer. In Africa, mobile technology is spreading at a faster rate. Therefore, there are high chances of it being the revolutionary tool for remittance transfer; there is a need for developing favorable regulatory and financial infrastructure for mobile banking (Siegel and Fransen, 2013). According to the study by the World Bank conducted in 2010, In Sub-Sahara Africa, 64% of the total adults in a population are found to own at least one mobile money account. Global Findex data indicates that 6% of all adults in Nigeria own a mobile money account. In as much as the percentage is slightly low, the existence of adult’s holders of mobile money accounts rules in the possibility of carrying out remittances through mobile transfer in place of using the bank or any other MTO. The mobile transfer has gained considerations as being more accommodative than other means since as it caters to the needs of all migrants who possess mobile phones including those of small wages and remittance amount as (Seth, 2016) has extensively explained. Klapper (2018) argues that in order to raise the use of mobile money transfer in Nigeria the following needs to be put into consideration: reformation in the mobile framework so as to allow easy access to mobile operation license, expanding the agent network such that people can easily access services of mobile money, and digitization of routine cash payment. The widespread of the internet also going to shift remittance transfer to digital forms because money will be sent through e-platforms such as PayPal and thus banks and the informal transfers are likely to get eliminated out of the market slowly as Oni (2010) discusses. Unless the traditional money transfer such as western union finds cheaper innovative forms of transfer, then it is going to face competition from electronic, mobile and internet-based money transfer services (GAO, 2008).
The current international transfer is most likely to be replaced pay the emerging technology. The emerging technologies are slowly demeaning the need of going through the bank or contacting the bank for remittances by providing more easier, quicker and less costly ways of sending and receiving money. The threatened relevance of the bank can further be explained by the fact that as the emerging technology infiltrates the market, less remittance flow through the bank will be inevitable. Consequently, reduced remittance flow posses a great threat to the securitization aspect and therefore any contribution that the banking system has on the development of the involved countries greatly reduces. Since the developments facilitated through remittance flow will be compromised and thus it will drastically reduce. MOT existence is as well threatened by the rising new technologies which posing as more efficient and better options. To retain clients shortly, any MTO needs to create a partnership with the providers of the technologies in the market to ensure that the grass doesn’t appear greener on the other side for them. In occurrences in which the MTO needs to remain independent without any partners, it should consider incorporating the technological innovations into their day to day running to ensure that they attract more remittances through their system. One dominant technology that all MTO needs to consider is the adaptation of remittance transfer through mobile phones technology which has attracted great attention across all nations.
According to Prasnikar, et al., (2010) Benchmarking presents itself as the best tool for strategic management. Benchmarking supports and boosts the quality of decision making as well as strategic management. Benchmarking is vital in the context of new technology as it will allow the use of new methodologies, especially in remittance transfer.
Technological options are far much efficient compared to the current formal and the informal channels available. Furthermore, it presents itself as the ultimate solution to the remittance transfer. Technology poses as a potential solution to all the limitations of other remittance channels used by immigrants; this can be-be understood by the different mechanism of operation which has taken a whole new direction. Technology does not require documentation of anything, no legal agencies with strict rules involved in its transaction and thus it presents itself as the most favorable alternative since it can navigate many challenges that other means do not seem to overcome.
2.11 Crypto Currency and remittances
Cryptocurrency is a term referring to digital currencies that recently has been introduced in the financial world on different parts of the world. Cryptocurrencies around the world rely on sophisticated cryptography to present the world with a virtual medium of exchange that is accessible from anywhere around the world. Cryptography is defined by the creation of complex unreadable texts or hashes of texts using complicated algorithms which achieves unmatched security. ElBahrawy, Abeer, Laura Alessandretti, Anne Kandler, Romualdo Pastor-Satorras, and Andrea Baronchelli (2011) explain that Cryptography also depends on mathematical equations that are used to dictate how the algorithm that is produced can change normal human-readable text into a complicated form of characters that are intelligible and can only be decoded by another system that is authorized to perform such operations.
Cryptocurrencies do not have any regulatory authority but instead focus on a decentralized cash system that is secure and easy to access.
Blockchain has the possibility of transforming the financial industry; it is slowly gaining momentum in the remittance transfer as it is faster, cheaper and offer better financial services to the underserved and the disfranchised by the local formal institution. It is the foundation of cryptocurrency like bitcoin. As a mean of remaining relevance and not wanting to be outdone, different Banks are incorporating, and others seem to consider the use of blockchain as a mean of extending global networks in real-time as (Sayapina, 2018) believes.
RESEARCH METHODOLOGY3.1 INTRODUCTION Research methodology is the tool that is used to collect the data. This chapter gives detail information on theories, concepts, and ideas relating to international remittance.
3.2 Research design
This research employed a case study in the UK-Nigeria corridor (Young, 1960), as a comprehensive study of a social institution such as a person, group or district. Lewis (2013) suggests that a research design enables one to explore how things are going on in a particular entity and thus giving an understanding of the circumstances. According to Zainal (2007), a case study approach enables one to develop a causal relationship between different factors in a given entity. Case study covers only a small portion of an area as a representation of the whole. This study uses a case study of the UK-Nigeria corridor to evaluate the effectiveness of remittance transfer.
3.3 Data collectionData is obtained from the documentation and publications. The main sources used are the data from the World Bank, International Monetary Fund and the International Organization for Migration. A critical analysis of journals and research papers is used to derive the major themes causing inefficiencies in the remittance flow within the UK-Nigeria corridor.
3.4 Data analysisThe qualitative data obtained has been analyzed through content and thematic analysis where results are coded and presented as verbatim. Content analysis recorded from different sources enables the researcher to come up with critical themes on the subject matter. According to Duriau, Reger, and Pfarrer (2007), content analysis enables one to understand how an entity operates and how it affects or affected by different situations.
Palmquist (2005) illustrates that content analysis is an effective tool used in determining the existence of certain words or concepts within texts; researchers then analyze the relationship, meaning, and presence. Texts include books, newspapers, articles, journals, discussions, documents, speeches and publications.
CHAPTER FOURDATA ANALYSIS, RESULTS AND DISCUSSION4.1 INTRODUCTIONThe data obtained is subjected to in-depth analysis by reviewing the content and drawing the major relevant themes. Research questions are answered. The findings are demonstrated in both graphs and tables. The research sought to determine the major barriers affecting international remittance in the UK-Nigeria corridor.
4.2 Barriers to the free flow of remittanceSome factors may affect remittance flow negatively; Cost of remittance is a major issue that influences the remittance flow because it influences the transfer method and amount.
table 4. SEQ table_4. * ARABIC 1 Home remittance through MTOs by country of originlefttopIn the4 above table, the UK is a second largest source of remittance to Nigeria and therefore, this suggests the importance of improving and making remittance transfer in this corridor more efficient.
MTOs retail prices for sending money from UK to Nigeria
figure 4. SEQ figure_4. * ARABIC 1 Remittance as %of GDP to African Countries
In the above graph, western union is the most expensive mode of money transfer in this corridor yet the most preferred formal payment; this is an attribute of its monopolistic nature where it has an exclusive contract with the banks. Consequently, there is a need for increased competition to curb the cost of transfer.
figure 4. SEQ figure_4. * ARABIC 2 remittance cost for selected sources
The high cost of remittance transfer in the UK-Nigeria corridors calls for alternative methods of transfer. Formal remittance transfer can increase by lowering the cost of a remittance transfer.
table 4. SEQ table_4. * ARABIC 2 Remitance transfer fee from the UK

table 4. SEQ table_4. * ARABIC 3 Transfer cost of $ 1000 from UK to Nigeria
The digitization of the remittance value chain in the remittance flow between UK and Nigeria is the best option of cutting down the cost of transfer through the use of technology. Digitisation lowers the dependency on cash agents with high transaction costs and eliminates insecurity risks associated with remittance transfer (FSD Africa report, 2017). Cash to cash transfer dominates remittance transfer value chain in UK/Nigeria corridor. Remittance value chain is illustrated in the figure below:
figure 4. SEQ figure_4. * ARABIC 3 Remittance value chain
The first mile is the payment or rather transaction made by the sender. Middle mile represents information exchange between the first and last mile. The last mile elaborates how the recipient obtains the funds.
Regulations governing transfer mode is another burden that affects remittance flow.
Based on the thematic analysis of this research the existing regulations in the remittance market tend to affect its transfer and thus making it inefficient. Remittance in Nigeria operates under the Foreign Exchange Act of 1995 which gives the authority banks to perform foreign currency payment under the definition of authorized dealers; section 14 regulates outbound payment under specific circumstances by establishing a very low limit of N5000 (US$40) as the unrestricted outbound transfer thus restricting most transfers. The act establishes an autonomous Foreign Exchange market which provides for monitoring and supervision of all the transactions in the market. Through the Act, the central bank is the authority appointing authorized dealers in foreign currency, authorized dealers are limited to only banks and thus limiting international foreign currency payments to banks. Generally, regulations in the international market inhibit competition thus affecting its efficiency.
4.3 Improving effectiveness of remittance through competition and introduction of new technologyCompetition in the remittance transfer market affects its efficiency. From the formal research transfer in the UK-Nigeria corridor are carried out by the Western Union with the highest percentage of 78%. This figure poses a threat to other MTOs as they cannot form a partnership with other providers because it is prevented by the exclusive agreement of the western union as the solely licensed money transfer. The other MTOs which could be competitive in Nigeria include the Abbey, cash, chequepoint, Coinstar money transfer, Double crown enterprise, money-systems, money gram, smart money, and world transfer. It is in the records that 29% of the bank’s location is in Lagos with 6% in Abuja this implies that recipients cannot easily access banks and thus this affects the efficiency of transfer since most senders will prefer informal means of a remittance transfer. When there is the increased competition, it interprets to improved service quality, reduced informality, increased financial access and low cost of transfer.
A technological revolution is taking place in Nigeria which has facilitated an increase in the popularity of mobile banking, online transactions and Automatic Teller Machines (ATMs). There are an estimated 15,000 ATMs in Nigeria, and The Nigerian banks are in the process of introducing a VPlus card which works similar to a visa electronic and can be used to withdraw money internationally.
Mobile banking is also gaining momentum in Nigeria; it offers two types of services which are a Java-based platform which provides information on savings and balances in the bank account, the bank is also able to send messages in the form of SMS (short messages) to the client about any transaction made in the account (Pochyla, 2016). The other one is Java application which is an account to account transfer or payment to merchants. Fidelity bank currently offers information to clients through short messages such as their balances and last transactions, Diamond banks offer mobile banking and allows transfer of money to the third party, it requires minimal adjustments to be made to operate international foreign currency transfer. Nigerians in Diaspora have an online money transfer platform developed by UBA this allows the senders to send money to recipients at a meager cost.
According to Jurevicius,(2013) competitive advantage is gained by a firm through having attributes which are valuable, rare, imperfectly imitable and non-substitutable (VRIO). Remittance transfer industry in the UK/Nigeria corridor requires a model of transfer that is of high value meaning it cannot be threatened, rare implying it cannot be found with other companies, cannot be imitated and cannot be substituted.
Currently in Nigeria eTranzact is carrying out a pilot test on the introduction of new technology in its operation. The new technology allows a migrant to have a bank account in Nigeria while the person easily is in the diaspora. The migrant then can do transactions in the account through the mobile phone which allows the person to send money. This new technology reduces the cost, improves efficiency and operates outside metropolitan areas through the use of agents.
Corporate governance plays a key role in remittance transfer in the UK/Nigeria corridor. For example, the Central bank of Nigeria (CBN) recently authorized only three money operates to offer money transfer services to Nigerians which are the Western Union, MoneyGram, and the Ria. This restrictions placed on the remittance transfer offers a competitive advantage to the three companies. Therefore, corporate governance regulates the players involved in the remittance transfer which is essential for the steady provision of remittance services.
4.4 Use of Cryptocurrency to solve remittance transfer challenges.
International money transfer and remittance are carried out through the use of cryptocurrency. Due to the economic problems such as high inflation, corruption and the fact that many people are unbanked increase then use of cryptocurrency as a way of remittance transfer especially in Nigeria. Use of cryptocurrency eliminates the extra use expense of cost transfer because it is decentralized and does not recognize borders. Cryptocurrency uses the same currency such as Bitcoin and thus no cost of exchange fees, It is tangible since one buys a currency and sends the money to another person overseas directly within seconds, this technology is very secure due to its anonymous nature which allows easy tracking of transactions involved. Any bank does not regulate cryptocurrency, and thus it removes any risk associated with the banking system such as the collapse of banks.
The possibility of cryptocurrency replacing the current methods of remittance transfer is dependent on the perception and acceptance by the mainstream society and also on the building of strong platforms. Use of cryptocurrency can increase the speed, security, reduce cost and improve efficiency in international remittance. Use of cryptocurrency in Nigeria is illustrated properly by use of Bitpesa service which has been developing on the block-chain based global network which allows fast and cheaper cost of transactions.
The analysis of the remittance market in the Nigeria/UK corridor is better explained through benchmarking as it will allow understanding of new opportunities especially in electronic remittances such as cryptocurrency and mobile money transfer(Ahakan,2005).
Cryptocurrency eliminates the use of many intermediaries involved in the transfer process since money is sent directly to the recipient (Lashkov, 2018). For example, World Identity Network helps to identify individuals by use of birth certificate or driving license in a blockchain Database which allows for the broader inclusion of individuals in the global financial system thus can perform remittance transfer (Lashkov, 2018).
5.0 CHAPTER FIVECONCLUSIONS AND RECOMMENDATIONSRemittance transfer along the UK/Nigeria corridor is inefficient Nigerian banks and the government as a whole failed to adequately document the supposed increased remittance transactions due to the poor information systems currently in use. Remittance flow has been underscored as a victim of financial and banking organizations even though it is a key avenue that boosts up the economic growth of the country as Raimi, Lukman, and O. D. Ogunjirin (2012) express. Even though a good number of the developing countries tend to lag behind regarding the technological advancements adopted by these countries, much needs to be done by the governments of these nations especially in remedying one of the barriers to economic growth (Iheke, 2006). This study illustrates that remittance flow is a major contribution to the underdeveloped countries GDP resulting in substantial economic growth with every increase that comes from remittances. More focus on simplifying the processes that are involved in remittances transfer between the source and the recipients is important. Olusanya and Samuel (2010) explains that the simplicity will ensure smooth and faster transfers of the remittances, resulting in increased financial gains and economic growth for the developing countries such as Nigeria.
The government of Nigeria must consider adopting modern technologies such as the cryptocurrency that can offer a better service to the migrants by simplifying the processes involved in remittances transfer. The government should also explore other bilateral options between Nigeria and the UK that shall ensure that the UK also participates in easing the process of remittances flow to Nigeria by ensuring that the migrants in the UK enjoy a smooth transaction process. This shall also help document more transactions through the new simplified formal means of the remittances transfer.
Technology remains the best approach through which major challenges solutions is in this corridor. However, the correspondences by the involved parties namely the governments and financial institutions between the two countries remain a long bridge that needs to reconstructed for the future as well as easier current remittance transactions. Failure by the government to work on better financial partnerships between the two countries is also a major challenge that should be addressed by the government of Nigeria.
In summary, the following vital issues require to be addressed to improve remittance transfer in the UK/Nigeria corridor.
New innovative ways should be adopted to capture all the data related to remittance flow.
Innovative mechanisms should be adopted to attain efficiency in remittance transfer. Mechanisms that can capture all the data that is related to the remittance transfer, for example, the introduction of a system where the remittance delivered informally can be recorded. Informal remittances should be accounted for through obtaining information innovatively from the recipients encouraged to do so willingly. For example, in rural areas where sizeable informal remittance is channeled initiatives are required that allows the information to be effectively obtained.
Modernization/digitization of transfer mechanisms to meet the demands of migrants in the UK.
In this era of digitization remittance transfer process should be modernized, which is attainable through the introduction of new technologies that are fast, cheap, reliable and more efficient. Mobile technology should be encouraged in remittance transfer since it does not involve any authorities, mobile technology eliminates the uncertainty associated primarily with the informal transmission of remittance. The mobile transfer provides a direct means of remittance transfer since it does not involve any agents such as banks and postal services. The mobile transfer is cheap because there is no cost of exchange of currency. Mobile transfer saves time since money as the transfer is at the touch of a button. Digitization also involves the use of the internet to send money to the recipients by using means such as pay pal. Digital methods of remittance prove to be the cheapest means of a remittance transfer. New technologies such as cryptocurrency are among the most recent form of the digital remittance transfer; It is more efficient because money is sent inform of bitcoins and contact information of the customer is kept in a blockchain. The current methods of remittance transfer should be merged with digital forms. Consolidating will guarantee improved efficiency and eliminate the challenges currently facing the remittance transfer process. Nigerians both the senders and recipients of remittance need to be enlightened through extensive education on the digital means of transfer so that they can shift to digital transmission.
Harmonization of policies and regulations governing remittance transfer between the two countries.
The current regulations in the remittance transfer, especially in the UK/Nigeria corridor, are strict. This regulation hinders efficient transfer processes; for example, Regulations dictates that banks should know their customer who requires a background check on the remitter. This regulation will make most senders to avoid the formal means of remittance. Remittance regulations limit the amount of money remitted per a given amount of time, therefore, regulation the outflows from the host country.
Boosting competition among transfer agents by eliminating exclusive contracts that limit entrance of new players in the market leading to reduced cost of transfer.
The cost of transfer is directly proportional to the competition among the transfer agents. Increased competition implies a low cost of a remittance transfer. Low competition level translates to a high cost of remittance transfer due to the monopolistic nature. Monopoly leads to high demand and thus high cost of service since the customer does not have many options to choose from. For example, in the UK/Nigeria corridor Western union is dominant transfer payment means due to its explicit contract. Transfer of remittance through a western union is expensive. To drop the cost of remittances as well as increase the variety of services, there is a need for increased competition among the agents along the corridor. Competition implies better and quality services since no one wants to face elimination from the market.
RECOMMENDATIONSTo enhance transparency and integrity in remittance transfer the following recommendations need to be adopted;
Strengthening formal institutions to encourage senders to use them, since their confidence and trust level will be high.
Poor record keeping and documentation is the major factor that has weakened the present formal remittance system in Nigeria. The poor documentation posses as a challenge even to the financial systems in the UK as synchronization with the recipient’s system proves to be inefficient and unrecorded. The Nigerian government and baking institutions should be more open to new opportunities and technologies possible by the dedication of some amount of revenues towards the funding of improvements of the services offered to immigrants and the recipients. Better planning boosts the efficiency, and more immigrants will be attracted to the formal remittance means.
Furthermore, the government of Nigeria should be able to assess their current relationship with the UK authorities now that a good number of the total immigrants from Nigeria move to this part of the world. Bilateral ties should be created and agreements signed that should facilitate sending of remitted funds through formal means from the UK has been eased as much as possible. These changes shall ensure that even the casual laborers in the UK can access the official remittances services are accessible and affordable.
The government should license more financial agents to offer the remittance transfer service in Nigeria. The infrastructure set up by the government in the regulation of remittances is one of the challenges faced by the beneficiaries of the beneficiaries. With more players from the private sector, the government shall be able to achieve a decentralized system that is synced together through the use of a conventional data management systems thereby achieving efficiency as well as better revenues for the economic growth in Nigeria.
Increasing the number of postal services in Nigeria so that many recipients can easily access the remittance sent.
As earlier elaborated in this document, the government of Nigeria has been reluctant in issuing operating licenses especially to institutions that may be willing to offer financial services apart from what the government is already providing. Akinpelu, Yisa Akano, Olakunle Jamiu Ogunbi, Oladejo T. Bada, and Olaiya Sunday Omojola (2013) add that if the access to better postal services is an option for consideration, then more recipients in Nigeria shall be able to receive the remittances from their relatives in the UK in the form of parcels delivered through these postal services. In as much as one may argue that this approach may defeat the whole purpose of encouraging the formal means of sending and receiving of the remittances, one cannot ignore the fact that this solution may be quicker to achieve as compared to the first option.
The approach concentrates on one of the two elements of the remittance transfer, that is, the receiving persons or the recipients. When exploring some of the reasons for immigration, the major reason was found to be employed or for economic reasons. In the Nigeria-UK corridor, this has not been different and better gains regarding employment and supporting family members is the main reason why the Nigerians immigrate to the UK. Surfacing a preferred alternative method of remitting funds to their beneficiaries even though undocumented, for instance through postal service, could stand in to fill in the gap as the government works out to resolve the limitations and concerns in the financial systems and agents involved.
More research ought to be conducted to capture improvements and the gaps in the corridor using technological approaches
Today, almost everything is computerized especially when the focus shifts to the financial systems around the world. The Nigerian government should support further research into the available financial institutions in the world as well as the applicable solutions to the current Nigerian institutions. The problem with most developing countries is due to the lagging behind regarding the advancements in technology. The lack of the governments support to IoT as well as the current IT infrastructure in these countries is to blame for some of the significant challenges encountered by these countries and the migrants in other countries who wish to send remittances, but they cannot do so as a result.
These governments should reconsider their support to the IoT as well as how they perceive the new mobile technology solutions that have been on the rise following recent inventions. As of today and in the future to come, the world shall be dominated by automation and robotics that simplify almost all the tasks one can think of, it is therefore imperative for all the governments around the world to ensure that they are technologically ready both now and in the future.
In a nutshell, remittance transfer in the UK/Nigeria corridor is inefficient and thus requires more efforts both from the government side and the agent transfer agents. There is a great potential to improve due to the opportunities available in this corridor such as the need to allow more new entrants into the market and the need to adopt modern forms of remittance transfer that are fast, cheaper, convenient and very efficient.
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