Given the increasing volume of remittances flow in the country that has surpassed the Foreign Direct Investments (FDIs) over the past three years, the government is seeking ways to address the persistent high cost of the transfers.
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A remittance is a non-commercial transfer of money by a foreign worker, or a member of a diaspora community for household income in their home country.
The flow rose to $470 million in 2022, representing 3.5 percent of GDP, according to official data.
The data is collected from commercial banks, money transfer agents like Western Union, Money Gram, WorldRemit, and other informal transfers.
Remittances have played a crucial role in moderating depreciation pressures on the Rwandan Franc, along with tourism receipts, and greatly helped to improve savings in the economy, according to officials.
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Despite the increasing trend, many people have claimed that the cost of international money transfer remains high. Lowering fees to the SDG target of three percent would mean freeing up millions of dollars of additional resources for development.
Herbert Asiimwe, Head of Financial Sector Development in the Finance Ministry, said the cost of remittances is a challenge in most countries and the issue for these service providers in Rwanda is that they run on other clearing systems from other banks which result in increase of the fee.
This is also coupled with money exchange rates losses and taxes incorporated, he said while adding that the finance ministry is willing to look into the possibility of tax burden on this service.
"We are going to work with the private sector to innovate around this opportunity...meanwhile we are going to engage with existing service providers and negotiate how we can bring these costs down,” Asiimwe said while giving examples of tech innovations in other African countries like Zimbabwe and Ethiopia which enhance remittance flows back in the country.
Soraya Hakuziyaremye, Deputy Governor of National Bank of Rwanda, mentioned that while the global target of remittance fee is 3 percent, it is true that African countries have it high between 4 and 6 percent.
However, she said that with Rwanda’s effort to facilitate the establishment of fintechs especially those in payment service systems and now hosting the three continental unicorn companies including Chipper Cash, Flutterwave, and Nala Money that facilitate international transfers, the cost of remittances has gradually reduced.
"It has had an impact on the volume of remittances flow in the country and the cost because of the competition they bring.”
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The 22nd Edition of Rwanda Economic Update by World Bank focused on "Mobilizing domestic savings to boost the private sector in Rwanda”, recommends leveraging the East Africa Payment System and engaging the Rwandan diaspora in capital markets.
The East Africa Payment System enables cross-border fund transfers within East Africa and offers lower fees compared to traditional methods.
"Policymakers should prioritize reducing remittance fees to unlock additional funds for development and consider engaging the Rwandan diaspora in domestic capital markets through diaspora bonds and other initiatives,” the report highlights.
Encouraging participation in these markets, even for those without bank accounts, it states, could further support Rwanda’s financial sector and broader development goals.
It was observed that remittance recipients in Rwanda demonstrate a greater focus on human capital investment and more pronounced entrepreneurship behavior than the general population, whereby they allocate more to education and health expenses.
The International Monetary Fund projects remittances into Rwanda to increase further over the next few years, reaching $582 million by 2028.