According to the World Bank, the reduced exchange rate and cash transfer fees in the banking industry are encouraging Kenyans living overseas to use traditional money transfers.
According to the international lender, sending Ksh27,806 through banks from the US to Kenya costs Ksh1,549 ($11.14).
It continues by stating that banks now pay less per dollar than conventional money transfers and forex bureaus due to the spread, or the difference between the prices at which a dealer buys and sells a currency.
Traditional ways are not listed by the World Bank, but the Central Bank of Kenya states informal channels include carrying cash and Hawala on one’s person and sending money through friends and family, despite the fact that banks continue to dominate remittance transfers.
The World Bank stated in its Kenyan Economic Update report released on Wednesday without providing numbers that “a perceived forex shortage may also partly explain weaker recorded remittances, which were increasingly channeled outside the formal banking sector as the spread between the official and market exchange rates widened.”
Following the interbank currency market’s resurrection at the State House’s request, the acute dollar shortage subsided.
Recent weeks have seen an increase in the availability of the dollar for large dollar transactions, a significant change from the market conditions that saw some banks run out of US currency while others put a daily cap on dollar purchases of as little as $5,000.
The adjustments were made in response to a decree issued by President William Ruto on March 22 calling for the resuscitation of the interbank foreign currency market in an effort to eliminate market distortions that had aggravated the foreign exchange shortfall.
An earlier survey by the Central Bank of Kenya found that utilizing banks, money transfer services, and mobile money providers all resulted in an average cost of moving cash that was between four and five percent of the total amount being sent.
According to the poll, traditional money transfer activities were driven by the relative affordability of informal remittance channels.
The most expensive method of delivering money in 2019 was determined to be using a courier service, costing 29.2% of the amount sent. Additionally, compared to formal channels, certain informal channels offer less expensive ways to send money, according to the CBK poll.
This occurs at a time when customs officers have detained both Kenyans and foreigners carrying huge amounts of cash that is mysterious and that the government suspects is illegal.
In order to prevent money laundering, the law mandates that cash valued at $10,000 (Ksh1.26 million) or more be disclosed.
In its most recent campaign against tax evasion and money laundering, Kenya is currently looking to have sniffer dogs at border crossings and airports trained to find currency.
The widespread use of Hawala has alarmed the US and other Western governments, particularly in nations like Pakistan where the trust-based money transfer method has long been the preferred banking system for many people.
Customers can quickly transfer huge sums of money across borders through Hawala money transfer services, which operate under a structure that shields them from regulatory oversight.
The amount of money Kenyans who work and live abroad sent home declined in the three months leading up to March for the first time since 2010, as household budgets were squeezed by inflation that reached multi-decade highs in many nations.
Kenyans living overseas usually remit money to support their family and to invest in things like real estate, with about 60% of all remittances coming from the US.
Households are being squeezed by the rising cost of living in nations like the US and Europe as a result of expensive energy, food, and rent, and this is putting pressure on policymakers to control the problem.
Minorities with lower incomes, such as a sizable fraction of Kenyans working in the US, have been particularly hard hit since a bigger portion of their income is spent on necessities like food, transportation, and housing.
Remittances decreased 3.1% to Ksh185.74 billion ($1.336 billion), according to CBK data, in April compared to the same month a year earlier.
