IOM–UPU-PAPU PILOT PROJECT

PILOT STUDY ON

“SUPPORTING AN AFFORDABLE ELECTRONIC REMITTANCE TRANSFER SYSTEM BETWEEN

TANZANIA AND UGANDA”

 

 

IOM is committed to the principle that humane and orderly migration benefits migrants and society.

As the leading international organization for migration, IOM acts with its partners in the international community to:

• Assist in meeting the operational challenges of migration, • Advance understanding of migration issues, • Encourage social and economic development through migration, and • Uphold the human dignity and well-being of migrants.

Opinions expressed in the report are those of the author and do not necessarily reflect the views of the International Organization for Migration (IOM). The designations employed and the presentation of material throughout the report do not imply the expression of any opinions whatsoever on the part of IOM concerning the legal status of any country, territory, city or area, or the delimitation of frontiers or boundaries.

Prepared for IOM by

Dr H.Bohela Lunogelo

December 2009

 

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TABLE OF CONTENTS 

EXECUTIVE SUMMARY ................................................................................................................................. viii 

CHAPTER 1: Study Background ......................................................................................................................... 1 

1.1 Introduction................................................................................................................................................... 1 

1.2 The Study Objectives.................................................................................................................................... 1 

1.3 Outline of the Report ................................................................................................................................... 2 

CHAPTER 2: Literature Review on Migration and Remittance..................................................................... 3 

2.1 International Recognition of Migrants and Remittances....................................................................... 3 

2.1.1 Migrant Remittances .......................................................................................................................... 3 

2.1.2 Remittances and Poverty Reduction ............................................................................................... 3 

2.1.3 Migration and Education................................................................................................................... 4 

2.2 Migration and Development ...................................................................................................................... 4 

2.3 How Unique Is This Study?........................................................................................................................ 4 

CHAPTER 3: Approach and Methodology........................................................................................................ 5 

3.1 Location of Study.......................................................................................................................................... 5 

3.2 Types of Data and Sources of Data............................................................................................................ 5 

3.3 Geographical Coverage by the Team of Consultants............................................................................. 6 

3.4 Preparatory Work by the Senior Consultant ........................................................................................... 6 

3.4.1 National Interviews and Consultations in Uganda ...................................................................... 6 

3.4.2 Field Interviews in Uganda............................................................................................................... 7 

3.4.3 Interviews and Consultations in Tanzania..................................................................................... 7 

3.4.4 Field Survey in Tanzania ................................................................................................................... 7 

3.5 Data Analysis and Study Limitations ....................................................................................................... 8 

CHAPTER 4: The Policy and Legal Environment for Remittance Management ...................................... 10 

4.1 Views from Policy Makers ........................................................................................................................ 10 

4.2 What is the Policy and Legal Environment for Remittances?............................................................. 10 

4.2.1 On Cross‐Border Transfer of Funds .............................................................................................. 10 

4.2.2 On the Role of Non‐Banking Institutions in Handling Funds .................................................. 11 

4.2.3 On the Role of Buses and Courier Companies ............................................................................ 11 

4.3 Views of Key National Stakeholders on the Role of Remittances to Development Agenda......... 11 

Table 1: Views of Senior Public Officials on the Role of Remittance to Development ............... 11 

4.4 Summary of Key Stakeholders on the Prevailing Remittance Systems and Required Interventions  .............................................................................................................................................. 12 

 

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Table 2: Views of Senior Public Sector Officials on the Role of Remittance to Development ...12 

CHAPTER 5: Analysis of the Remittance System between Uganda and Tanzania .................................. 14 

5.1 Formal Remittance System........................................................................................................................ 14 

5.2 Post Office Remittance System................................................................................................................. 14 

5.2.1 International Financial System (IFS).............................................................................................. 14 

5.2.2 Commercial Banksʹ Remittance System........................................................................................ 15 

5.2.3 Commercial Banks on Migrantsʹ Remittance............................................................................... 16 

Table 3: Comparison Between Different Money Transfer Systems................................................ 16 

5.2.4 Non‐Banking Financial Services..................................................................................................... 16 

5.2.5 Non‐Financial Remittance Services ............................................................................................... 16 

5.3 Informal Remittance System..................................................................................................................... 17 

Table 4: Frequency of Sending Money Home by Sampled Migrants ............................................ 17 

Table 5: Probability of Using Different Remittance Systems by Sampled Migrants ................... 17 

5.4 General Assessment of Migrants Remittance Transfer Possibilities.................................................. 18 

5.4.1 Migrantsʹ Assessment o the System............................................................................................... 18 

Table 6: Post Office Customer Feedback on Offered Services ‐ Dar es Salaam............................ 18 

Table 7: What Should Be Done to Improve Remittance Services ................................................... 19 

5.4.2 Migrantsʹ Views on the Informal System...................................................................................... 19 

Table 8: Usage of Formal and Informal Channels for Remittance by Interviewed Migrants in Tanzania .................................................................................................................................................... 20 

Table 9: Factors Considered by Migrants When Sending Money .................................................. 20 

Table 10: Procedures for Sending Money for Different Remittance Systems............................... 21 

Table 11: Problems Experienced by Migrants With the Informal Remittance Transfer System21 

CHAPTER 6: Key Findings of the Study .......................................................................................................... 22 

6.1 Introduction................................................................................................................................................. 22 

6.2 Characteristics of the Migrants Interviewed.......................................................................................... 22 

Table 12: Social Characteristics of Sampled Migrants in Uganda and Tanzania......................... 23 

6.3 How Does the Money Flow Between the Two Countries?.................................................................. 23 

6.3.1 How Can We Explain This Asymmetric Relationship? ............................................................. 24 

6.3.2 Which Towns Dominated Sending and Receiving Funds? ....................................................... 24 

Table 13: Comparison of Source of Funds and Destination Between Official Data and Migrantsʹ Information...................................................................................................................................... 24 

Table 14: Top Five Tanzanian Districts Receivers of Ugandan Funds (USH) 2006‐2008 ........... 25 

Table 15: Top Five Districts Receiving Money (TSH) from Tanzania 2006‐2008 ......................... 25 

Figure 1: Top Ten Ugandan Districts (Excluding Kampala) Receiving Money (TSH) from Tanzania (from 2006‐2008) ..................................................................................................................... 25 

Table 16: Top Ten Tanzania Districts Remitting Cash Via IFS (TSH) to Uganda ........................ 26 

 

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Table 17: Ugandan Source Districts of Funds Sent to Tanzania, 2006‐2008.................................. 27 

Figure 2: Ugandan Districts Sending Funds (TSH) Using IFS to Tanzania................................... 28 

6.4 Estimation of Funds Remitted Between Uganda and Tanzania......................................................... 28 

6.4.1 Official Channel Remittances.......................................................................................................... 28 

6.4.2 Informal Channel Remittances ....................................................................................................... 28 

CHAPTER 7: Developmental Dimensions of Remittances............................................................................ 29 

7.1 Purpose of Sending Funds ........................................................................................................................ 29 

Table 18: Purpose of Sending Money by Migrants in Tanzania and Uganda.............................. 29 

7.2 Who sends to whom?................................................................................................................................. 29 

Table 19: Relationship of Recipient With the Sender of Funds....................................................... 30 

7.3 Migration and Education .......................................................................................................................... 30 

CHAPTER 8: Identified Opportunities and Recommendations................................................................... 31 

8.1 Challenges and Opportunities ................................................................................................................. 31 

8.2 Recommendations ...................................................................................................................................... 32 

8.2.1 Policy and Legislation ...................................................................................................................... 32 

8.2.2 Database and Monitoring Remittances......................................................................................... 32 

8.2.3 General Recommendations ............................................................................................................. 33 

8.2.4 Opportunities for Banks and Ministries ....................................................................................... 33 

8.3 Interventions Required to Strengthen IFS .............................................................................................. 33 

ANNEXTURES ..................................................................................................................................................... 35 

Annex 1 List of Stakeholders Consulted in Uganda and Tanzania ......................................................... 36 

References .............................................................................................................................................................. 40 

 

 

 

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Acronyms  

BOT Bank of Tanzania BOU Bank of Uganda CEO Chief Executive Officer EAC East African Community EMS Expedited Mail Service IFS International Financial Services IOM International Organisation for Migration IMO Interstate Money Order M-Banking Mobile Phone Banking MC Mapping Consultant (MC-T-for Tanzania and MC-U-for

Uganda) PAPU Pan African Postal Union RC Remittance Consultant RSCEA Regional Support Centre in East Africa SRC Senior Remittances Consultant SWOL Strengths, Weaknesses, Opportunities and Limitations TPC Tanzania Postal Corporation TRA Tanzania Revenue Authority TZS Tanzanian Shillings UGS Ugandan Shillings UPC Uganda Postal Corporation UPU Universal Postal Union URA Uganda Revenue Authority USD United States of America Dollar WUMT Western Union Money Transfer  

 

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Key Terminologies A “migrant” as used in this report applies to: “Persons, and family members, moving to another country or region to better their material or social conditions and improve the prospects for themselves or their family” (IOM, 2004). For the purpose of this study it does not consider the dynamics of internal migrants and domestic transfers of income. “Diaspora” as used in this report refers to “People or ethnic populations that leave their traditional ethnic homelands, being dispersed throughout other parts of the world (IOM, 2004). “Remittance” as used in this report refers to: “Monies earned or acquired by non-nationals that are transferred back to their country of origin” (IOM, 2004). It is different from normal investment income remitted by companies operating in a foreign country to their base or home country. “Remittance Agents” as used in this report involves institutions or individuals offering services to transfer remittances made by the migrant to their home countries or elsewhere as well as nationals sending money to foreign lands. They can be banks or non-banks, formal or informal agents. “Remittance System” as used in this report implies a combination of procedures and institutional setups used to facilitate the transfer of income by a migrant from one country to another (although it can also apply to domestic remittance).

 

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Executive Summary i. Background In 2008 the Governments of Tanzania, through the Ministry of Communication, Science and Technology, and Uganda, through the Ministry of Information and Communication Technology, requested the International Organization for Migration (IOM), in partnership with the Universal Postal Union (UPU) and the Pan African Postal Union (PAPU) to conduct a pilot project on remittances between Tanzania and Uganda. The purpose was to assess the possibilities of how to support and expand the formal transmission of remittances between Tanzania and Uganda in an affordable and easy way and see what role and impact the UPU initiated electric money transfer system, IFS (established at local post offices), has in this. As a first component of the pilot project, a study was commissioned by IOM in 2009 to assess the extent and nature of remittances between the two countries and the role of IFS as a remittance system in this. ii. Methodology The study was undertaken to provide an in-depth assessment of existing gaps, strengths and opportunities related to remittance management in Tanzania and Uganda. This also included an analysis of available and required technical, human and financial resources. The analysis of how remittances are undertaken involved formal remittance agents such as post offices, postal banks, private money transfer operators and commercial banks; but also informal agents (buses, letter couriers, border agents etc.); as well as custodians of policies and laws (ministries, departments and agents). The study involved a desk review of the global and regional phenomenon of migration and remittances, field interviews and stakeholder consultations. Planning consultations entailed meetings with officials of UPU and the postal corporations in Dar es Salaam and Kampala, which garnered insights into the criteria for selection of study districts in each country considered to have a high prevalence of remittances. The 16 districts covered by the study were Kampala, Mbarara, Mbale, Jinja, Iganga, Masaka, Kabarole and Kabale (in Uganda) and Karagwe, Bukoba, Mwanza, Arumeru, Geita, Musoma, Kinondoni and Muleba (in Tanzania). Information and views on policy, legislations, and institutional arrangements supportive of the welfare of migrants and the operation of an efficient remittance system was obtained from officials at district and national level, institutions working in the Diaspora/remittance related field, and national bodies handling information and data on transmission of funds between the two countries in the capital cities and selected towns for this pilot study. iii. Key Findings The postal corporations in Tanzania and Uganda have wide networks of outreach, providing postal and financial services at levels below the district headquarters in rural areas. Consequently, the post offices should have high potentials of increasing the use of postal services for remittance purposes by migrants and Diaspora members living abroad due to the accessibility to rural areas and affordability for all categories of income earners. However, there is still a high tendency to depend on the informal systems to remit funds partly due to low transaction costs but also due to general perceptions of the postal service being unreliable and erratic in both Tanzania and Uganda. Furthermore, remittance agents from the private sector have made themselves a strong name and gained a reputation of

 

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being reliable and efficient, which attracts many customers although they have a higher transaction cost, compared to the IFS system. The study found that there was a net flow of funds in favour of Uganda as compared to the flow of funds to Tanzania mainly due to the favourable education system in Uganda, which attracts more migrants from Tanzania than vice versa through students attending educational institutions and schools in Uganda. Ugandan migrants in Tanzania, however, because of limited disposable income to afford regular remittances back home, indicated that that there was slow reversal of the phenomenon. The purpose of the funds remitted between the two countries was popularly for household/family basics, educational purposes, business investments, medical bills and community projects. The study found evidence in the districts where remitted money directly funded projects that in one way or another developed the community (such business establishment and NGO funding etc.) iv. Recommendations The recommendations from the assessment included the following;

1. To develop an economic contribution of the Diaspora through enacting pro-Diaspora policies, as well as liberalizing financial and investment laws;

2. Further research should be conducted in the two countries to increase the general

understanding of the relation between remittances and development, as well as disseminating systematised information about formal remittance services offered by different operators and their costs to the public;

3. Promoting of better recording and monitoring of funds remitted and ensuring that

these are reported in the national accounts through the Central Banks;

4. The postal corporations and UPU should assess opportunities for alternative electronic back-up systems in the rural areas as one of the major obstacles for IFS to function effectively is the erratic electric supply at the post offices;

5. Efforts should be made to revamp the post office image as a service provider of

reference both in Uganda and Tanzania so as to restore the trust of their customers  

 

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CHAPTER 1 Study Background

1.1 Introduction The international community has in recent years increasingly recognized the potential for migrants from developing nations to contribute to the development and economic growth of their home countries. Remittances from the Diaspora as well as their high level skills and investor linkages are important in contributing to the development of their countries of origin. According to IOM’s World Migration Report 2008, US $ 251 billion of the US $ 337 billion remitted in 2007, went to developing countries. One of the problems of measuring level of remittances is the lack of statistical data and records on remittance flows as deregulated services are largely unreported and unrecorded (Sander et. al 2001). The need to improve international services for remittances has gained international importance in recent years after realizing the role that can be played by the Diaspora. The International Organization for Migration (IOM), The Universal Postal Union1 (UPU) and the Pan African Postal Union2 (PAPU) are interested in understanding more about patterns of remittance among the Tanzanian and Ugandan Diasporas as well as the perspectives of senders and recipients regarding their motivation, interests, incentives, constraints, challenges and concerns with the remittance process. Ultimately these institutions are hoping to use this information to influence policies and develop programs that will make the transfer of remittances faster, cheaper, and easier for migrants. To this effect IOM, in collaboration with UPU and PAPU, partnered with the Governments of Uganda and Tanzania to improve services offered by postal corporations and their agents in transmitting funds between the two East African Community (EAC) partner states. UPU and PAPU have supported the introduction of the International Financial System (IFS) software to ensure an improved system in transfer of funds between two points within and between the two countries. 1.2 The Study Objectives This pilot study was commissioned by IOM to provide an in-depth assessment of the nature and extent of remittances between Tanzania and Uganda and the role remittances in the development agenda of these two countries. The analysed data offers insights on how remittances are transferred, mostly involving key formal remittance agents such as the post offices, Post Banks, private owned money transfer agencies and commercial banks; and unofficial agents such as bus operators and document courier companies. It also explains the role played by government ministries, departments and agents as custodians of policies and laws; provides lessons on the strengths to be consolidated; identifies weaknesses and limitations to be rectified; and identifies opportunities to be embraced by the two countries to enhance the efficiency of remitting finances between Tanzania and Uganda.

                                                            

1 The Universal Postal Union (UPU) is a specialized agency of the United Nations. 2 The Pan African Postal Union (PAPU) is a specialized agency of the African Union with a mandate to spearhead the development of postal services in the African region. 

 

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The study findings constitute part of the literature used to prepare a training manual for capacity-building of senior officials from the two governments and the postal services on the importance of migrants and remittances in economic development. The pilot project therefore was designed to ultimately provide three main outputs: (a) an understanding of the nature, extent, and systems of remittances between Uganda and Tanzania (b) an appreciation of the socio-economic implications of the remittances to the development of the two countries; and (c) based on the SWOL analysis results, awareness created among government officers and postal staff on the economic importance of remittances and improvements needed to facilitate remittances between the two countries. 1.3 Outline of the Report Chapter 2 provides a brief literature review on migration and remittance so as to appreciate the global and regional importance of the subject. Chapter 3 presents the approach and methodology applied in this pilot study, including the criteria used in selecting the study areas. Results from the study are presented in three different chapters. Chapter 4 offers an analysis of the policy and legal environment under which remittance systems operate, while Chapter 5 presents findings on the formal and informal remittance systems. Chapter 6 is a presentation of the mapping of migrants and their assessment of remittance system before discussing the developmental implication of the remittances in Chapter 7. The report concludes with key challenges and recommendations in Chapters 8.

 

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CHAPTER 2 Literature Review on Migration and Remittance

2.1 International Recognition of Migrants and Remittances

2.1.1 Migrant Remittances Recent studies continue to show that migrant remittance transfers have been increasing over the past twenty years (IOM 2009; IOM 2008; UNDP 2009; World Bank 2009; IFAD 2009). Within countries domestic remittances tend to move from rural areas to urban centres while internationally, remittances move from urban capital cities of economically better off economies to less developed countries within a regional neighbourhood or overseas. However due to lack of statistical data and records on remittance flows, regulated services are largely unreported and unrecorded (Cerstin et. al 2001). The need to improve international services for remittances has gained international importance in recent years after realizing the role that the Diaspora can, and do, play in the development agenda of their countries of origin. In understanding the drivers of international migration most studies indicate that generally high skilled manpower emigration results from countries with poor investment climates (caused by, for example, poor macroeconomic management or socio-political instability) that limit productive employment of high skilled workers and thus trigger manpower and brain drain from developing countries. On the other hand, while both high and low skilled manpower contributes to remittances, a well educated Diaspora has relatively more potential to improve access to capital, technology, information, foreign exchange and business contacts in the country of origin, which is taken as a consolation for the negative consequences of brain drain1.

2.1.2 Remittances and Poverty Reduction In 2007, global remittance flows amounted to USD 337 billions (World Bank 2008). Of this 6.8 per cent was sent to the African continent. In a recent report from IFAD (2009) it is estimated that Africa receives USD 40 billion, of which USD 4-8 billions are saved or invested. According to the IOM World Migration Report from 2008 remittances to sub-Saharan Africa between 2000 and 2005 accounted for around 2.5 per cent of GDP on average. In Lesotho, remittances represent almost 28 per cent of GDP, and in Cape Verde, Guinea-Bissau and Senegal of more than five percent. In some countries such as Lesotho, Cape Verde, Uganda and Comoros, although not significant in terms of GDP contribution, remittances constitute an important source of foreign exchange. Remittances provide resources for families back in the countries of origin and improve the quality of life and welfare of the families who receive them. Remittances play a significant role in poverty alleviation. The ongoing debate in the wake of the global financial crisis is the extent to which employment opportunities and job losses in developed economies will affect the Diaspora’s

                                                            

1 Highly educated citizens if they stayed in their home countries could help to improve governance, improve the quality of debate on public issues, encourage children to get education and strengthen the administrative capacity of the state in their various professions like lawyers, doctors, engineers, nurses, community workers.  

 

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net flow of remittances with reports from Uganda and Kenya showing reduced flows in the first months of the crisis, although the situation in Kenya quickly stabilised (UNDP 2009).

2.1.3 Migration and Education In East Africa, circulation of children in order to obtain education means that migration for education brings about travelling from their home countries over long distances to study in another country (DFID 2004). This sometimes results in onward circulation outside Africa on completion of their secondary education. Remittances are often invested in school fees and students with relatives in urban cities seem to get larger portions from their parents because the standard of living in the cities is better than those receiving money from the rural parts of the country. 2.2 Migration and Development The developmental impact of remittances on countries can be addressed through streamlining strategic policies. One of the ways include improvement of money transfer services and increased access by poor migrants and their families to financial services for sending and receiving remittances. These include expansion of banking networks to rural areas, allowing domestic banks to handle international money transactions and introduction of low cost remittance services such as the IFS System through the local post offices. Governments could help reducing costs by supporting the introduction of modern technology in payment systems. The Universal Postal Union is working with improving the efficiency of post services (mail and transfer of funds) between Tanzania, Uganda and Kenya, which cater for the needs of migrant workers who send money back home. This is in line with the global agenda for attaining the Millennium Development Goals of reducing both poverty (through easy transfer of income of the Diaspora in rich countries to their poorer families back home) and bridging the digital divide (through introduction of more advanced, efficient and cheaper technologies) that can reduce the cost of transferring migrant workers’ remittances to developing countries (DFID 2004). The study aims to investigate remittance services offered through both official and non-official remittance channels between Tanzania and Uganda. Official remittance channels refer to those channels that are legalised whereas unofficial channels are illegal money transfer channels. Many types of formal remittance flows go unrecorded due to weakness in data collection systems and due to the fact that reporting of ‘small’ remittance transactions made through formal channels are not mandatory in most countries. In addition, remittances sent through post offices, exchange bureaus and any other agents of money transfer operators are often not reflected in official statistics and remittances through unofficial channels such as family, friends who carry remittances are not recorded (de Luna Martinez 2005). 2.3 How Unique Is This Study? It is noteworthy that this study will qualify as among the few within East Africa to go beyond relying on secondary data and statistics (mostly from national institutions such as the Bureau of Statistics, Postal Banks, Post Office and Commercial Banks) on mapping migration and linking with the remittance system by engaging the migrants to give their account of experiences (IOM 2006). The study attempts to go beyond macro-data and will therefore try to capture the information from individual users of remittance services to fully grasp the limitations and problems, but also possibilities that individuals meet when sending or receiving money between Tanzania and Uganda. 

 

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CHAPTER 3 Approach and Methodology

 

3.1 Location of Study Given the pioneering stage of the study IOM, UPU and PAPU agreed that the pilot study should start with Tanzania and Uganda under the supervision of IOM and UPU offices in both countries to ensure efficient and smooth coordination of the exercise. Field interviews involved eight districts in Uganda (Kampala, Mbarara, Mbale, Jinja, Iganga, Masaka, Kabarole and Kabale) and Tanzania (Karagwe, Bukoba, Mwanza, Arumeru, Geita, Musoma, Kinondoni and Muleba), which were selected based on the likely presence of migrants as attracted by different socio-economic factors and the availability of remittance agencies in the localities, which include post offices so that an assessment of the system could be made. Kampala and Dar es Salaam as financial capitals in the two countries were included due to the presence of national headquarters of key institutions such as the Posts Corporations, Central Banks and Bureaus of Statistics. Some of the towns like Geita in Mwanza region of Tanzania were selected owing to the mining activities. On the other hand, Bukoba, Mwanza and Musoma (Tanzania) and Masaka and Jinja (Uganda) were selected as frontier towns on both sides of the border for migrant fisher and businessmen assumed to be engaged in economic activities between the two countries and therefore a high likelihood of getting people sending remittances using both formal and informal means. 3.2 Types of Data and Sources of Data The study relied on both statistical and non statistical data, which were captured using different tools such as data capture forms, semi-structured questionnaires, interview guides or customer satisfactory surveys. Secondary data was obtained from different institutions in Uganda and Tanzania including postal corporations, postal banks and other commercial banks. Other sources were country specific reports including those prepared by IOM on remittance globally. Information on national policies, regulations and laws related to remittances was also revisited. Primary data was gathered to provide first hand evidence as a means of discovering new facts but also authenticated what is already documented in published reports and secondary data provided by institutions. The contacts at national level served two purposes: first to raise awareness about the IOM/UPU/PAPU mandates and the project purposes, and secondly to obtain information and data on remittances between the two countries. The questions asked to the first category of stakeholders (policy and legal custodians) were related to data or information on migration, financial management and international payment systems; while remittance agents/institutions were asked to provide information on volume and frequency of remittances between the two countries. Migrants were asked questions, which sought to understand the main channels of funds transmission used by most of them and the challenges faced in the process of sending and receiving between the two countries.

 

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3.3 Geographical Coverage by the Team of Consultants The two national mapping consultants covered eight districts each in Uganda (Kampala, Mbarara, Mbale, Jinja, Iganga, Masaka, Kabarole and Kabale) and Tanzania (Karagwe, Bukoba, Mwanza, Arumeru, Geita, Musoma, Kinondoni and Muleba), with the aim of interviewing Ugandan and Tanzania migrants in each country, officials of postal services and district leaders on the phenomenon of remittances. The list of people consulted by the mapping consultants is shown in Annex 11.

The mapping consultants mostly dealt with interviews and data collection from all the district towns, while the senior remittance consultant interviewed national level stakeholders in Kampala and Dar es Salaam. Most of the forms were filled by the consultants through extracting secondary data provided by stakeholders. The only two exceptions where stakeholders assisted to administer forms were the customer satisfaction feedback form (used to gather IFS users’ opinions about the system) and the remittance volume and flow form distributed to banks and remittance agents. An extra visit was made to both sides of the border post of Mutukula to get views from informal money changers and observe the phenomenon of travelling and changing money at the border. 3.4 Preparatory Work by the Senior Consultant The senior remittance consultant was accompanied by IOM officials in Uganda and Tanzania to conduct a series of door-opening and introduction meetings with high ranking officials in the communication sector such as ministries, the Central Banks and Postal Corporations. The aim was to introduce the pilot project to the stakeholders and to collect relevant data on remittances and migration.

3.4.1 National Interviews and Consultations in Uganda UPU in collaboration with the Ugandan Postal Corporation (UPC) helped in identifying the most suitable districts for the field survey based on historical records of handling remittances and letters to and from Tanzania. They also helped to identify and prepare a letter of introduction to key ministries and institutions through the Ministry of Information and Communications Technology and the Managing Director of Uganda Posts Corporation. High-level meetings were held with officials from the following institutions, whose names are shown in Annex 1:

• Uganda Posts Corporation - Heads of International Relations Officer, International Financial Services, Operations Support Manager, Western Union;

• Uganda Postal Bank - Managing Director and Director of Payment Systems; • Stanbic Bank - Head Institutional Banking Corporate & Investment Banking; • Ministry of Gender Labour and Social Development - Head External Employment

Unit; • Barclays Bank- Branch Manager - Kampala Road Branch; • Ministry of Foreign Affairs - Head Diaspora Division;

                                                            

1 An opportunity for interviewing Tanzanians was given by the Tanzanian High Commission in Kampala after informing the researchers that Tanzanians were going to have a get together to celebrate Nane-Nane (Farmers National Day) under the umbrella of Umoja wa Watanzania Uganda (UTU).  

 

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• Bank of Uganda - Director of Payment Systems; • Uganda Bureau of Statistics -Executive Director; • Ministry of Internal Affairs - Immigration Department (Border Management); • Tanzania High Commission - The High Commissioner and two of senior officials • Uganda Revenue Authority; and • Transporters: Akamba Bus Service

3.4.2 Field Interviews in Uganda The research team used Uganda as the launching ground for the study by conducting high-level interviews and also training the national mapping consultants and pre-testing of the tools before commencing field visits in seven (7) district towns besides Kampala. While in the districts the mapping consultants aimed at three types of respondents where she managed to interview at least one district leader in each district, more than eight officials from remittance agents (mainly post office workers) and 80 Tanzanian migrants using services of post offices and other remittance channels. Although no Tanzanian could be interviewed in Kabale district, the shortfall was compensated by interviewing some Tanzanians residing in different parts of Uganda, who had gathered for a national event in Kampala on 8th August 2009.

3.4.3 Interviews and Consultations in Tanzania The door opening meetings in Tanzania involved visits to both public and private institutions as detailed in Annex 1, which included the following:

• Bank of Tanzania - Director National Payment Systems, Senior Principal Bank Officer, and Deputy Director - National Payment Systems;

• National Bureau of Statistics - Manager -National Accounts; Officer - National Accounts; Officer - Minerals sector; Officer - National Accounts - Forestry, Hunting and Real Estates; Officer National accounts - Manufacturing/Hotels/Trade;

• Postal Bank - - National Manager - Western Union Money Transfer Head Office; • Postal Bank - Senior Manager and Manager - International Banking Operations; • Tanzania Posts Corporation – Manager - International Payment Systems; • CRDB Bank Plc - Head - International Payments; • Ministry of Home Affairs - Migration Department - Commissioner - Border Management; • Federal Express - Customer Service and Operations Manager; • TNT Express - Sales and Marketing Executive/Country Manager; • Akamba Bus Services - Branch Manager; • Standard Chartered Bank - Head - Corporate Banking; and Head - Transaction Banking; • Stanbic Bank of Tanzania - Manager - International Banking; • Commercial Bank of Africa - Manager; • Ministry of East African Cooperation - Director of Policy and Planning; • Diamond Trust Bank - General Manager; • Ministry of Finance and Economic Affairs - Commissioner for Budget; and • Tanzania Communication Regulatory Authority

3.4.4 Field Survey in Tanzania Field survey in Tanzania started a week later after Uganda due to delayed identification of a qualified person who would be immediately available to start work based on the contract conditions. The mapping consultant was trained during the first week of August and therefore started field work on the second week. He had to use a combination of his skills in investigative journalism and the local connections in the lake region to cover the first six districts as planned. Just like in Uganda, the consultant aimed at three types of respondents

 

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in the districts, and managed to interview at least one district leader in each district, more than 8 officials from remittance agents, mainly post office workers, and 77 Ugandan migrants to get their views on the services of post offices and other remittance channels. 3.5 Data Analysis and Study Limitations The survey forms which were filled by the mapping consultants and the captured data was entered for a computerized descriptive and statistical analysis using SPSS software. Although it was successfully undertaken, the study faced a number of limitations linked to either the conceptual framework in terms of sample frame definition and picking of respondents or the operational constraints of obtaining the required data and information, some of which are regarding as confidential. The choice of covering Tanzania and Uganda, and in particular focusing only on remittances between the two countries alone posed its own unique challenges as follows:

a. Locating where Tanzanian and Ugandans are located in the counterpart host country: The study aimed to map the sources and destinations of the senders and receivers in the respective countries and how the remitted income is utilized. The challenge was how to find a good number of Tanzanians/Ugandans in any one town visited in Uganda/Tanzania and trace them for detailed interviews. Even when using the snowballing techniques, it required time and patience.

b. Validity of mapping using 16 districts only in the two countries: A closely related

concern was the use of the term ‘mapping’, which expects the study to have a country mapping of the sources and destinations of remittances throughout the two countries. The study used a sample of eight (8) districts in each country and hoped to obtain secondary data from postal offices, banks and other remittance agents to help in the mapping exercise. This required extra efforts in follow-ups with the different stakeholders to provide such information.

c. Data format by Money Transfer Operators: Although country-destination records

usually are indicated in the daily ledgers of money transfer operators, the monthly and annual databases were specifically structured to capture cumulative business transactions as remitted outside Tanzania or Uganda, which is the main interest of most banks. Seeking country-to-country specific datasets required extra duties from the officials in assembling such information. This entailed follow-ups to get the country-disaggregated data. Bearing in mind the difficulties to trace or reconstruct country specific long term-time series data the research team had set the target to collect historical data not more than five (5) years so as to simplify comparability between the two countries. However, it happened that post offices could easily extract data starting 2006 when they started to computerize their daily/monthly transactions.

d. Self-inflicted limitations in selecting users of postal offices: Among the objectives of

the study was to (i) understand the weaknesses and limitations in efficiently effecting remittances between the Tanzania and Uganda, which applies even if sending money to any other destination; and (ii) understand how the money received is used for development purposes. These two objectives could be attained even if users of remittance system were of other nationalities. The question could be raised whether a Tanzanian in Mwanza sending money to a fellow Tanzanian in Uganda faces different constraints compared to a Ugandan living in Mwanza, who wishes to remit money back home. However, since the focus was on Tanzanians in Uganda and on

 

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Ugandans in Tanzania, more efforts had to be spent to specifically identify these respondents.

e. Data from informal operators: It was from the beginning envisaged that since

informal operators were offering their services outside the mainstream legal system it would have been rather difficult to obtain detailed and precise data on the handled money transactions between the two countries. The team nevertheless embarked to get at least average or indicative figures handled by the informal agents and the challenges they face in their business.

f. Time availed per each district to be visited: Due to the set time frame, the study

allowed for two (2) working days per district to consult remittance agents (formal and informal), as well as customers of their services. This time frame might have inflicted on the number of informants and respondents interviewed for the assessment.

 

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CHAPTER 4 The Policy and Legal Environment for Remittance Management

 4.1 Views from Policy Makers The policy makers are key partners in ensuring that the cost of remittance is reduced and the services widespread so as to benefit as many people as possible at low cost to both the sender and the recipient. Policy makers can ensure that more pro-Diaspora policies are put in place to attract Diasporas to remit funds back home and make certain that the financial and investment laws have a conducive environment for Diaspora members to remit funds back home. The policies should be based on the General Principles for International Remittance Services that requires (a) market transparency and consumer protection (b) improvement of payment systems (c) instituting a supportive legal and regulatory framework (d) stimulation of competitiveness in the remittance industry; and (e) supporting remittance services with appropriate governance and risk management practices (IOM 2008). In soliciting ideas from the policy makers the interest was to identify any regulatory factors that deter or hinder the flow of remittance and their investment. Flow hindrance factors could be related to monetary policies such as foreign exchange controls or use of single or very limited outlets for remittance; or due to financial sector regulations such as restrictions on bank outreach or licensing rules. On the other hand, factors that may hinder investment of remittances include restricted rules for operating foreign exchange or difficult forex repatriation rules or cumbersome conditions for opening and running business (Maimbo et al. 2009). Another aspect of this study was to establish the level of understanding of high ranking officials on the role of remittances to development and the challenges in optimizing the services so as to benefit senders and receivers. Given the relatively underdeveloped financial sector in East Africa it has been common for people to physically move money across the national borders through informal means due to weak surveillance systems to monitor what is passing across the borders (Millinga et. al 2001). Formal means of sending even simple letters and registered mail through the post office system has also declined because of low trust for the system (e.g. theft and careless handling of mail). The postal system is regarded by many as too unreachable in terms of geographical distances and there is a general lack of awareness of the services the post office offers (IOM 2008). The act of transporting the money physically is usually conducted either by relatives, friends or by the remitter him/herself, who might be visiting family on the side of the border. Information and views on policy, legislations and institutional arrangements supportive of the welfare of migrants and the operation of an efficient remittance system was obtained from officials interviewed in 14 national level and 16 district-level institutions responsible for communication, international affairs, and labour/Diaspora, fiscal/monetary management and national statistics. 4.2 What Is the Policy and Legal Environment for Remittances?

4.2.1 On Cross-Border Transfer of Funds The financial and communication laws of both countries allows officially registered banking institutions (e.g. deposit taking and lending commercial banks including Postal Bank) and non-banking financial institutions (e.g. post offices, dedicated remittance companies such as Western Union and Money Gram and Bureaus de Change) to receive and send customer

 

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funds transmitted across borders provided the daily transactions reported to the Central Banks. However, the laws of Tanzania do not yet allow free movement of investment funds (e.g. Tanzanians investing outside the country) as part of capital account controls. Post offices in both countries are governed by pre-independence laws that allow them to handle remittances within country and across borders within East Africa without the mandatory reporting to the Central Banks.

4.2.2 On the Role of Non-Banking Institutions in Handling Funds As part of controlling money laundering, remittance agents in both countries are required to gather personal identification of both the sender and the recipient. The non-banking agents are also required to set ceilings of funds that can be sent out per person per day, with Tanzania’s threshold set at USD 200, while in Uganda it is USD 1,000 due to financial laws. This means that a customer in Tanzania intending to send USD 1,000 has to undertake five transactions over a period of five days, with associated costs per transaction. Additional requirements by Western Union in Tanzania will need a letter or certificate from the beneficiary on the intended use of the money to be sent. This may be in the form of a doctor’s report or school fees invoice.

4.2.3 On the Role of Buses and Courier Companies Laws of both countries prohibit courier companies and buses/lorries to transport valuables and money within and across borders. For buses doing courier business in Uganda and Tanzania they had to pay for road licences in both countries and also business licence for courier shipping, including special registration with the Ministries responsible for communication in both countries. This was regarded as adding to the cost of doing business in the two countries. There were no legal provisions allowing money changers to operate at border posts but local authorities in Uganda recognised their presence and role and allowed only those who are formally registered and had identification numbers and uniforms to weed out conmen. 4.3. Views of Key National Stakeholders on the Role of Remittance to Development Agenda Senior officials from Uganda and Tanzania had a common view that remittances were important for the development agenda of their countries in different ways as shown in table 1. The officials indicated that future capacity building programme for postal staff should include appreciation of the role of remittance to the development agenda at both household and national levels in addition to the technical operation of IFS as a remittance transfer system. Some of the impact, such as those on contribution to the national balance of payment, will require a coordinated institutional support to capture such information and report on the contribution of migrants. It will require agreeing on either a routine data capture system to record the uses and amount sent or regular survey updates. Table 1 Views of Senior Public Sector Officials on the Role of Remittance to Development Impact of Remittances at Household level Impact of Remittances at National Level 1. Purchase of food stuff, clothing and

footwear 2. Social capital investment in functions

like weddings and funerals

(a) Reduction of food poverty and (b) General improvement of livelihoods and

wellbeing of citizens

3. Acquisition of assets such as transistor radios, Television sets and bicycles

Reduction of poverty levels and improved standards of living of nationals

4. Investments-starting up businesses, construction, acquisition of land and

(a) Employment opportunities and increased revenue (b) Increased foreign earnings and balance of

 

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Impact of Remittances at Household level Impact of Remittances at National Level irrigation farming payment and therefore reducing dependency on

foreign aid (c) Increased government revenue through taxation

5. Funding of education thus reducing literacy rate

Reduced literacy rate as remittances are used for educating the citizens

6. Basic social needs such as medical care Creating a healthy and therefore more productive population as remittances are used for health cares

7. Investment in grassroots level micro-finance operations such as Savings and Credit Cooperative Societies (SACCOS)

Deepening of the financial sector

Source: IOM/UPU Stakeholder workshop on 26th November 2009, Dar es Salaam. 4.4. Summary of Key Stakeholders on the Prevailing Remittance Systems and Required Interventions A participatory approach was used to get views of officials from the Postal Corporations, Ministries of Communication and Central Banks of Uganda and Tanzania to identify weaknesses in the general remittance transfer systems and also to suggest strategies to deal with those challenges as shown in Table 2. The identified weaknesses, which are very similar to those mentioned by interviewed migrants (see next chapter), revolved around (i) poor penetration of electronic remittance transfer system in rural areas (ii) technical and administrative weaknesses in the operations of IFS, resulting in frequent stoppage of the services, thus holding back marketing and awareness creation plans in favour of IFS (iii) lack of capital to roll out IFS and meet customer expectations (iv) poor infrastructural services, especially reliable electricity and (v) lack of coordinated efforts to capture and report on remittances so that accurate data is included in the national statistics; and (vi) lack of proper identification of customers due to lack of national identification cards. The required interventions are as shown in Table 2. Most of them will require both technical and financial support from UPU/PAPU and the respective two Governments. Table 2 Views of Senior Public Sector Officials on the Role of Remittance to Development. Weaknesses of different remittance services

Strategies to improve remittance transfer services

Responsible for Action

1. Lack of widespread remittance services to rural areas

(a) Aggressive marketing and awareness creation of the existence of IFS and other services

(b) Encourage more players and new technologies (use incentives, subsidies/exemptions-reduced cost) in order to bring about competition which will improve efficiency in services.

(a) Post offices (b) Ministries

responsible for communication and infrastructure development

2. Inadequate infrastructure to enable more users to utilize remittance channels due to lack of computer software for instant money transfers by post offices

(a) Governments to invest in rural infrastructure. Post offices to expand coverage of remittance services to the rural areas in both countries to bring the services closer to people living far away from the cities.

(b) Ensure a wider coverage by installation of computer software and reliable electricity in areas where the postal offices are located.

Ministries responsible for communication and infrastructure development with support from UPU

3. Lack of awareness about the various remittance channels. For instance IFS has

Aggressive marketing of cheaper and safer means of remitting funds such as the IFS system.

Ministries responsible for communication and infrastructure development

 

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Weaknesses of different remittance services

Strategies to improve remittance transfer services

Responsible for Action

been in existence since 2002 but is still little known

4. High transaction costs for instance IFS requires one to pay $ 5 for a transaction of $40 which is still relatively high for low income earners

Reduce the costs of delivering remittance services to suit the different needs and categories of users such as businessmen, traders, students, low income earners etc.

Ministries responsible for communication and infrastructure development, Banking and Regulatory Authorities, Post offices.

5. Delay of payment using IFS system due to lack of cash in the delivery offices

Need for capitalization of post offices so as to increase liquidity and availability of funds to enable post offices pay customers without delay. Post offices can enter into business partnerships with commercial banks including postal banks in Uganda and Tanzania

Post offices and postal banks

6. Inefficiency in the systems e.g. post offices have unreliable services and the systems are dysfunctional most of the time

(a) Technical support to post offices in order to improve their services

(b) Facilitate service providers to ensure that the software required are installed to avoid inconvenience to users of remittance channels

Post offices with support from UPU/PAPU and government

7. Inadequate regulatory frameworks that ensure safety of users of remittance channels

8. Illegal operations by buses in money transfer thus lack of information on amounts transacted

Identify areas that require strengthening for ensuring safety of remitted funds by different systems, including buses and mobile phones.

Introduce a monitoring and reporting system to capture funds transmitted through informal systems such as buses

Ministries responsible for Communication and Legislation, Central Banks and Uganda and Tanzania Postal Corporations

9. Customers lack faith due to fear of exposure to fraud and loss of funds

(a) Mitigate/control fraud by strengthening internal controls and ensuring the government puts in place measures that protect remittance service users from fraud

(b) Improve data collection and transparency by encouraging users of remittance services to avail relevant information before any transactions; e.g. forms used for sending money should give details of transactions to ensure proper record of remittances

Uganda and Tanzania Postal Corporations, with support from UPU/PAPU on systems installation and monitoring

Bank of Uganda and Bank of Tanzania in collaboration with Bureaus of Statistics

10. High staff turnover Prepare a special incentive for staff working under the IFS project so they can compete with Western Union and Money Gram operators

Post Corporations and parent ministries for approval of scheme

11. Poor technical and administrative support from UPU

Provide a technical assistant for Uganda and Tanzania to support the regional TA already provided by UPU

UPU and PAPU

12. Simplify regulation for migration and movement of people between Uganda and Tanzania

(a) Revise laws and regulations on migration and settlement

(b) Introduce national identification cards for ease of business dealings with financial and remittance institutions

Ministries responsible for migration and national security. East African Community

Source: IOM/UPU Stakeholder workshop on 26th November 2009, Dar es Salaam.

 

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CHAPTER 5 Analysis of the Remittance System between Uganda and Tanzania

5.1 Formal Remittance System Information and data on systems used for funds transmission between Uganda and Tanzania, the amount of funds transmitted, transmission charges and the challenges faced by operators and customers was obtained from 13 national-level and 16 district level agencies and institutions. These included formal agencies such as the post offices, postal banks and other commercial banks based in Dar es Salaam and Kampala. Document and parcel courier companies were also interviewed. Informal or unofficial agents included operators of buses plying between Dar es Salaam and Kampala. In order to understand what goes at border posts as people move from country to the other, eight informal money changers at Mutukula border post were interviewed. 5.2 Post Office Remittance System As part of improving remittance services, Tanzania Postal Corporation (TPC) and Uganda Postal Corporation (UPC) in partnership with UPU have joined efforts on a pilot basis to roll out the International Financial System (IFS) network, with backup from UPU Regional Support Centre in Dar es Salaam (RSCEA)1.

5.2.1 International Financial System (IFS) The Universal Postal Union (UPU) is a specialized agency of the United Nations. A long-term aim of the UPU is to develop economies and reduce poverty by the strategic effort of building a comprehensive network based on the combined capacity of its members. As a step forward, the UPU has developed an international financial transfer system with the aim of facilitating the access of financial services in remote area communities by installing money transfer systems at the post offices around the world. The long-term goal with the International Financial System (IFS) is to contribute to social and economic development (UPU 2009). In Tanzania and Uganda, UPU has worked together with PAPU to implement the IFS since 20022. Currently, a third version of the software is in use, which also allows domestic money transfers between regions and districts, a feature that was missing in the earlier versions. The following are main observations with respect to the IFS: • At its core, IFS is an extensive web-based network connecting post offices worldwide for

international electronic fund transfer exchanges. The system is designed to be an adaptable and user-friendly low cost tool that can be installed even in the remotest areas of the world. It can operate with internet speeds as low as 256 kbps to as high as 2 mbps3. The UPU provides direct support for countries linked to the IFS network via UPU headquarters in Berne, Switzerland, and through five regional support centres, which includes Dar es Salaam.

• According to management at the TPC, so far out of more than 420 post offices in

Tanzania, only Dar es Salaam is connected to the IFS network. However, plans are in

                                                            

1 There are presently four regional support centres globally in Singapore (Singapore) for Asia, San Juan (Puerto Rico) for Caribbean, Montevideo (Uruguay) for Latin America and in Dar es Salaam for eastern and southern Africa (UPU 2009). 2 The IFS network was regionally launched for Tanzania, Uganda and Kenya in September 2002 3 Data transfer speed is measured in bytes per second (bps), thus kbps=kilo bps and mbps=mega bps. 

 

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their advanced stages to install the software in Mwanza and Arusha for international remittances, and to all regional post offices in the country for domestic remittances. District offices equipped with IFS in Uganda were five, with six more planned before the end of 2009.

• The Uganda Postal Corporation had already taken advantage of the new features of

version three of IFS software to connect Kampala with district post offices for domestic transfers in addition to international transfers, including Dar es Salaam. The use of the system in Tanzania until August 2009 was still limited to transactions between Dar es Salaam and Kampala among other international destinations. Plans were underway in Tanzania to configure the system for domestic transfers by October 2009, at least to those towns with public infrastructural facilities for electronic transmission of funds. However, even if the software had been installed in the regions/districts, the software has since its introduction experienced several technical hiccups, sometimes stopping operations for more than two weeks. It appears that a combination of lack of or poor infrastructural facilities to roll-out the program upcountry and operational hitches for the already linked nodes have not encouraged the postal offices to invest in marketing and advertising the suitability of IFS as a dependable remittance system.

• Another equally important factor is the presence of private money transfer agents such as Western Union, which operate on an agency basis by post offices and has gained popularity as a preferred system for international transfers in the absence of reliable substitutes for ordinary customers. It appears that unless IFS proves itself as a dependable system in both reliability and geographical spread, post office staff will continue operating as agents of the privately owned money transfer agents in order to effectively serve the needs of customers. This is an unfortunate situation since by its design IFS is supposed to be cheaper compared to other products, and has the potential to reach remote regions, rivalled only by the advent of mobile banking. For example, while it would cost a minimum of USD 50 to send money through a normal bank transfer or USD 25 through the Western Union system, the minimum for IFS is less than USD 5. This shows that the IFS service is better suited to serve low-income customers than other money transfer products.

Other money transfer services offered to customers by post offices includes Postal Orders (equivalent of travelers’ cheques), Money Order, Express Money Order, Money Fax and Expedited Mail Service (EMS) Money Fax. Post Giro, for payment of salaries and pensions is a financial service offered only to customers with bank accounts. All the mentioned services are for domestic transfers only.

5.2.2 Commercial Banks’ Remittance System All commercial banks, including the Postal Banks (Uganda and Tanzania) had two categories of remittance handling systems. The first type of system is a set of own bank-specific products meant for their customers, most of them linked to the System for Worldwide Information for Funds Transfer (SWIFT) for international settlements with other banks or internal system for inter-branch transfers and payments (within and across borders). The second category of services is that offered to non-account holders. So far banks have subscribed as agents of franchise such as Western Union, Money Gram, Visa and MasterCard, etc. The interviewed bank managers confided that for all practical purposes, Western Union and Money Gram money transfer systems were the most ideal for customers who do not have operational accounts with banks. Given that the process of bank accounts require several conditions to be fulfilled and the fact that the bank service might be needed only a few times

 

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in a year the ideal option was for one to use the one-off transfer system, which require simple identification of the sender and receiver without reference letters and other referees as needed when opening a savings or current account.

5.2.3 Commercial Banks on Migrants’ Remittance In recognition of the increasing role of the Diaspora in development, commercial banks have tried to implement different services that intend to simplify the sending and receiving of money by individuals and companies as exemplified below:

a. Banks have opened corresponding or reciprocal accounts with sister banks in the other country to allow a Tanzanian, for example, to immediately deposit money at his/her Tanzanian bank account while in Kampala, thus remitting money to Tanzania;

b. Banks such as CRDB Bank Ltd in Dar es Salaam opened agencies in selected cities in the United Kingdom and the United States to simplify deposits by Tanzanians living abroad (started with 500 and 200 customers, respectively). Other banks like the Commercial Bank of Africa (CBA) have gone further to create special investment related products tailored to suit the needs of Diaspora in need of investing back home. Most of them are investing real estate for family and business uses;

c. The introduction of automated teller machine (ATM) systems through debit card (e.g. Visa Electron) and credit cards (e.g. Master Card and Visa Card) have opened another channel for fund transfers between Uganda and Tanzania. However, this service is probably more suitable for migrants with bank accounts, since most of the ordinary (low income) migrants do not hold such accounts.

Table 3 Comparison Between Different Money Transfer Systems

Feature IFS Western Union Bank Accounts

Condition to access service

Simple identification

Simple identification

More elaborate identification and referees

Minimum charge

USD 5 USD 25 USD 5 plus monthly charges

Time of delivery Same day Same day Only with own account

Spatial coverage Limited in rural areas

Already in remote areas

Limited to district level

5.2.4 Non-Banking Financial Services

Bureaus de Change have also introduced fast money transfer systems between Kampala and Dar es Salaam. These systems have proved to be particularly popular among traders in Tanzania, who go to buy merchandise in Kampala. The cost is imputed in the exchange rate difference, which varies between 1.5 - 2% of the funds remitted. They handle on average 10 people sending and/or receiving money between the two cities per day. No information could be given on the volume transacted due to customer confidentiality.

5.2.5 Non-Financial Remittance Services The use of mobile banking has been allowed to operate, provided the services are jointly arranged under the supervision of a registered bank or financial institution to facilitate the recording and reporting of transactions. This has created some partnerships with telephone companies such as Zain (ZAP), Vodacom (M-Pesa), MTN and Safaricom (M-Pesa) with

 

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banks like Barclays, Standard Chartered, CRDB Bank, National Bank of Commerce (T) and Kenya Commercial Bank (KCB). This new service is however still operated domestically as legislation to allow cross-border payment using mobile phones had not been enacted by October 2009.

5.3 Informal Remittance System From the mapping of relationship between distance from the border and tendency to use the informal system it is revealed that there is an inverse relationship between the two variables. The further a migrant was away from the border, the less likely he/she was going to use informal system for sending money. This is not unexpected since people near the border have the advantage of either personally dashing across the border to the other country or sending friends and relatives to take money across the border on their behalf. Migrants seemed to use a combination of channels for remitting funds as revealed by a sample of migrants interviewed during the survey. The most popular system among Ugandan migrants in Tanzania for sending money back home was by personally taking it when going home (since most of them were formally employed and waited for opportunities of annual leave, public holidays and when attending meetings). It is followed by remitting using Western Union (40% indicated using the same). On the other hand, Tanzanian migrants in Uganda used a wider range of remittance system whereby Western Union and Money Gram were more predominant (37.5%) followed by buses (25.1%) and banks (16.2%). Like their counterparts in Tanzania they also took advantage of conferences and meetings to deliver money home. It is noteworthy that the use of buses was more common among Ugandan migrants in Tanzania (25.1%) compared to Tanzanian migrants in Uganda (11.7%). This is corroborated by a separate response on the frequency of sending money home, which indicated that Ugandan migrants had more frequent dispatches compared to Tanzanian migrants (see Table 4). Another finding in Uganda along at the border districts was the usage of sex workers, who are a minority, as money carriers between the two countries. For a lower fee than that charged by other informal remittance agents, sex workers carried money from one side to another as they crossed the border in search of clients. Table 4 Frequency of Sending Money Home by Sampled Migrants Frequency of Sending Money by:

Weekly dispatch*

Monthly dispatch Quarterly Once or Twice

a Year

Ugandan Migrants in Tanzania 18.0% 81.8%

Tanzanian Migrants in Uganda 35.7% 23.2% 3.6%

Table 5 Probability of Using Different Remittance Systems by Sampled Migrants

Percent Who have Used System Used by sampled migrants Migrants in

Tanzania Migrants in Uganda

 

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Percent Who have Used System Used by sampled migrants Migrants in

Tanzania Migrants in Uganda

Personal visits back home 59.70 8.9

When travelling to Conferences and Meetings 37.70 14.3

Western Union 40.3 28.6 Money Gram 0 8.9 Banks 0 16.2 Couriers company 0 3.6 IFS 0 3.6 Buses 11.70 25.1  5.4 General Assessment of Migrants Remittance Transfer Possibilities

5.4.1 Migrants Assessment on the System The assessment found that senders of small amounts of money preferred the informal system, and especially if they were near the border where they could identify reliable persons or vehicle operators. They regarded the informal system as less costly and though it was worth taking the risk of the unsecured informal system due to the small amount of cash transmitted. Although the postal services were within the reach of many migrants they held a negative perception about the reliability and quality of services, including lengthy procedures. It is also a concern, that even those migrants, who had not used the post services for years had a similar view, including the belief that it was more expensive than the informal system. This view, however, is not supported by the feedback from people interviewed in the post office customer feedback survey at Dar es Salaam post office. The majority indicated that it took less than 10 minutes to be served and the cost for using IFS was cheaper compared to other systems (see Table 6).

Table 6 Post Office Customer Feedback on Offered Services- Dar es Salaam

Female 37.50% Gender of Respondents Male 62.50% Total Cash Handled Mean Tsh 152,500 of which Max Tsh 1,400,000 Charges per Transaction Mean Tsh 18,125 of which Max Tsh 65,000 Time Taken to be Served Since Arrival Mean minutes 8 of which Max minutes 10

Mean days 2 Min days 1

Lead Time: from sending to receiving cash Max days 5 Source: This study 2009.

 

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Since the informal system was regarded as dependable, migrants expressed a wish that governments should formalise the use of buses for transmitting funds. They cited one bus company, which used to issue receipts for the rendered services and it became quickly popular among customers in Tanzania and Uganda. The company had since stopped offering cross-border services due to financial problems. The remaining cross-border buses record remittances as a registered letter or parcel. There is still some form of security as the letters are well sealed and the recipient must produce identification papers and a password. The interviewed migrants also suggested that the two governments should look at the possibility of recording the transactions of the informal remittance system at border points, which is usually taken for granted by the governments and yet no data is recorded. This could be done even without enacting any law by having a memorandum of understanding between the national bureaus of statistics and bus operators to report on the number of customers and amount of funds transmitted, with countries of origin and source. This could be done on a monthly basis. However, for the operators to understand and appreciate the importance of the data, a small workshop/seminar could be undertaken under the umbrella of the Ministries of Communication and Planning/Finance. The interviewed migrants also suggested simplification of conditions and costs for opening and operating bank accounts so that even low income customers can use the services (see Table 7). The challenge of encouraging the establishment of more service providers in rural areas was also raised by 27 % of the interviewed migrants. Indeed this is among the key subjects raised in the report by IFAD (2009) on the need to explore different ways of engaging as many stakeholders as possible as remittance agents. The same report suggests the need to promote Micro Finance Institutions as possible partners in handling remittances.

Table 7 What should be Done to Improve Remittance Services?

Tanzania Uganda Intervention Areas Cited by Migrants N=77 n=56 1 Improve the use of electronic remittance system because

it’s reliable and fast 26.0% 16.1%

2 Reduce remittance charges so that ordinary migrants can use formal system 10.4% 33.9%

3 Conduct a massive education campaign to raise awareness of the existence and advantages of IFS 36.4% 7.1%

4 Create enabling environment to attract more financial institutions to compete in service delivery thus increasing quality of services

13.0% 26.8%

5 Feel comfortable with the existing systems- especially Western Union 14.3% 7.1%

6 Need to improve safety of funds sent 0.0% 1.8% 7 Need to reduce distance and cost of transport in reaching

remittance agents 0.0% 7.1%

Source: this study, 2009.

5.4.2 Migrants Views on the Informal System A summary of the preference of sending channels between formal and informal systems shown in table 8 reveals that almost 60% of the interviewed migrants preferred use of the informal system due to the low costs associated with transferring the money.

 

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Table 8 Usage of Formal and Informal Channels for Remittance by Interviewed Migrants in Tanzania

District Total No. of Interviewees

Formal System

Informal System Purpose Factor Considered

Karagwe 10 0 10 Household/business Cheaper compared to the formal system

Bukoba 10 0 10 Household and Business Same as above

Muleba 07 0 07 Household and Business

Formal: prefer speed and safety Informal: cost limitation for those using formal

Geita 10 06 04 Household and Business Same as above

Mwanza 10 04 06 Household and Business Same as above

Musoma 10 03 07 Household and Business Same as above

Arumeru 10 08 02 Household and Business

High consideration for speed and safety of money

Kinondoni 10 10 0 Household and business Same as above

Total 77 31 46 Percent of

Total 40.3% 59.7%

The interviewed migrants gave different reasons for their preference to the various remittance channels chosen at any one time (se Table 9). Those who frequently took money home personally had either no other option or thought it was more economical since they had regular opportunities to travel on leave or for conferences. Table 9 Factors Considered by Migrants When Sending Money

Tanzania Uganda Factors Considered in Sending Money n=77 n=56

Safety of funds 58.40% 28% Cost effectiveness of sending 53.20% 21.40% Speed and reliability 40.30% 12.90%

NB. Due to multiple responses the final number exceeds 100%. Buses were preferred because they were considered cheaper and required less paper work. Those who favoured private money transfer operators cited reliability and security to their funds. Giving money to friends and relatives travelling back home was the cheapest of all, although it carried its own occasional risks as explained by one migrant that “... once a friend disappeared with my UGS 2 million, which has made me to fail develop my housing project”. Simplicity and cost effectiveness of the procedure for remittance of appear to be desirable merits, which is only available when using buses and friends (Table 10).

 

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Table 10 Procedures for Sending Money for Different Remittance System*

Procedure to be followed Buses Friends and Self-Travel

Private Money Transfer Operators Banks

1. Just word of mouth to give instructions to the driver Yes Yes No No

2. Simple instruction on piece of paper Yes Yes No No

3. Passport or ID or letter from local leaders and forms filled No No Yes Yes**

4. Forms filled Yes, No No Yes Yes

5. Secret code given for further identification Yes, No No Yes Yes

6. Commission paid Yes, No No Yes Yes

7.Personally to inform recipient by phone about the sent money No No No No

Note: *89 % of migrants interviewed in Uganda reported that it was compulsory to produce an ID (work or student) or Voter Registration Card before sending the money; **Upon opening the account only.

In assessing the reliability of the informal system, Ugandan migrants in Tanzania had immense faith in it, compared to Tanzanians in Uganda, who cited risks associated with bus breakdowns and dishonest friends (Table 11). Table 11 Problems Experienced by Migrants with the Informal Remittance Transfer System Problem Tanzania Uganda Average Dishonest friends 3% 7% 5% Exchange rate fluctuations 2% 7% 4% Bus breakdowns 0 14% 14% Boarder informal system operations confusing 0 5% 5% Internet unreliable 0 5% 5% No significant problem 93 % 23% 58% Total 100% 62%* 81%* Note: *Some respondents gave no responses hence the less than 100% total

 

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CHAPTER 6 Key Findings of the Study

6.1 Introduction One of the objectives of the survey was to understand the geographical sources and destination of remittances by Ugandan and Tanzanian migrants. The information was obtained from personal interviews of the migrants and secondary data provided by the post offices. Some attempt to compare the pattern of remittance as revealed by the two sources is made in addition to revealing what the funds are used for by the recipients. Finally, an assessment of the strengths and weaknesses of the remittance systems from the migrants’ point of view is given. In a nutshell, the survey revealed that migrants near the border rarely used the formal system of remittance, while on the other hand, the further from the border one is located, the more reliance on the formal system one became. There was also generally a combination of lack of awareness of the improved services as offered by the post offices and a historically rooted prejudice of what the post office was capable of offering. Even among the educated and well-off migrants there seemed to be lack of knowledge of the range of formal remittance options available, some of which were more cost-effective than those they are familiar with. In can also be deduced from the survey results that low-income migrants, or those sending small amounts of money, were more concerned about the cost per transaction, and hence their preference to the informal system, while those sending large amount of money put a higher premium on security, reliability and speed of delivery. 6.2 Characteristics of the Migrants Interviewed The randomly picked sample of respondents in both countries show that 63.8% had no spouse and that on average 61.6% were men, although the proportion of men among Ugandan migrants in Tanzania was higher (71.4%). The majority of migrants (67.4%) belonged to an age cohort below 35 years, with only 7.15% above 45 years of age (see Table 12. This description agrees with official statistics reported by the Uganda Bureau of Statistics which show that visitors below 45 years of age accounted for about 70% while males were between 72-75 years (Uganda Bureau of Statistics 2008). In terms of level of education of the sampled migrants, almost a third had attained secondary school education and another third had university level education, with a corresponding level of those engaged in regular formal employment (32 %). These agree with the findings given in the 2009 UNDP report on human mobility and development, which arrives at a similar conclusion that “migrants were more likely than non-migrants to have completed secondary education”. Interestingly, Tanzanian migrants in Uganda had twice the level of higher education attainment (55.4% having completed university and tertiary college training) compared to their Ugandan counterparts in Tanzania (whereby only 36.4% had gone through tertiary college and/or university training). However, the large proportion of highly trained migrants in Uganda is contributed by the large number of Tanzanians in colleges and universities. That is why although Tanzanian migrants in Uganda appear more educated than their counterparts in Tanzania; only 14.3% were in formal employment, compared to 50.6% of Ugandan migrants in Tanzania.

 

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Table 12 Social Characteristics of Sampled Migrants in Uganda and Tanzania Tanzania Uganda

Characteristic Description % (n=77) %, (n=56)

Male,% 71 51 1 Gender Female,% 28 48 Below 26 yrs 26 46 Below 35 yrs 70 64 36-45 yrs 20 23

2 Age Cohorts

Above 45 yrs 9 5 Single 53 57 Married 40 32 Divorced 6 5

3 Marital Status

Widowed 0 5 Primary or less 3 5 Secondary 33 28 High School 26 14 Tertiary College 18. 10

4 Education Level

University 18 41 Formal jobs 50 14 Informal jobs 10 1 Self-employed 11 17 Business/Trade 27 16

5 Employment Status

Student 0 50 Source: This study, 2009. 6.3 How Does the Money Flow Between the two Countries? Labour circulation forms an important part of migration within East Africa. Due to this, a range of innovative informal remittance systems have developed over time to facilitate inter-regional inflows through bus companies and couriers services (DFID 2004). This has been explained in earlier chapters, showing that informal channels are preferred to the formal channels of remitting funds because they are suitable for lower income earners like self employed business people and traders (see chapter 5). What was common from the responses of the migrants and the analysis of secondary data is that (i) there was a net flow of funds in favour of Uganda; and (ii) more than two thirds of the transacted funds originated from, and was destined to, the cities of Kampala and Dar es Salaam respectively. The next most active towns in Uganda were Masaka, Mbale and Mbarara while in Tanzania active towns in remitting funds were Dodoma, Mwanza, Morogoro and Kyela, and those receiving from Uganda were Kahama, Moshi and Zanzibar. An interesting feature of the mapping of source and destination of funds is the asymmetric nature of the relationship. Towns leading in remitting funds from Tanzania to Uganda were not necessarily in the league of leading recipients of reversed funds from Uganda. The same is true for towns in Uganda whereby when Kampala is excluded, the leading remitting towns are not high beneficiaries of funds from Tanzania.

 

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6.3.1 How Can We Explain This Asymmetric Relationship? The above phenomenon is somehow expected if we assume that migrants will settle in places with higher economic prospects, which enables them to save and send out funds. It can be further assumed that since the low income earning probability pushed them to move out of their home villages they are inclined to send money back. That is why we cannot observe a mirror image or reciprocal sending and receiving from the same locations. This is an area subject to further analysis and what this assessment observed is that money was flowing from relatively well-off geographical locations in Uganda to less economically endowed locations and families in Tanzania. The above observation should partially explain what is observed in Table 3 where the ranking of funds sent through the formal system to Uganda is similar to that provided by individual migrants in Tanzania on where they usually send their money in Uganda. On the contrary, Tanzanian migrants in Uganda reported a different pattern of where the money is sent in Tanzania, mostly informally, and included traditionally migrant labour supply districts in Iringa and Kilimanjaro regions.

6.3.2 Which Towns Dominated Sending and Receiving Funds? As for Tanzania, although Dar es Salaam accounted for more than 80% of the funds transmitted to Uganda through official means, its share of incoming funds from Uganda was about 57% based on a three year average. As mentioned earlier, the scenario is not the same for money sent informally, which shows that Moshi, Bukoba and Iringa regions dominated in getting such funds (see Table 13). Table 13 Comparison of Source of Funds and Destination between Official Data and Migrants’ Information

Outbound Funds to Uganda Inbound Funds from Uganda Top 10 Districts from Post

Office records If mentioned by UG Migrants in survey

Top 10 Districts from Post Office Records

If mentioned by TZ Migrants in survey

Kampala 66.2% Dar es salaam 5.4% Masaka 10.4% Kahama Mbale Moshi 17.9% Mbarara 13% Zanzibar Jinja Korogwe Entebbe Ngara Mukono Tabora Kabale Nzega Bushenyi Arusha Buwenge Singida

Comments

About 10% mentioned are outside the top 10 by post office: Busia=7.8% and Kyotera=2.6%

Top 1, 3 and 4 not part of the Post Office list: Bukoba=23.2% and Iringa=10.7

Source: This study survey, 2009. As previously suggested that while we might have some explanations to the characteristics of the top ten receiving districts in Uganda, namely as academic centres for post-primary school learning, more explanation is needed to explain the counterpart receiving districts in Tanzania, namely Iringa and Bukoba, as reported by the migrants since official data did not indicate that these were regular recipients of remittances. While the case of Bukoba can easily be explained due to its close location to the border, that of Iringa, which is further away from the border, begs for further explanation since the mapping of the same set of data shows that on average the further one is from the border, the more likely is inclined to use official remittance system.

 

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Table 14 Top five Tanzanian Districts Receivers of Ugandan Funds USH, 2006-2008

Town 2006 2007 2008 Total, TZS Chart – Proportion of funds received from Uganda by Destination Town

Dar es Salaam

2,131,205 7,649,610 1,547,908 11,328,723

Kahama 0 1,785,714 946,000 2,731,714

Moshi 1,062,

280 859026 643,092 2,564,398

Zanzibar 94,30

0 519701 115,000 729,001

Kargwe 0 0 419,100 419,100

Other 12 towns

741,953

499,450 741,697

1,983,100

Source: This study survey, 2009 Table 15 Top five Districts Receiving Money (TSH) from Tanzania 2006 to 2008 Ugandan Receiving District 2006 2007 2008 total

Percent of Total

Kampala

65,015,379

200,436,931

177,418,961

442,871,271 72.6%

Masaka

8,785,182

9,810,822

5,545,340

24,141,344 4.0%

Mbale

4,371,254

3,599,717

5,249,350

13,220,321 2.2%

Mbarara

3,472,790

3,369,226

2,706,440

9,548,456 1.6%

Jinja

1,704,204

3,586,481

1,142,464

6,433,149 1.1% Source: This study survey, 2009 Figure 1: Top Ten Ugandan Districts (excluding Kampala) Receiving Money (TSH) from Tanzania (from 2006 to 2008)

Source: Table 17

 

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Another observable feature of remittances made to Uganda is that other towns have been gradually taking the place of Kampala as the main recipient of funds from Tanzania (see Table 15 and Figure 1). This means two things: more and more Ugandans from outside Kampala are working in Tanzania and Tanzanians going to live in Uganda are spreading beyond Kampala. It might also mean that remitting services in the districts are getting better so that senders feel secure enough to use services in the districts instead of Kampala. It is not uncommon for people to send their money to an urban centre where they trust more and instruct the recipient to go and collect. This apparently new phenomenon means less cost for receivers as they have to travel shorter. A schematic mapping of the source and destination districts reveals that Ugandans and Tanzanians have widely penetrated throughout the two countries whereby about 35 towns in Tanzania send money to 30 towns in Uganda. In Tanzania 34 towns outside Dar es Salaam contribute to around 20% of the funds sent to Uganda, meaning low levels of business for the post offices located in these cities. Some of them like Mbeya, Mwanza and Dodoma handled between 17,000 TSH and 70 000 TSH only for the whole year of 2008 (see Table 16). On the other hand, the wide geographical spread of towns in both countries where customers need to either send or receive money indicate the following: (i) potential demands for such services and especially for senders of small amounts of money (ii) widespread people-centred economic integration, which could be a basis for regional trade. Table 16 Top Ten Tanzania Districts Remitting Cash via IFS (TSH) to Uganda Ranked District 2006 2007 2008 Total, TZS Percent DSM 52,545,606 184,185,376 162,027,207 398,758,189 80.17% Dodoma 1,237,000 12,817,067 80,000 14,134,067 2.84% Mwanza 6,766,500 3,696,000 17,000 10,479,500 2.11% Morogoro 4,173,490 3,290,000 1,630,000 9,093,490 1.83% Kyela 6,750,000 420,000 - 7,170,000 1.44% Tanga 1,520,000 5,147,000 640,000 7,307,000 1.47% Kigoma 2,090,000 4,005,000 1,578,000 7,673,000 1.54% Mbeya 1,137,400 4,250,000 20,000 5,407,400 1.09% Moshi 262,300 872,000 2,737,000 3,871,300 0.78% Zanzibar 814,000 3,197,946 978,000 4,989,946 1.00% Other 27 towns 11,042,650 8,181,900 5,495,000 28,507,550 5.73%

 

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Source: This study, 2009.

A closer look at the pattern of source districts in Uganda also indicates that Kampala as the most dominant sender of funds to Tanzania, accounting for 74.2% in the last three years, followed by the mining town of Kasese (15.5%) and the business town of Jinja (almost 8%). The rest of the towns, five of them, share among them 2.4% of the funds sent to Tanzania using IFS in the last three years (see Table 17 and Figure 5). It is not clear why there was a huge surge of funds sent from Kasese and Kampala in 2007, which went back to 2006 levels in 2008. They were also the only towns which received funds sent through IFS services in 2008. Table 17 Ugandan Source Districts of Funds Sent to Tanzania- 2006 to 2008

Town 2006 2007 2008 Total Percent Kampala 2707458 8666491 2586526 13960475 74.22% Kasese 400000 1637500 880271 2917771 15.51% Jinja 662280 840000 0 1502280 7.99% Lira 0 52620 0 52620 0.28% Ruchere 133300 0 0 133300 0.71% Tororo 0 95890 0 95890 0.51% Kabale 66700 0 0 66700 0.35% Mubende 60000 0 0 60000 0.32% Entebbe 0 21000 0 21000 0.11% Total 4029738 11313501 3466797 18810036 100.00% Number Districts 6 6 3

Source: This study, 2009

 

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Figure 2- Ugandan Districts Sending Funds (TSH) using IFS to Tanzania

Source: Table 17 6.4 Estimation of Funds Remitted between Uganda and Tanzania

6.4.1 Official Channel Remittances

A general observation of secondary data provided by postal banks and post offices shows a net flow of funds in favour of Uganda. The estimates in this report are based on funds handled through private remittance agents and the post offices’ IFS network. For funds handled by the Postal Bank, for example, about 2.6 million USD (in 2008) was sent to Uganda and 1.6 million USD (in 2008) from Uganda to Tanzania. This includes funds handled through Western Union by all agents, monitored by the Postal Bank. The money handled is not from Ugandan migrants alone, but from Tanzanians sending mostly to academic institutions in Uganda, meaning there are Tanzanian migrants in schools and college who receive rather than send money back home. About 50% of Tanzanian migrants interviewed in Uganda indicated that they received money from Tanzania for educational purposes.

6.4.2 Informal Channel Remittances It was revealed that on average each bus handles between 15-30 letters or small parcels per one-way trip. However, as this is an illegal act, the research team could not retrieve exact data on the amount of money sent via letters/small parcels but could through discussions with migrants using this method estimate that each letter/small parcel in general contains approximately USD 10. Assuming that only one trip is made per day and about 10 of those letters and parcels sent every trip contain some money, and assuming that the amount is about USD 100 per letter, then approximately USD 1,000 is handled per day or USD 30,000 per month per bus. If we assume that four buses carry money, these translate to USD 120,000 per month or USD 1.44 million per year. All the interviewed courier agents in Kampala and Dar es Salaam explained that they could not risk concealing cash in their courier bags because of the strict border custom inspections. They did concede that it was possible for someone to send cheques and register them as documents but the value sent is never recorded.

 

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CHAPTER 7 Developmental Dimensions of Remittances

7.1 Purpose of Sending Funds When migrants were asked to state why they usually remitted money, and for those receiving money what they used the money for, the majority indicated that they sent money back home to cater for primarily domestic or home basic needs such as food and clothing. 50 per cent of the Tanzanian migrants in Uganda mentioned that they at least one time had received funds from Tanzania to meet educational needs (i.e. tuition fees, rent and medical bills etc.). Indeed given that the amount sent per transaction were in smaller amounts (USD20-100), this indicates that funds received by migrants were used to cater for household purposes such as purchasing groceries, as opposed to business investments. In the case of Ugandan migrants in Tanzania, the majority waited for a chance to personally travel back and take the money with them. Some of the funds remitted were for hospital treatment and some minor investments such as houses (see Table 18). It is also worth noting that Ugandan migrants in Tanzania were more likely to send money home for medical purposes (16.1%) compared to their counterparts (1.3%) in Uganda. Table 18 Purpose of Sending Money by Migrants in Tanzania and Uganda

Tanzania (n=77) Uganda (n=56) Senders (%) Senders,% Receivers,% Purpose of Sending Money by Migrants

n=77 n=56 n=28 Household/Family Basic Needs 92.2 30.4 53.6 Children Schooling/College Costs 11.7 10.7 50.0 Business Running/Investment 2.6 2 1.8 Medical Bills 1.3 16.1 16.0 Housing project 1.3 3.6 0 Farming projects 0 5.4 1.8 Community projects 0 3.6 0

Note: Based on multiple responses on what the money is used for. Responses not summing up to 100% because each person had more than one reason for sending or receiving money. Note also that no Ugandan migrant in Tanzania admitted sending money home for farming or community projects.

However, information from the banks and the post offices indicate that most of the remittances from Tanzania to Uganda is sent by Tanzanians to cater for fellow Tanzanians in Uganda, mostly as students. This view is supported by the migrants’ responses in table 18, which indicate that 50% of Tanzanian migrants in Uganda used the money received from Tanzania for education purposes. 7.2 Who Sends to Whom? The money was mostly sent to parents, spouses and children (Table 19). This is not surprising given that migrants below 25 years of age accounted for 36% of the interviewed migrants (Table 12).

 

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Table 19 Relationship of Recipient with the Sender of Funds Ugandan Migrants in

Tanzania Sending to Uganda Tanzanian Migrants In Uganda sending and

Receiving Relationship with Sender n=77 Sending (n=56) Receiving (n=28)

1. Spouse 27.3% 8.9% 10.7% 2. Parents 61.0% 23.2% 25.0% 3. Children 20.8% 16.1% 21.4% 4. Business Partner or own business 7.8% 7.1% 7.1% Note: Some inconsistency has to be noted: it was expected that since schooling accounted for 50% of the money sent to Uganda, children as receivers in Uganda would have been higher than the figure of 21.4% in the table

7.3 Migration and Education Due to the large number of Tanzanian students attending secondary and tertiary schools and institutions in Uganda for education, it can be construed that Tanzanian migrants are boosting the education system in Uganda as compared to Ugandan migrants in Tanzania, which appears to have a slow reversal of the phenomenon where some Ugandans and Tanzanians have opened up new schools in Tanzania and are recruiting Ugandan teachers. This was deduced from interviews of migrants both in Tanzania and Uganda who migrated from their country of origin. Most of the large sums of transactions were related to businesses owned by nationals living in their own countries who operated between cities of the two countries. Ugandans, for example, sent money in advance to Dar es Salaam to be used for clearance of duties and taxes on imported goods through the Port of Dar es Salaam, while Tanzanian business people send money in advance to Kampala to minimise risks of travelling with cash in buses. In either case, what is obvious is that IFS was not a popular option by either migrants or ordinary nationals doing business between the two countries. For the business community there were two bureaus de change in Kampala, which started business in 2008 and was offering transfer services to and from Dar es Salaam. Generally it can be said that the level of income earned by most Tanzanian and Ugandan migrants is not large enough to create a noticeable and widespread impact like that created by Asian migrants working the Middle East. This has not been the case for Tanzanian and Ugandan migrants in Uganda and Tanzania, respectively. However, Tanzania and Ugandan migrants still play a role in solving domestic livelihoods needs in their respective home country.

 

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CHAPTER 8

Identified Opportunities and Recommendations 8.1 Challenges and Opportunities Findings from the assessment indicated that there is need for faster and more reliable remittance systems in the two countries through improved reliable energy supply, such as fast tracking rural electrification. According to the assessment, there is need to promote the use of remittance transfers through the post offices in Tanzania and Uganda in order to increase the volume of transactions and generate working capital to avoid delays of transactions due to shortage of funds to pay customers on demand. With the increasing number of agents involved in funds remittance, and especially formal agents, it will be important to come with a system for monitoring and reporting the range of services and charges by different agents so that users can have informed decisions for using the different agents. The Postal Corporations have been slow in making IFS services more popular among users who really need this service due to its cost effectiveness and rolling it out to remote districts. Success in rolling out domestic IFS network will also mean revamping the post office image as a service provider of preference. Since the East African partner states have adopted plans to harmonize clearing systems for cross-border payments, it will be important for IFS to be integrated with systems in other banks that are coordinated by the Central Banks so that payments are done without resorting to the UPU head office for inter-bank payment clearing. An area identified by the Bureau of Statistics is that of specifically recording and monitoring funds under the category of remittances to and from the Diaspora, which is currently lacking in the national statistics. Inflows from sources besides trade are recorded as income from tourism and other services. Getting specific data on remittances was not a straightforward affair. The main focus of the databases of the money transfer agents is the understanding of (i) how much money has been transferred between their base country and other countries; (ii) what profit is obtained in such transactions; and (iii) retaining and attracting more customers to use their services. Their record keeping is therefore tailored to simply monitor business transactions. The same applied to Central Banks whose main interest has been to monitor volume of funds coming and going out of the countries; with corresponding broad sectors generating the funds or going to use the exported funds. Their data bases do not have routines or even occasional analysis of understanding whether the funds are in the category of remittances as per the standard definition. Because of the nature of data kept by the banks, an attempt to disaggregate the volume of funds transferred between the two countries by different systems to the level of personal remittance has been futile. The Central Banks required individual banks to report on the sector source of funds (export proceeds by category - manufactured goods, agricultural,

 

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tourism etc.) and the purpose of sending money out (for imports by categories, medical, education etc.). No estimation of funds sent out or received as originating from the Diaspora as remittance. Lack of national identification cards for Tanzanians and Ugandans rendered the exercise of customer identification more difficult and banks have been forced to rely on alternative means of paper identification like a letter from the local chief. This constrains commercial banks from relaxing their procedures for the KYC principle (“know your customer”), further pushing the migrants to resort to informal means of money transfer. Migrants have experienced problems when sending funds home for investment purpose, mostly due to misuse of funds by relatives/friends or wrong choice of investment portfolio. 8.2 Recommendations

8.2.1 Policy and Legislation (a) In order to develop an economic contribution of the Diaspora, government policies in

both countries should reflect pro-Diaspora policies rather than discourage such as improving money transfer services and liberalize financial and investment laws.

(b) Legalization allowing cross-border payment using mobile telephone to facilitate money transfer- especially for persons in remote areas with long distances to formal remittance agents

(c) Legislation allowing limited amount of funds transfer through buses and courier agents would encourage instalment of safety mechanisms to prevent loss and theft of money otherwise sent via drivers or friends/relatives.

(d) The study found reports that the liberalization of financial markets in Uganda has had positive effects on remittances back to the country. As the trade in foreign exchange was allowed together with permission for foreign dominated banks to operate in Uganda, an increase of remittances back home had occurred. Hence, it is recommended that further research should be done to assess the correlation between liberalization of financial markets and remittances as well as looking into what investment opportunities should be created to enable Diaspora to invest in their country of origin.

8.2.2 Database and Monitoring Remittances

(a) Further research on remittances in each country to increase the general understanding of the relation between remittances and development and to identify effective policies needed to harness the development impact.

(b) Collating and disseminating information about formal remittance services offered by different operators and their costs. Use a range of media channels to inform the public.

(c) Recording and monitoring funds under the category of remittances to and from the Diaspora should be a mandatory requirement of all banks so that it can be correctly reported in the national accounts.

(d) Information about investment opportunities more available to the Diaspora and creating about those opportunities.

 

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8.2.3 General Recommendations (a) UPU and PAPU should strive to make IFS services more popular among users who

really need this service due to its cost effectiveness and rolling it out to remote districts. This will also mean to revamp the post office image as a service provider of preference.

(b) The Tanzanian and Ugandan Governments should adopt a simplified EAC cross-border payment system using IFS and integrating it with other banks as coordinated by the Central Banks so that payments are done without resorting to the UPU Head Office for EAC interbank payment clearing.

(c) Agreeing on common approach for monitoring remittances so that the volume transacted is properly recorded and appropriately included as a separate sub-item in the national accounts.

8.2.4 Opportunities for Banks and Ministries

(a) In order to solve the problem of working capital post offices should enter into partnership with Banks. The current negotiations between the Tanzania Postal Bank and Tanzania Post Corporation in that direction should be given the necessary support by government. This initiative will help to generate working capital that will be used to promote the system.

(b) The boards of the Postal Corporations in Uganda and Tanzania must push for more aggressive promotion of the IFS since it is probably the most cost effective system in the long run when it comes to cross border payments penetrating deep in the villages.

(c) Since KYC policy by banks depends much on valid personal customers, the two governments should fast-track the issuance of national identification cards for Tanzanians and Ugandans.

(d) Filling forms and producing identification papers have been a source of frustration for many semi-literate customers. It will be important therefore to devise simple forms and easily understood language.

(e) Since migrants have experienced problems when sending funds home for investment purpose, mostly due to misuse of funds by relatives/friends or wrong choice of investment portfolio, the Banks should help to come with special products meant for the Diaspora, as already started by a few pioneer banks.

8.3 Interventions Required to Strengthen IFS There was a general feeling that for the two Postal Corporations to effectively roll out IFS and offer competitive services the following type of interventions were needed, with cost estimates to capitalise 6 districts in each country presented based on computations done by Tanzania Postal Corporation.

(a) Manpower for operations of IFS: - Trained manpower on IFS operations and those trained to attend refresher courses on a regular basis to keep pace of technological changes. Part of the training should be an appreciation of the postal staff’s role in the improvement of household livelihoods and national economic development agenda so that they do not view their work as simply clerical or accounting task. Furthermore, the training should also provide them with sufficient knowledge about the IFS system to enable the postal staff to inform clients on the advantages of using the IFS system. There should be several people trained within each post office so that there is no vacuum in case one is sick or is transferred.

 

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- Employment package: Improved salary scales for Postal Staff will lead to a more motivated work force so as to curb on high staff turnover and in order to retain their employees who often go in search for better paying jobs on the market. - National UPU IFS consultant: One of the complaints given by the staff involved in running IFS in both countries was the lack of prompt response to solve daily technical problems they encounter. The regional IFS technical support person is unlikely to cope with the demand of providing such support if both Tanzania and Uganda are going to roll out IFS services to more districts. It was therefore recommended that each country should have a resident IFS technical support person who will work under the overall guidance of the regional IFS technical support coordinator.

(b) Equipment and Overhead for running of IFS includes: computers, modems, switches and cablings. Once established, each post office will need some funds to pay for operational costs in terms of salaries, electricity, water and internet charges to service providers, who can be mobile phones companies. There will be no need for Vsat dishes since almost all districts are now networked with mobile phone infrastructure, including those owned by Uganda and Tanzania Telecommunications.

(c) Capitalizing post offices is important to enable them:

• Install the necessary equipment and systems needed for efficient operation of IFS

• Adequate finance marketing and advertising campaigns to popularize electronic money transfer services will be required to restore the image of the post offices in order to regain the trust of its users.

• Improve their cash flow so that they promptly meet customer demand for cash payments

(d) Regular Backup from UPU/PAPU

• UPU will have to scale up its technical and financial support to national postal corporations so that they roll out and strengthen services. This could start with the support of posting one National IFS consultant for each country for a limited period of 3-5 years until when the IFS is running smoothly after solving both design constraints and national infrastructural and management system bottlenecks.

• UPU/PAPU should work closely with Postal Corporations to undertake regular Monitoring and Evaluation (M&E) and agree on remedial measures

• A regional training on technical back up programme should be designed as part of a strategy of ensuring IFS is successfully rolled out and entrenched as business

• There should be a continuity strategy for IFS framework so that the system is regularly updated to cope with the emerging technological opportunities and outsmarting other competing electronic remittance systems.

(e) Data capture and monitoring: The Postal Offices should have a reporting system that

captures the amount of funds transmitted between the two countries with the rest of world and report that to the Central banks and Bureaus of Statistics.

 

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ANNEXTURES               

 

  36

Annex 1 List of Stakeholders Consulted in Uganda and Tanzania A - Uganda

Institution Name Position Contacts Postal Address Phone e-mail

Justine Sennoga Manager, Financial Services

0414-236776’ 0752 707213

Sennoga@ugpost.co.ug

1. Uganda Postal Corporation

Jessica Uwera Ssengooba

International Relations Assistant

Plot 35 Kampala Road

0772-358679; fax 0414-346450

juwera@ugapost.co.ug

2. Western Union™-UPC Head Office

Lubya Musa Head of Business Services/Western Union™

Mr. Stephen N.Mukweli

3. Uganda Postal Bank Ltd

Ms.Olive Namutebi Strategic Planning and Business Development Manager

4. Barclays Bank (Uganda)

Robert Wanok Manager 0717 600245 Robert.wanok@barclays.com

Lydia Karanja Head, Transaction Banking

+256 414 354318 +256 414 258211-7

Lydia.Karanja@standardchartered.com

Judith Nekesa Kwebiiha

Corporate Dealer, Financial Markets

+256 31 2294160/61/62

Judith.Nekesa@c.com

5. Standard Chartered

Catherine Psomgen Relationship Manager, Development Organisation

5 Speke Road P.O. Box 7111 Kampala Uganda

+256 312 294316 +256 712 660237

Catherine.Psomgen@standardchartered.com

H.E. Rajabu H. Gamaha

High Commissioner +256 41 425 6272 +256 41 425 7357

tzrepkla@utlonline.co.ug

6. High Commission of the United Republic of Tanzania Anisa K. Mbega First Secretary

6 Kagera Road P.O. Box 5750 Kampala Uganda

+256 41 425 6272 +256 41 423 2709

anisambega@yahoo.co.uk tzrepkla@utlonline.co.ug

 

  37

Burton M. Kilindu Administrative Attaches +256 414 256272 +256 414 343973 +256 752 578355

bkilindu@yahoo.co.uk

Nsavike. G. Ndatta Minister Plenipotentiary +256 41 4256272 +256 41 4236051 +256 752 571280

Nsavike2002@hotmail.com

Elliot Mwebya Director- Payment & Settlements Department

+256 414 231 543 +256 772 416 555

emwebya@bot.or.ug

7. Bank of Uganda

Byarugaba Richard Deputy Director Payment -Settlements Dept.

37/43 Kampala Road P.O. Box 7120 Kampala, Uganda +256 414 254926

+256 414 23153 +256 772 468335

rbyarugaba@bou.or.ug rbyarugaba@yahoo.com

Seth N. Mayinza Director, Uganda Census of Agriculture

+256 414 706015 +256 414 237553 +256 772 511407

Seth.mayinza@ubos.org smayinza@hotamil.com

Peter Opio Principal Statistician +256 41 4706017 +256 41 4237553 +256 752 319690

Peter.oplo@ubos.org

8. Uganda Bureau of Statistics

John B. Male – Mukasa Executive Director

Plot 9 Colville Street P.O.Box 7186 Kampala, Uganda

+256 414 706000 +256 414 237553 +256 772 721928

John.malemukasa@ubos.org

9. Ministry of Foreign Affairs

Ambassador Bati Kawooya

Head, Diaspora Division 0414- 341514 0772 507910

10. Ministry of Internal Affairs

Kauma Irene Tewungwa

Principal Immigration Officer

P.O. Box 7165 Kampala, Uganda

+256 414 661095 +256 414 231641 +256 722 425117

Irene@yahoo.co.uk

Racheal. N. Muleke National Coordinator +256 414 345336 +256 712 800445

mulekeracheal@yahoo.com

11. Office of the Prime Minister Department of Disaster Preparedness

Wamboya Vincent Senior Asst Secretary

Plot 67-75 Yusuf Lule Road P.O. Box 341 Kampala Uganda +256 414 236310

+256 414 344801 +256 772 347518

waboyavicent@yahoo.com

12. Stanbic Bank

Denis Kayuki Global Transactional Bank

P.O.Box 7131 Kampala, Uganda

+256 312 224 6000 +256 312 2224348

kayuki@stanbic.com

 

  38

B - Tanzania: Institution Name Position Contact Phones Email and Comments

Lucy S. Kinunda Director National Payment Systems

+255 22 223 5432 0754 784848

lkinunda@bot-tz.org

Jamila C. Magina Senior Principal Bank Officer +255 22 2235448; 0784/774 253030

jcmagina@hq.bot-tz.org

1. Bank of Tanzania, 10 Mirambo Street, P.O.box 2939 Dar es salaam,

Bernard J. Dadi Deputy Director National Payment Systems

+255 22 2234494; 0756 808077

bjdadi@hq.bot-tz.org

Morris Oyuke Manager, National Accounts 0786-876188 moyuke@nbs.go.tz Rustis Bernard National Accounts-Minerals sector 0784-419966 Jovitha Rugemalira National Accounts-Forestry,

Hunting and Real Estates 0786-239050

Edson Matola National accounts-Manufacturing/Hotels/Trade

0754-416187

Marero Wanjara Intern-Statistics 0755-750829

2. National Bureau of Statistics- Dar

2. Postal Bank-Western Union™- Dar

Kolimba P.R. Tewa Senior Manager-Western Union™ Money Transfer

022-2110621 wunion@posatlbank.co.tz Kprtawa@yahoo.com

Postal Bank-International Banking Operations

Linus P. Ndanzi Senior Manager-International Banking

022-2115258 ibd@postalbank.co.tz; ndanzi@postalbank.co.tz

Catherine Asinde Head Institutional Banking Corporate & Investment Banking

+256 312 224 6000 +256 312 2224348

AsindeA@stanbic.com

13. CITI Bank Magdalene Weya Migunda

Senior Relationship Manager

P.O. Box 7505 Kampala, Uganda

+256 31 2305539 +256 41 4305539

Magdalene.weya@citi.com

Ezekiel Olubindi Manager P.O. Box 40322 Kampala, Uganda

+256 772 008369 14. Akamba Public Road Services

Japheth Kimilu Branch Manager P.O. Box 40322 Nairobi, Kenya

 

  39

Institution Name Position Contact Phones Email and Comments 3. Tanzania Posts Corporation

Ms. Janet N. Msofe Manager- International Payment Systems

0754-691464

4. CRDB Bank Plc- Dar John A. Silayo Head-International Payments 022-2122492 jsilayo@crdbank.com 5. Ministry of Home Affairs-Migration Department-

Mr.Nombo Commissioner- Border Management

0754 596006

6. FedEx- Dar Charles Mululu Customer Service and Operations Manager

022-2126625 Charles.mululu@ablelogisticsgroup.com

7. TNT Express Jonathan Kasesela Sales and Marketing Executive/Country Manager

022-2124585 info@tntdar.com

8. Akamba Bus Services Ramadhani Masila Branch Manager 022-2185111 www.akambabus.com Catherine Psomgen Head, Corporate Banking 9. Standard Chartered

Bank , Tanzania Lydia Karanja Transaction Banking Lulu Shokony Manager-International Banking 10. Stanbic Bank of

Tanzania Jabir S. Kasinga 11. Commercial Bank of Africa-

Mr. Rutenge Collins Manager

12. Ministry of East African Cooperation-

Ms. J.Mwakisyala Director of Policy and Planning 0754-392188

13. Diamond Trust Bank Mr. Venkatramani General Manager 14. Ministry of Finance and Economic Affairs

Commissioner for Budget Seen—but she had nothing to offer with respect to remittances

15. Tanzania Communication Regulatory Authority

-Mrs. Makuburi Not seen—postponed twice

 

  40

REFERENCES Literature Sources DFID (2004). Migration Globalization and Poverty, DFID Briefing, Migration in Nairobi, 2004 DFID (2004). Migration, Globalization and Poverty. DFID: London IFAD (2009). Sending Money Home to Africa: Remittance Markets, Enabling Environment and Prospects. Based on work by Manuel Orozco IOM (2003). World Migration 2003. Challenges and Responses for People on the Move. World Migration Report Series Vol. 2. IOM: Geneva IOM (2004). Glossary on Migration. International Migration Law. IOM: Geneva IOM (2005). World Migration 2005. Costs and Benefits of International Migration. World Migration Report Series Vol. 3. IOM: Geneva IOM (2008). World Migration 2008. Managing Labor Mobility in the Evolving Global Economy. World Migration Report Series Vol. 4. IOM: Geneva IOM (2009). Migrant Remittance Flows to Angola from Portugal and South Africa, and their Current Use and Impact on Receiving Households. IOM: Luanda Maimbo, Samuel; Ratha, Dilip (eds.)(2009). "International migrant remittances are perhaps the largest source of external finance in developing countries” in Remittances: Development Impact and Future Prospects. Paperback: Washington Millinga, Altemius; Mukwana, Peter and Sander, Cerstin (2001). Passing the Buck. Money Transfer Systems: The Practice and Potential for products in Tanzania and Uganda. Micro-Save Africa: Nairobi Mukherjee, Shantamu (2009). “The Long Term Human Development Impact of the Global Financial Crisis”. Rethinking African Economic Policy in the Light of the Global Economic and Financial Crisis. African Economic Research Consortium (AERC): Nairobi Mutume, Gumisal (2005). Workers’ Remittance: a boon to development. Africa Renewal, UNDP: New York Ofwono, Nelson (2004). Review on Remittances By Ugandans in the Diaspora. IOM, Kampala Russel, Sharon (2002). Migration and Sustainable Development – the Remittances Link. Remarks for ECOSOC Substantive Session Sander, Cerstin and Maimbo Samuel (2005). Migrant Remittances in Africa: A Regional Perspective. World Bank: Washington D.C Sander, Cerstin, Capturing a Market Share? Migrant Remittance Transfers & Commercialisation of Microfinance in Africa. Paper presented at the conference on 'Current Issues in Microfinance', Johannesburg, August 2003.

 

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Uganda Bureau of Statistics (2008). Migration and Tourism Statistics, 2002-2006. Kampala: UBOS UNDP (2009). Human Development Report 2009. Overcoming the barriers: Human Mobility and Development. World Bank (2009). Migration and Remittance Trends 2009. Washington DC: World Bank Webpage Sources Postal Technology Centre: International Finance System (IFS), accessed Nov 2009 <http://www.ptc.upu.int/ps/ifs.shtml> Tanzania Post Corporation’s Financial Services, accessed Nov 2009 <http://www.tanpost.com/finsvc.htm> Posta Uganda’s Domestic Money Transfer, accessed Nov 2009 <http://www.ugapost.co.ug/money_transfer.htm>