Kenyans abroad Who send Money home Avoid using banks

Amid concerns about money laundering, Kenyans living and working abroad are increasingly choosing traditional, less expensive money transfer methods like “hawala” instead of banks when sending money home.

According to the World Bank, the lower exchange rate and cash transfer fees in the banking industry are encouraging Kenyans living abroad to use traditional money transfers.

According to the international lender, sending Sh27,806 through banks from the US to Kenya costs on average Sh1,549 ($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 methods are not listed by the World Bank, but the Central Bank of Kenya says 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.

“A perceived forex shortage may also partly explain weaker recorded remittances, which were increasingly channelled outside the formal banking sector as the spread between the official and market exchange rates widened,” said the World Bank in its Kenyan Economic Update report published on Wednesday without giving figures.

According to a previous survey by the Central Bank of Kenya (CBK), using banks, money transfer services, and mobile money operators all had an average cost of four to five percent of the amount being sent.

According to the survey, traditional money transfer operations were driven by the relative affordability of informal remittance channels.

“The use of courier companies was established to be the most expensive channel of sending money in 2019, costing 29.2 percent of the value remitted. Moreover, some informal channels provide cheaper options for remitting cash compared to formal channels,” said the CBK in the survey.

This occurs at a time when customs officers have detained both Kenyans and foreigners carrying sizable 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 (Sh1.26 million) or more be declared.

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 global use of Hawala has alarmed the US and other Western countries, particularly in nations like Pakistan where the trust-based money transfer system has long been the preferred banking system for many people.

Customers can quickly transfer large sums of money across borders using hawala money transfer businesses, which operate under a system that shields them from regulatory oversight.

The amount of money Kenyans who work and live abroad sent home fell 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 countries.

Kenyans living abroad typically remit money to support their families 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 portion of Kenyans working in the US, have been particularly hard hit because a larger portion of their income is spent on necessities like food, transportation, and housing.

Remittances decreased by 3.1 percent to Sh185.74 billion ($1.336 billion) in April compared to the same month a year earlier, according to CBK data.