UNIVERSITY OF GHANA COLLEGE OF HUMANITIES EXAMINING THE DETERMINANTS OF THE CHOICE OF REMITTANCE CHANNELS BY GHANAIAN MIGRANTS BY AMALA OBIOKOYE-NWALOR (10874045) THIS THESIS/DISSERTATION IS SUBMITTED TO THE UNIVERSITY OF GHANA, IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD OF M.A. IN DEVELOPMENT STUDIES DEGREE INSTITUTE FOR STATISTICAL, SOCIAL AND ECONOMIC RESEARCH DECEMBER 2021 University of Ghana http://ugspace.ug.edu.gh i DECLARATION I, hereby declare that with the exception of appropriately acknowledged work from relevant secondary sources, this dissertation, “EXAMINING THE DETERMINANTS OF THE CHOICE OF REMITTANCE CHANNELS BY GHANAIAN MIGRANTS”, emanated from my active fieldwork/research, carried out under the supervision of Dr. Kofi Takyi Asante and that the dissertation has not been presented elsewhere for the award of a degree whatsoever. AMALA OBIOKOYE-NWALOR DATE: 10 DECEMBER 2021 (Candidate) DR. KOFI TAKYI ASANTE DATE: 10 DECEMBER 2021 (Supervisor) University of Ghana http://ugspace.ug.edu.gh ii DEDICATION To my darling husband, Abel Nwalor, who held the fort while I pursued this degree, and to my shining stars, Kesideya and Kosisochukwu Nwalor, who learnt the meaning of the sentence “Mama is busy” from an early age. University of Ghana http://ugspace.ug.edu.gh iii ACKNOWLEDGEMENT Special thanks to my amiable supervisor, Dr. Kofi Takyi Asante, who steered me in the right direction and whose encouraging words spurred me on. I would also like to thank Prof. Joseph Teye from the Centre of Migration Studies, for his immense support and for serving as my sounding board. I will not fail to appreciate all my respondents, who trusted me with their stories, supported the research by introducing me to other migrants and even gave me ideas for further research. Finally, to all my wonderful classmates, I salute you all. It was an honour serving as your class representative. Shine on! University of Ghana http://ugspace.ug.edu.gh iv ABSTRACT Sending money to loved ones can be a balancing act for migrants who need to find the right remittance channel that meets the need of both the sender and the recipient. Advances in finance and technology have provided migrants a wide range of options, although access to these options are dependent on various factors such as host country regulatory framework and legal status of the migrant. This study assessed the formal and informal remittance channels patronised by migrants and examined the underlying factors that influence migrants’ choice of a remittance channel, with particular focus on the social considerations which affect the economic action of migrants. The study employed a qualitative research approach, using in- depth interviews to explore and understand the main elements that went into the decision of a select group of Ghanaian migrants to utilise one remittance service provider over another. The study found that regular migrants mostly utilised formal channels while irregular migrants were constrained to using informal channels. The study concludes that migrants preferred remittance channels which enable them meet their social obligations in a meaningful and timely manner. Consequently, a key recommendation of the study is that Governments need to work collaboratively with the private sector to expand the legal pathways for remittance transfers, in view of economic and development implications of remittances. University of Ghana http://ugspace.ug.edu.gh v TABLE OF CONTENTS DECLARATION ........................................................................................................................ i DEDICATION ........................................................................................................................... ii ACKNOWLEDGEMENT ....................................................................................................... iii ABSTRACT .............................................................................................................................. iv LIST OF FIGURES ............................................................................................................... viii LIST OF TABLES ................................................................................................................. viii LIST OF ABBREVIATIONS ................................................................................................... ix CHAPTER 1: INTRODUCTION .............................................................................................. 1 1.1 Background of the study ............................................................................................ 1 1.2 Problem statement ...................................................................................................... 3 1.3 Objectives of the study............................................................................................... 4 1.4 Research Questions .................................................................................................... 5 1.5 Justification of the study ............................................................................................ 5 1.6 Organisation of the study ........................................................................................... 6 CHAPTER 2: LITERATURE REVIEW .................................................................................. 7 2.0. Introduction ................................................................................................................ 7 2.1. Migration and development ....................................................................................... 7 2.2. Socio-demographic characteristics of migrants ....................................................... 10 2.3. Remittances: definition and channels ...................................................................... 12 2.3.1. Remittance channels ........................................................................................ 12 2.4. Motivations to remit ................................................................................................. 19 2.5. Source of remittances to Ghana ............................................................................... 20 2.6. Socio-economic effect of remittances ...................................................................... 21 2.6.1. Social effect of remittances .............................................................................. 22 University of Ghana http://ugspace.ug.edu.gh vi 2.6.2. Economic effect of remittances ....................................................................... 22 2.6.3. Negative effects of remittances ........................................................................ 23 2.7. Factors that influence the choice of a remittance channel ....................................... 24 2.7.1. Categories of Migrants ..................................................................................... 25 2.7.2. Transaction cost ............................................................................................... 27 2.7.3. Access to financial services ............................................................................. 30 2.7.4. Recipient’s Preference ..................................................................................... 30 2.7.5. Social factors .................................................................................................... 31 2.8. Risks of utilising informal remittance channels? ..................................................... 32 2.9. Theoretical framework ............................................................................................. 33 2.10. Conceptual framework ......................................................................................... 35 2.11. Conclusion of the literature review ...................................................................... 38 CHAPTER 3: METHODOLOGY .......................................................................................... 39 3.0 Introduction .............................................................................................................. 39 3.1. Research design ....................................................................................................... 39 3.2. Sources of data ......................................................................................................... 40 3.3. Sampling Strategy .................................................................................................... 40 3.4. Method of data collection ........................................................................................ 41 3.5. Data management and analysis ................................................................................ 42 3.6. Ethical consideration ................................................................................................ 43 CHAPTER 4: FINDINGS AND ANALYSIS ......................................................................... 44 4.0. Introduction .............................................................................................................. 44 University of Ghana http://ugspace.ug.edu.gh vii 4.1 Socio-demographic characteristics of respondents .................................................. 44 4.2. Remittance as an obligation ..................................................................................... 47 4.3. Formal versus Informal remittance channels ........................................................... 52 4.4. Finance and Technology (FinTech) ......................................................................... 54 4.5. Paying for Convenience ........................................................................................... 56 4.6. Transaction Cost ...................................................................................................... 58 4.7. Legal and financial frameworks............................................................................... 59 4.8. The concept of Trust ................................................................................................ 62 4.9. Dealing with transfer issues ..................................................................................... 65 CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS ........................................... 68 5.0. Introduction ................................................................................................................... 68 5.1. Summary of findings................................................................................................ 68 5.1.1 Factors that affect migrants’ choice of remittance channels ............................ 69 5.1.2 Risks associated with different remittance channels ....................................... 70 5.1.3 Mitigating risks posed by different remittance channels ................................. 71 5.2 Conclusions .............................................................................................................. 72 5.3 Recommendations .................................................................................................... 72 REFERENCES ........................................................................................................................ 74 APPENDIX A .......................................................................................................................... 81 APPENDIX B .......................................................................................................................... 82 University of Ghana http://ugspace.ug.edu.gh viii LIST OF FIGURES Figure 2.2.1 Remittance inflow to Ghana (% of GDP) ....................................................... 11 Figure 2.3.1 Remittance Channels ........................................................................................ 13 Figure 2.5.1 Source of remittance inflow to Ghana (2017) ................................................ 21 Figure 2.10.1 Conceptual Framework: key concepts and linkages ................................... 37 Figure 3.5.1 Identified themes............................................................................................... 43 LIST OF TABLES Table 2.7.1 MTO Charges (Transaction Cost for sending 200USD to Ghana) ................ 29 Table 4.2.1 Profile of respondents and their preferred remittance channel .................... 45 University of Ghana http://ugspace.ug.edu.gh ix LIST OF ABBREVIATIONS AIR African Institute of Remittance AU African Union BoG Bank of Ghana CBN Central Bank of Nigeria DAOOP Diaspora Affairs, Office of the Presidency DEP Diaspora Engagement Policy ECOWAS Economic Community of West African States FDI Foreign Direct Investment FinTech Financial and Technology FOREX Foreign Exchange GDP Gross Domestic Product GoG Government of Ghana GSS Ghana Statistical Service ID Identity IMF International Monetary Fund IOM International organization for Migration MADE West Africa Migration and Development West Africa MoMo Mobile Money MTOs Money Transfer Operators NMP National Migration Policy ODA OECD Official Development Assistance Organization for Economic Co-operation and Development SDG Sustainable Development Goals University of Ghana http://ugspace.ug.edu.gh x SSA Sub-Saharan Africa UK United Kingdom UN United Nations UNDESA United Nations Department of Economic and Social Affairs US United States of America USD United States Dollars University of Ghana http://ugspace.ug.edu.gh 1 1 CHAPTER 1: INTRODUCTION 1.1 Background of the study There is a growing number of works on the contribution migrants make to the economic development of their home countries. This contribution can come in the form of transfer of cash (also known as remittances), goods, knowledge and skills (Page & Plaza, 2006; Ratha, 2003). Ratha (2003) even went as far as positing that the so-called brain-drain experienced by developing countries due to emigration of skilled citizens is counterbalanced by the positive effects of remittances and the network effect of trade and investment. Taking cognisance of the nexus between migration and development, the United Nations (UN), in 2015, recognised migration and remittances, as a key contributor to the attainment of 12 out of the 17 Sustainable Development Goals (SDGs). Specifically, target 10.7 of the SDGs advocates for “orderly, safe, regular and responsible migration and mobility of people, including through the implementation of planned and well-managed migration policies”. In addition, the UN has designated 16 June as the “International Day of Family Remittances” (United Nations, 2021). At the continental level, the African Union (AU) has established an African Institute of Remittances (AIR) in recognition of remittances as a key transformational tool for the attainment of AU Agenda 2063. More stable than capital flows, remittances have become an important source of development finance for developing countries. According to the World Bank (2020), remittance flows to developing countries was $554 billion in 2019, surpassing both Official Development Assistance (ODA) and Foreign Direct Investment (FDI). Specifically, Sub-Saharan Africa (SSA) received up to $49 billion in remittances in 2019, with circa $4.05 billion flowing to Ghana, thereby making Ghana the second highest remittance University of Ghana http://ugspace.ug.edu.gh 2 receiving country in SSA. Over time, remittances have proven to be resilient in crisis situations such as during the 2008 global financial crisis, Ebola crisis and the COVID19 pandemic, where countries like Ghana even experienced a 5% increase in inflows. (World Bank, 2021b). At the national level, the Government of Ghana (GoG) has recognised the development potentials of migration, which engendered the adoption of a National Migration Policy (NMP) in 2016. In addition, the government is currently working on a Diaspora Engagement Policy (DEP), all aimed at enhancing migration governance and mobilising the diaspora to maximise the migration-development nexus (Ministry of the Interior, 2016). According to the World Bank, remittance inflow to Ghana contributed up to 6% share of the GDP in 2019, exceeding both FDI and ODA. Research in Ghana has also shown that remittances are an important source of foreign exchange and contributes to poverty reduction and reversing inequality (Quartey, 2011). The growing recognition of the migration-development nexus has led to an increased interest in maximising remittance transfers from migrants in destination countries to their countries of origin. While there is a lot of literature on the benefits and development potential of remittances, these are likely underestimated, because a high proportion of remittances to Africa are sent via informal channels and are therefore under-reported. Hence, the need to understand the different remittance channels available to migrants and the factors that inform a migrant’s decision to remit via one channel or the other. University of Ghana http://ugspace.ug.edu.gh 3 1.2 Problem statement Ghanaians in the diaspora have two options for sending money to their loved ones in Ghana: formal or informal remittance channels. Formal remittance channels refer to official, regulated or licenced money transfer operators such as banks, while informal channels are unofficial, unlicenced and unregulated (e.g., bus companies, hand delivery etc). Estimates of remittance flows to Ghana by both the World Bank and Bank of Ghana (BoG) are based on transfers via formal remittance channels only. However, Mazzucato et al. (2008) estimates that two-thirds of remittance flows to Ghana is via informal channels, which could imply that the $4.05 billion official estimate for 2019 might be closer to $7 billion, if all remittance channels are considered. These estimates are not entirely surprising when compared to the figures for Sub- Saharan Africa (SSA), which put remittances via informal channels at 73% of all inflow (Teye et al., 2017). Although informal remittance channels are under-researched, different studies have estimated that global remittances via informal channels could range between 50% - 250% of total remittance flows (Buencamino & Gorbunov, 2002a; Ferriani & Oddo, 2019; Freund & Spatafora, 2008; International Organization for Migration, 2017). A 2020 study by Developing Markets Associates, Global (also known as DMAglobal) found that informal channels such as hawala agents, hand carrying and use of bus networks are the most popular remittance channels between Ghana and Nigeria, an important destination country for Ghanaian emigrants (DMAglobal, 2020). The off-the-books nature of informal channels pose a problem for development planning, since projections and national planning can only be based on official figures from formal channels. Furthermore, there has been growing concerns about the risks associated with informal channels, such as fraud, money laundering, and terrorism financing etc. (Buencamino & Gorbunov, 2002). in addition, remittances sent via informal channels lead to a loss of some of its benefits at the macro and micro levels, such as: foreign exchange earnings; financial sector deepening; and credit University of Ghana http://ugspace.ug.edu.gh 4 multiplier effects (Quartey, 2011). Despite the risks, migrants seem to prefer informal remittance channels for a number of reasons, namely: challenges with accessing financial services (for both sender and recipient); legal status of migrants; restrictive financial regulations; and high transfer costs of formal channels. The fact that migrants with access to formal channels still utilise informal channels clearly indicates that migrants consider several factors before choosing a remittance channel (Quartey, 2011; Teye et al., 2017). Thus far, most studies on remittance channels focus on the economic factors that influence the decision to remit through a particular remittance channel; less emphasis is put on the social considerations underpinning the economic action. This study therefore aims to explore both the economic and social factors that motivate migrants to choose a particular remittance channel over another or to utilise a combination of both formal and informal channels, the risks associated with the respective channels and migrants’ risk mitigation strategies. 1.3 Objectives of the study In view of the important contribution of remittances to national development at the macro and microeconomic levels, as well as its contribution to the welfare and livelihood of recipients, understanding the factors that influence the choice of remittance channels will be instrumental in aiding government and the private sector design the appropriate policies and products to meet their clients’ needs. The overall objective of the study is to examine the underlying factors that influence migrants’ choice of remittance channels, using Ghana as a case study. The specific objectives are to: 1. Identify the factors that affect migrants’ choice of remittance channels University of Ghana http://ugspace.ug.edu.gh 5 2. Outline the risks associated with different remittance channels 3. Examine the risk mitigation measures employed by migrants 1.4 Research Questions The following research questions will guide the study: i. What factors affect migrants’ choice of remittance channels? ii. What are the risks associated with the different remittance channels? iii. How do migrants mitigate these risks? 1.5 Justification of the study This study comes at a time when governments are realising the development potential of migration. At the national level, remittances are the most stable source of foreign exchange earnings for developing countries and could serve as an alternative source of development financing, if properly mobilised (Ratha, 2003). The National Migration Policy for Ghana recognises remittances as an important livelihood strategy, which helps boost income and reduce poverty and vulnerability of recipients (Ministry of the Interior, 2016). As at the time of this study, GoG was planning to introduce a 1.75% levy on electronic transactions (e-levy), including inward remittances, in the bid to widen the tax net and generate more revenue for government. Previously, most of the transfer charges are borne by the sender, but, this e-levy will be borne by the recipient, thereby reducing the disposable income available to recipients. An understanding of the social and economic factors which influence the choice of remittance channels would not only contribute to the body of knowledge on the dynamics of remittances within the context of Ghana, specifically, and Sub-Saharan Africa as a whole, but could provide University of Ghana http://ugspace.ug.edu.gh 6 insight to policy makers and regulatory bodies, on how to facilitate remittance transactions for migrants. 1.6 Organisation of the study This study is divided into 5 chapters. Chapter 1 introduced the study, including a statement of the problem and context of the topic. Chapter 2 provides a review of relevant extant literature on remittances, with emphasis on Sub-Saharan Africa, and Ghana in particular. Chapter 3 provides an overview of the research methodology deployed for the study and chapter 4 presents an analysis of the data and the attendant findings. Finally, chapter 5 presents a summary of the research findings, conclusions and recommendations. University of Ghana http://ugspace.ug.edu.gh 7 2 CHAPTER 2: LITERATURE REVIEW 2.0. Introduction This chapter presents an overview of the key concepts through a review of relevant literature on the subject matter. It starts with presenting an overview of the migration and development landscape, which serves as a precursor for the discourse on remittances. The theoretical and conceptual framework that guided the study is also presented in this chapter. 2.1. Migration and development Remittances are proceeds of migration. Therefore, to understand remittances, it is important to start by looking at migration: motivation and trends, as well as the relationship between migration and development. According to the UN Migration Agency, migration is "the movement of persons away from their place of usual residence, either across an international border or within a State” (International Organisation Migration [IOM], 2019, p.135). For the purpose of this study, the focus will be on international migration; movement across borders. Migration is an age-old phenomenon, and thanks to innovation, globalisation and advancement in transportation infrastructure, the world is more connected, making people more mobile and able to migrate with greater ease. According to the United Nations Department of Economic and Social Affairs (UNDESA), the international migrant stock (number of people living outside their country of origin) has been increasing exponentially since 2000, with an additional 60 million migrants added to the international migrant stock between 2010 and 2020, up from 48 million in the previous decade (United Nations Department of Economic and Social Affairs [UNDESA], 2020). University of Ghana http://ugspace.ug.edu.gh 8 Contrary to the picture painted in the media, most migration within the African continent stay within the continent, with much of it occurring between neighbouring countries (Awumbila, 2017; Flahaux & De Haas, 2016). Sub-Saharan Africa and Ghana is no different, with citizens taking advantage of the free movement (visa-free) regime of the Economic Community of West African States (ECOWAS) to migrate to other countries within the West Africa sub-region (Awumbila et al., 2014; UNDESA, 2020). While people choose to migrate for myriad reasons (studies, family reunification, adventure, fleeing conflict, jobs etc.), most people migrate in search of better economic opportunities. According to UNDESA (2020), 65% of all international migrants moved to a country with a higher income level than their country of origin. Awumbila (2017) corroborates that migration is a livelihood strategy for many families in Africa, making labour migration the most prevalent form of migration. The International Monetary Fund (IMF, 2009) classifies labour migrants according to their academic levels: migrants with little or no education are classified as unskilled or low skilled, while highly educated migrants are categorized as skilled migrants. The latter often enjoy favourable visa and legal migration pathways, because they are sought after to cover skill gaps in destination countries. Conversely, low skilled migrants often face restrictive visa policies and have fewer legal migration pathways; which are usually based on bilateral or regional agreements for seasonal or short-term work programs (World Bank, 2009). In view of the preponderance of labour migration, there is a growing recognition at both national and global levels on the contribution of migration to inclusive and sustainable growth and development. According to Clemens et al. (2019, as cited by UNDESA, 2020), labour migration from countries with lower labour productivity to countries with higher labour productivity positively affects global gross domestic product (GDP). University of Ghana http://ugspace.ug.edu.gh 9 At the global and continental level, both the SDGs and AU Agenda 2063 recognise the development potential of migration. At the regional level, ECOWAS has been working with its Member States, Ghana inclusive, to ensure the implementation of the Protocol on Free Movement, Right of Residence and Establishment. In Ghana, both the National Migration Policy (NMP) and the Diaspora Engagement Policy (DEP) aim at mobilising the contribution of the diaspora to nation building. It is important to note that not all migrants are classified as diaspora. Migrants who do not identify with their country of origin are not considered as part of the diaspora (Barabantseva & Sutherland, 2011). The African Union (n.d) defined the African diaspora as: Consisting of people of African origin living outside the continent, irrespective of their citizenship and nationality and who are willing to contribute to the development of the continent and the building of the African Union. (para. 4). In Ghana, the draft DEP (2020), defined the Ghanaian diaspora as: Ghanaians who have migrated and are resident outside Ghana; Ghanaians born to Ghanaian parents living outside; Ghana descendants of enslaved Africans and all persons of African descent who have historical and cultural ties with Ghana and also have interest in Ghana’s development (p.1). The DEP definition is quite broad, in line with the objective of targeting investments from the diaspora. Hence, to enable a more streamlined approach to the study, the definition of the Ghanaian diaspora will be narrowed down to “Ghanaians who have migrated and are resident outside Ghana; Ghanaians born to Ghanaian parents living outside Ghana; who have historical and cultural ties with Ghana and also have an interest in Ghana’s development”. University of Ghana http://ugspace.ug.edu.gh 10 2.2. Socio-demographic characteristics of migrants There are a wide range of socio-demographic factors which determine why, how and how much migrants remit. These characteristics include age, gender, nationality, ethnic background, length of stay in destination country, income, legal status in destination country, number of dependents, size of migrant stock etc. (World Bank, 2009). Income determines the capacity to remit in the first place. According to the IMF, short-term migrant workers (persons who stay away from their country of residence for 3 – 12 months) save a greater proportion of their income and tend to remit more to their families; this could be related to their intentions to return home, which makes them maintain closer ties with their countries of origin. On the other hand, long-term migrant workers (persons who stay away from their country of residence for more than 12 months) tend to earn more over time, although the willingness to remit often wanes with time. The study found that remitters were mostly migrants who have stayed in the destination country for less than 10 years. Furthermore, female migrants tend to remit a higher proportion of their income, than male migrants, even if male migrants remit more frequently(Lucas & Stark, 1985; Luhabe-Morrison, 2019; World Bank, 2009). Likewise, migrants’ civil status and number of dependents also determine the amount and frequency of remittance. Short-term migrant workers, who do not move with their families and newly arrived migrants with spouses and children back home often remit more frequently. A study of Zimbabwean remitters in South Africa (Makina, 2013) found that 90% of respondents had dependents. (Ferriani & Oddo, 2019) also found that migrants who had their immediate families with them in Italy were most likely to remit smaller amounts than their counterparts University of Ghana http://ugspace.ug.edu.gh 11 with more relatives in their countries of origin. However, as migrants settle down in destination countries, they tend to facilitate the migration of family members, which ultimately leads to a decrease in the number of dependents back home and with it, the size and frequency of remittances (Luhabe-Morrison, 2019). The legal status of migrants is another key factor that determines frequency, size and channel for remittance transfer. Irregular migrants lack a legal status, which means that they avoid institutions where they would be required to provide identification documents. Consequently, they are unable to operate a bank account nor utilise the services of money transfer operators. This leads to such migrants patronising informal transfer operators, since transfers via formal channels require the migrant to provide certain documentation and/or operate a bank account (Higazi, 2005; Teye et al., 2017; World Bank, 2009). Finally, the size of the migrant stock (percentage of a country’s population abroad) determines the volume of remittances received by their country of origin. From 2010 – 2015, the Ghanaians migrant stock grew from 716,044 to 970,625 (Ministry of the Interior, 2016), within this period, remittance flows to Ghana also increased exponentially Figure 2.2.1 Remittance inflow to Ghana (% of GDP) Source: Adapted from World Bank (2020) 0.00 2.00 4.00 6.00 8.00 10.00 12.00 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Remittances received (% of GDP) University of Ghana http://ugspace.ug.edu.gh 12 2.3. Remittances: definition and channels The diaspora have been known to contribute to development through remittances, as well as through knowledge transfer, skills transfer, political influence, philanthropy. However, the most tangible and measurable contribution of the diaspora to development is in the form of remittances (Brinkerhoff, 2012). Defined as the transfer of cash or goods from migrants to support families or friends in their countries of origin (Ratha, 2016), remittances can be domestic: between urban and rural areas, or international: between countries. However, for the purpose of this study, the focus is on international cash remittances. According to the IMF (World Bank, 2009), most remittance transfers are small amounts, sent frequently and targeted at family upkeep. Although, the frequency and amount remitted depends on the demographic characteristic of the migrant and the motivations for remitting. 2.3.1. Remittance channels There are two channels for transmitting remittances; formal/official transfer channels and informal/unofficial channels. Formal channels are legally licensed and regulated money transfer establishments such as banks, post office banks and money transfer operators (MTOs) like Western Union, MoneyGram, Ria, including online apps like World Remit, Wise, Remitly etc. Informal channels on the other hand refer to unconventional money transfer systems which are not licensed for cash transfers, are unregulated and whose transactions are not captured in national accounts. They include monies sent via courier companies (hidden in packages/letters), bus companies, hand delivered by friends, relatives, business people or delivered by money transfer agents, known as Hawala (Buencamino & Gorbunov, 2002b; DMAglobal, 2020; Freund & Spatafora, 2008; Pieke et al., 2007). The classification of a University of Ghana http://ugspace.ug.edu.gh 13 channel as formal or informal is country specific, and depends on the country’s legal, regulatory, and institutional framework. The main distinction between both channels is that informal flows are not captured in the balance of payment statistics (World Bank, 2009). Irrespective of the specific channel used for remittance transfer, all money transfer channels, informal remittances inclusive, consist of a sender, recipient, intermediary and a transfer interface (figure 2.3.1). Figure 2.3.1 Remittance Channels Source: World Bank, 2009, figure 2.1, Pg. 4. There are several reasons for the existence of two channels: weaknesses in the financial sector, state of the economy, exchange rate controls, regulations which hinder access to financial service/inclusion, distrust of the financial sector, poor service delivery, accessibility, socio- demographic characteristic of the senders and recipients, familiarity etc. (Sander & Maimbo, 2005; WorldBank, 2009). The next section attempts to provide an overview of the most popular formal and informal remittance channels, although the list cannot be considered as exhaustive, since these services are continuously evolving. University of Ghana http://ugspace.ug.edu.gh 14 2.3.1.1. Formal remittance channels As the name indicates, formal remittance channels include all transfers through official registered networks or service providers. These kinds of transfers are documented and captured in the country’s balance of payment data. Consequently, most projections by national authorities and international organs are based on transfers via formal channels. Types of formal channels include; i. Banks: commercial banks are a popular provider of money transfer services due to their extensive network and participation in the international payment and settlement system (World Bank, 2009). Banks are often heavily regulated, and therefore have stringent documentation requirements and anti-money laundering systems which include the enforcement of limits on deposits, transfers and withdrawals. In addition to account-to-account transfers, most banks also double as agents for MTOs. ii. Money Transfer Operators (MTOs): these are non-deposit taking financial companies that provide money transfer services using their internal systems or leveraging on existing cross-border bank networks. The popular MTOs with outlets in most countries include: Western Union, MoneyGram, Ria. These MTOs often have their own outlets, in addition, some banks, post offices, FOREX Bureaus also serve as their agents. MTOs usually have less stringent documentation requirement for transfers. Neither senders nor recipients are required to have a bank account and an ID card usually suffices to carry out a transaction. iii. Post offices: in many countries, post offices provide domestic money transfer services through postal orders, but can also serve as agents for MTOs. Similar to University of Ghana http://ugspace.ug.edu.gh 15 MTOs, post offices have light documentation requirements and recipients are not required to open or operate an account. iv. Mobile money (MoMo): powered by telecommunication companies, this system is gradually gaining popularity in many countries, and involves subscribers being able to send and receive money “at the speed of text” (World Bank, 2009). In Ghana, the service has recently expanded to include receipt of international transfers via the “Web to Mobile” feature, which allows remitters send up to 2000USD per day, depending on the type of account (Teye et al., 2017). v. Online apps: while banks and MTOs allow fund transfer via the internet, there are other transfer services which allow senders to transfer funds from one virtual account to the other. Recipients can pay for goods and services online using the virtual accounts, or transfer the money to local bank accounts and mobile money accounts for onward cash withdrawals. Examples of internet transfer service providers are World remit, Wise, Taptap send etc. 2.3.1.2. Informal remittance channels Informal remittance channels predate formal channels, and were developed by people of same ethnic groups, simply seeking an efficient and reliable means of transferring money and settling accounts with each other. Although there is no clear position on the origins of informal channels, the oldest and most developed system dates back several centuries, to the hawala or hundi system developed in South Asia, which is still the largest informal transfer system in operation today (Buencamino & Gorbunov, 2002; Pieke et. al 2007). Initially designed to facilitate trade between countries, the hawala system was said to have been developed by the University of Ghana http://ugspace.ug.edu.gh 16 Indian immigrant population in Africa, who needed a way to transfer money and settle accounts, without carrying cash around and exposing themselves to robbery. Subsequently, the system has followed the immigration pattern of Indians and has spread into several countries and continents (Asia, South and North America, Europe). Over time, migrants from different countries, including Ghana, have developed similar styled systems. According to Maimbo & Ratha (2005), informal remittance channels, in Africa, trace back to the colonial era, when workers migrated from rural to urban areas to work in plantations, mines or serve as household staff for the colonial masters, which enabled them earn additional income and send portions of it to their families to help offset cumbersome colonial taxes. They go on to recount a story of how remittances were sent home by urban dwellers, in South Africa, to their families in rural areas via courier, train or bus networks. The school principals in the rural areas were then entrusted with the task of collecting the packages, sorting them out and delivering remittances to recipients. Another position on the history of informal remittance systems was provided by Thebe & Mutyatyu (2017). According to them, informal channels developed in Africa as a result of capitalism, which led to a decimation of the rural economy and a fragmentation of the labour force between urban and rural areas, as a livelihood strategy for many families. The success of the “hoe and wage” strategy depended on migrants in the urban areas maintaining a link with their families in the rural areas (mostly farmers), and supporting them with part of their wages. Consequently, the rural dwellers needed a system that would ensure a flow of goods and cash to their families in the rural areas, which led to migrants giving monies and goods to vehicle owners to take to their families back home. Over time, this system acquired social and cultural significance, and has expanded to cover larger geographical areas and territories, while maintaining its informality. University of Ghana http://ugspace.ug.edu.gh 17 Types of informal remittance channels i. Ethnic stores: These are stores in destination countries which sell goods emanating from specific immigrants countries. For instance, a Ghanaian ethnic store in the US or UK would have local Ghanaian staples (Kenkey, banku etc.) in stock. According to Higazi (2005), some of these ethnic stores offer informal remittance services often preferred by Ghanaians in the diaspora to MTOs. Ghanaians patronise these stores not only for the cheaper transfer services, but also out of social and cultural camaraderie. Remittances sent via ethnic stores can be picked up locally from local agents or FOREX bureaus1.In some cases, these stores also serve as agents for MTOs. ii. Cash carrying or hand delivery: this involves the migrant delivering the cash in person or through other travellers’ (friends or relatives) to family members back home. Cash-in-hand transfers are mostly used by skilled migrants as well as short- term migrants, who are usually highly mobile and travel to their countries of origin often (Higazi, 2005; World Bank, 2009). Cash carrying is quite popular among African and Latin American migrants, and can be facilitated by hometown associations and churches, where members give money to anyone travelling from within the group, to deliver to their families back home (Ferriani & Oddo, 2019; Pieke et al., 2007). iii. Trade based transfers: this transfer method functions in two ways; the credit system and the advance deposit. The credit system involves the migrant contacting a 1 Forex bureaus are not licensed for money transfer services, but some do so informally. University of Ghana http://ugspace.ug.edu.gh 18 business man or woman (transnational trader) based in the migrant’s country of origin to payout a specific amount to family members. This amount is then reimbursed to the trader upon his next trip to the destination country to conduct business. On the other hand, the advance deposit involves loaning an importer the money to purchase the goods, upon his return to the country of origin, the trader sells the goods and use the proceeds to pay out money to the migrant’s family members. Alternatively, the migrant could purchase the goods and send down to the trader, who then disburses the cash equivalent to the migrant’s family. This system is popular amongst West African migrants; Ghana, Nigeria, Senegal (Hernandez-Coss & Egwuagu Bun, 2007; Pieke et al., 2007; Quartey, 2011; World Bank, 2009). iv. Hawala and Hundi system: the word “Hawala” traditionally means “change or transform”, but has also come to connote “trust”, in line with the underlying principle which guides its operations. Initially based on the use of promissory notes, developments in telecommunication systems, means that an agent in one country can instruct his counterpart (via email or phone) to disburse money to recipients in another country, without requiring a written contract. The remittance sender simply approaches an agent in his/her location, hands over the amount to be transmitted and is given a code which the recipient also has to provide to collect the money from the agent on the recipient’s side. This system is popular among migrants from the Middle East and Asia (Buencamino & Gorbunov, 2002b). The use of both formal and informal channels have made it difficult to actually calculate or estimate the size of remittance flows, given the off-the-book nature of informal channels. Several studies have tried to estimate the size of informal flow (Freund & Spatafora, 2007; University of Ghana http://ugspace.ug.edu.gh 19 Page & Plaza, 2006; Sander & Maimbo, 2005; World Bank, 2009), and has come up with varying figures, as low as 35% or as high as 250%. Specific studies on remittance flows to Ghana, place remittance via informal channels at circa 35-45% of total flows (Mazzucato et al., 2008; Teye et al., 2017). The most recent figures from Teye (2016 as cited by Teye et. al., 2017) found that only 53% of remittances were sent via formal channels. These estimates are not entirely surprising when compared to the SSA figures of 73% (Page & Plaza, 2006). 2.4. Motivations to remit There are a number of theories on the motivations behind remittance transfers by migrants to their home countries: Altruism (desire to see others doing well); self-interest (using remittances to secure goodwill); and tempered altruism (migration a risk-sharing and co-insurance strategy, and remittances a mechanism for redistributing gains), which may explain the resilience of remittances in times of economic crisis. (Fayissa & Nsiah, 2010; Lucas & Stark, 1985). Caarls et al. (2018) explored the concept of transnational families, which they defined as: A household having at least one migrant living abroad who is a: (1) child of the head; (2) partner(s) of a member of the household; or (3) relative of the household head or of his/her partner and who has been in regular contact with the household over the past 12 months. (p.11) The study found that in keeping with the African concept of “family”, Ghanaian families extend beyond close nuclear members to extended family relations, including non-kin members, to whom one extends reciprocal duties and obligations. This reciprocal relation between a migrant and the family members in Ghana could be both material and non-material, and goes both ways, from migrant to the family and vice versa. Migrants mostly meet their responsibilities and obligations towards family members via remittances. Family members (kin University of Ghana http://ugspace.ug.edu.gh 20 and non-kin), on their part, also reciprocate in-terms of initial support (material and non- material) provided the migrant in the onset of the migration journey and the service they continue to provide the migrant (taking care of children left in behind, supervising construction projects or managing businesses etc.), this kind of service is also known as “Reverse Remittance” (Caarls et al., 2018; Mazzucato, 2011). However, for the purpose of this study, the focus will be on the migrant’s perspective, in terms of remittance transfer. 2.5. Source of remittances to Ghana According to Ghana’s migration profile (IOM, 2019b), 49% of Ghanaian emigrants between 2010 – 2019 remained within the African continent, with Europe and North America coming a distant second and third place respectivelyClick or tap here to enter text.. The choice of destination countries is often influenced by several factors; cultural, social and economic. According to Schans et al. (2013), most Ghanaians emigrate to traditional English-speaking countries, where integration may be easier. This could explain why Nigeria, the United States (US) and the United Kingdom (UK) are the top three destination countries for Ghanaian emigrants (UNDESA 2019, as cited by IOM, 2019b). Surprisingly, despite half of all Ghanaian migrant stock residing within the African continent, their remittances only account for circa 30% of total inflows, while 65% come from Europe, the UK and the US (DMAglobal, 2020). University of Ghana http://ugspace.ug.edu.gh 21 Figure 2.5.1 Source of remittance inflow to Ghana (2017)  The Ghanaian diaspora in the United States is the highest remittance senders, followed by Nigeria, even though Nigeria hosts the highest number of Ghanaian emigrants (26%). In terms of the profile of senders, Mazzucato et al. (2008) found that most remittance transfer come from men (58%) with women making up (42%) of total senders. 2.6. Socio-economic effect of remittances From 2009 to 2019, there has been a remarkable increase in remittance flows to Ghana, with the highest receipt happening in 2015. The increase in remittance flows to Ghana can be attributed to a number of factors: the increase in Ghanaian emigrant stock, increase in the use of formal channels and improved data capturing by the Bank of Ghana (Teye et al., 2017). Nevertheless, the contribution of remittances to improving the welfare of recipients and by extension national development cannot be disputed. Source: DMAglobal (2020) University of Ghana http://ugspace.ug.edu.gh 22 2.6.1. Social effect of remittances Lucas & Stark (1985) described remittances as a “private mechanism of income redistribution between persons and across sectors”. A statement corroborated by Quartey (2011), who found that at the household level, a great percentage of remittances are spent on private consumption needs such as food, clothing, school fees, hospital bills etc. thereby helping to smoothen consumption and by extension, income inequality and poverty reduction. In addition, remittances have been found to reduce incidence of child labour among recipient households (Amuedo-Dorantes, 2014; Kim, 2007). According to Teye et al. (2017), the peak periods/months of high inflow of remittances into Ghana are November and January, because of the Christmas holidays, and school resumption. 2.6.2. Economic effect of remittances Beyond consumption, remittances are currently the highest source of development financing for many developing countries, including Ghana, often making up a larger share of GDP than export and imports. One important characteristic of remittances is that it has proved to be countercyclical; it tends to increase during times of economic downturn unlike private capital (Bisong et al., 2020; Ratha, 2003a, 2016). In addition, remittances serve as an important source of foreign exchange for the country, and can improve the country’s access to international funding instruments (Ratha, 2013; Ratha et al., 2016). Remittances contribute to the economy in diverse ways, for instance, Ghanaians migrants often invest in the real estate sector, with ripple effect on other businesses. It has also been instrumental in starting and growing small and medium scale enterprises (MADE West African project, 2018; Mazzucato et al., 2008). In addition, remittances have been found to contribute to the deepening of the financial sector by strengthening financial inclusion, encouraging University of Ghana http://ugspace.ug.edu.gh 23 saving habits and boosting the profile of recipients to gain access to loan instruments (Orozco, 2009; Quartey, 2011; Teye et al., 2017). 2.6.3. Negative effects of remittances While there are numerous positive effects of remittances at the micro and macro levels, the negative effects cannot be ignored. Remittances have been found to have an effect akin to “Dutch Disease” in Latin America and the Caribbean, by reducing labour participation of recipients and engendering a change in consumption patterns (Amuedo-Dorantes, 2014; Kim, 2007; Kosse & Vermeulen, 2014). A survey of 33,778 individuals within the working-age group in Ghana, also found that remittances created a dependency effect on recipients, leading to lack of or withdrawal of participation in the labor force, with the attendant risk of exacerbating intergenerational poverty (Asiedu & Chimbar, 2020). There is also the social cost of remittances: in order to earn remittances, migrants have to leave their family members to work in another country. Even though remittances are countercyclical, the economic situation in destination countries also affects the real income of migrants (Bisong et al., 2020; Ratha et al., 2016), which leads to migrants making even greater sacrifices to continue sending money to their dependents. Furthermore, the migration of highly skilled workers can lead to labour shortages, brain drain and loss of taxes to the government (Ratha, 2003b; 2016), although Ratha also posits that the benefits of remittances outweigh the cost. The socio-economic effects (positive and negative) of remittances have been adequately expounded in literature, however, the use of both formal and informal channels for transfers make it difficult to determine the exact scale of remittances transferred every year, and by extension its actual effects (Sander & Maimbo, 2005). University of Ghana http://ugspace.ug.edu.gh 24 2.7. Factors that influence the choice of a remittance channel Several scholars have extolled migrants remitting via formal channels because of its benefits at the macro and micro levels, such as foreign exchange earnings, financial sector deepening, credit multiplier effects, enhancing saving habits of recipients etc. (Freund & Spatafora, 2008; Quartey, 2011; Ratha, 2003b, 2013; Teye et al., 2017). In addition, policy makers often support formal channels as it generates the requisite data on remittance flows, for better policy making on how to leverage remittances for development. However, over emphasising the use of formal channels or pushing for the formalisation of informal channels might be counterproductive (Buencamino & Gorbunov, 2002; Maimbo & Passas, 2005; Pieke et al., 2007). Maimbo & Passas highlighted the fact that informal remittance channels predate formal channels, the operators conduct their business in public and they provide an essential service to millions of unbanked people all over the world. Pieke et al. specifically questioned the use of the term “informal” or “unofficial” to describe flows not captured in the financial system, considering that informal channels are legal in many countries. While it is desirable for financial flows to be captured by the concerned national authorities, he cautioned against heavy-handed top-down approaches in enforcing formalisation, to avoid driving informal operators further underground. Other scholars have highlighted that the informal remittance channel, often referred to as the “Poor man’s banking system”, provides a fast and low-cost alternative for low-income migrants who remit small amounts frequently (Buencamino & Gorbunov, 2002a; Ferriani & Oddo, 2019). This class of remittance senders and their recipients are usually not catered for by the financial system and face geographical, legal and regulatory constraints which hinder their access to formal channels. University of Ghana http://ugspace.ug.edu.gh 25 Migrants’ choice of a remittance channel seems to be determined by: the nature of services offered by the different channels; personal preference; motivation for remitting, class of migrant; socio-demographic characteristic of migrants; institutional arrangement in the host and countries of origin; speed of transfer; transaction cost; and accessibility to financial institutions (World Bank, 2009). An understanding of the interplay between these factors is essential in deciphering migrants’ choice of a channel. 2.7.1. Categories of Migrants Migrants are often categorised based on their reason for migrating (economic, political, refugee etc); legal status in destination country (regular or irregular); and level of education (skilled or low skilled). For the purpose of this study, the focus on will be on the legal status and level of education of migrants. Migrants with tertiary education are considered as skilled and have been found to take the decision to migrate more independently than low skilled migrants who might have migrated as a livelihood or family support strategy. Skilled migrants tend to have more legal migration pathways available to them and usually earn more than their low skilled counterparts. Low skilled migrants, on the other hand, have fewer legal migration options and are more prone to migrate irregularly as part of their livelihood strategy. As a result, they remit more frequently to support family members back home and are most likely to utilise channels that preserve anonymity and discretion (Ferriani & Oddo, 2019; Higazi, 2005; Pieke et al., 2007; Ratha, 2006; World Bank, 2009). University of Ghana http://ugspace.ug.edu.gh 26 The legal status of migrants is one of the main dividing lines between access to formal or informal channels (Makina, 2013; Teye et al., 2017). Irregular migrants do not have the necessary documentation to own or operate bank accounts. MTOs also require government- issued identity cards or an international passport to process remittance transfers, leaving irregular migrants with no choice than to go through informal channels. However, an exception was found in the cases of Mexico and the Philippines, whose foreign missions established financial units, to enable irregular migrants send money home, without needing to go through informal channels (Teye et al., 2017). According to Higazi (2005), skilled Ghanaian migrants are usually not under pressure to remit frequently, and might prefer to hand-carry their remittances whenever they travel to Ghana. Moreover, since skilled Ghanaian migrants usually earn more and have legal status in their host countries, they tend to be more mobile than their low skilled counterpart, enabling them build more expansive social networks in and outside Ghana for informal remittance transfers. On the contrary, Koss & Vermeulen (2014) following a survey of 1680 migrants in The Netherland found that highly educated migrants had less likelihood of utilising informal channels or hand- carrying cash when travelling. They also found that large-value remitters prefer formal banking transfer channels, as against informal channels mostly patronised for transfer of small amounts. Incidentally, large-value remitters also enjoy lower transaction costs compared to their low- value counterparts. University of Ghana http://ugspace.ug.edu.gh 27 2.7.2. Transaction cost High transaction costs have been identified as a major determinant of the choice of remittance channel (Kosse & Vermeulen, 2014; Pieke et al., 2007; Ratha et al., 2016; Sander & Maimbo, 2005). Remittance transaction cost is made up of: the fee charged by the sending operator in the migrant’s location; a currency-conversion fee, also charged in migrant’s location; and operator’s charges at the recipient’s end, usually charged by smaller operators, to cover unforeseen exchange rate fluctuations or for cash withdrawals (Ratha, 2016). In general, sending small amounts (mostly by low skilled migrants) of $200 and below is more expensive, because of the fixed transfer charges that can get as high as 15% of the transfer amounts. According to the World Bank (2021), sending money to Sub-Saharan Africa incurs the highest transaction cost, at an average of 8.02%, a long way from the SDG (10.7c) target of 3% by 2030. However, these costs are lower for large remittances (in percentage terms) and the competition between international banks for large-value remittances means that banks are willing to offer even lower rates for higher amounts (Ratha, 2016). In view of the foregoing, remittance transfers via informal channels have proven to be a cheaper alternative, costing between 1 - 5% of the principal. Sending money via a traveller or bus drivers (for intraregional remittance transfers) costs even less (Freund & Spatafora, 2008). Moreover, in countries like the UK, competition among informal operators have led to even lower charges, with a 70% reduction in transfer fees between 1991 and 2004 (Higazi, 2005). Reducing transaction cost of remittances has become an important topic at the global level, not only because it increases the incentive to patronise informal channels, but most importantly, it reduces the amount of money available to recipients (Ratha, 2006). According to Kosse & University of Ghana http://ugspace.ug.edu.gh 28 Vermeulen (2014), reducing transaction cost will make an estimated 15 million USD available to recipients. Aside the transfer charges and commissions, foreign exchange rates is perhaps the most important component of transaction cost, since the differential between official and parallel market rate is a major determining factor in the choice of remittance channels. A study of six countries across North Africa and Europe found that a 10% increase in black market rate over official rates led to a 3% decline in remittances via formal channels (O’Neill, 2001 as cited by Freund & Spatafora, 2007). Teye et al. (2017) provides a good illustration of the effect of exchange rates on remittances. A person in Ghana receiving an amount of 1,000 British Pounds Sterling sent through a formal financial institution on 12 April 2015 would get 5,200 Ghana Cedis. If this amount is sent through an informal channel such as a friend visiting Ghana, the recipient would get the entire amount which he/she can change at a Forex Bureau to get 5,800 Ghana Cedis. Thus, in addition to paying bank charges, 600 Ghana Cedis or 10.3% of the amount sent would be lost by the person who receives the money through the bank. (p.12). It is worthy of note that advances in finance and technology (FinTech) have proven to be instrumental in reducing cost of transfers, with most online service providers cheaper than traditional MTOS. Table 2.7.2 provides a snapshot of the cost of transferring 200USD using traditional versus online apps. University of Ghana http://ugspace.ug.edu.gh 29 Table 2.7.1 MTO Charges (Transaction Cost for sending 200USD to Ghana) United Kingdom United States Germany Firm Access Point Transfer speed Receiving method Fee Exchange rate margin (%) Total Cost (%) Total Cost (USD) Fee Exchange rate margin (%) Total Cost (%) Total Cost (USD) Fee Exchange rate margin (%) Total Cost (%) Total Cost (USD) Western Union Agent Immediate Cash 4.83 4.84 7.26 14.52 - - - - 13.43 9.94 16.66 33.31 Western Union Internet Immediate Cash 3.17 1.63 3.22 6.43 5.00 1.44 3.94 7.88 5.57 7.38 10.16 20.31 MoneyGram Agent Immediate Cash 13.32 0.20 6.86 13.72 0.00 1.05 1.05 2.10 13.29 0.52 7.16 14.31 MoneyGram Internet Immediate Cash/Momo 6.65 1.40 4.73 9.47 0.99 1.19 1.69 3.38 5.70 2.57 5.42 10.84 Ria Agent Same day Cash 5.00 9.70 12.20 24.40 7.00 0.58 4.08 8.16 14.29 4.12 11.26 22.51 Ria Internet Immediate Cash 5.00 -0.20 2.30 4.60 4.00 0.58 2.58 5.16 - - - - Sendwave Internet Immediate MoMo 0.00 1.22 1.22 2.43 - - - - - - - - Small World Agent Same day Cash 3.32 -0.39 1.27 2.53 - - - - 4.99 1.09 3.58 7.16 TapTap Send Internet Immediate MoMo 0.00 0.96 0.96 1.92 - - - - - - - - World Remit Internet Immediate Cash 3.32 3.19 4.85 9.70 1.99 1.54 2.54 5.08 - - - - World Remit Internet Immediate MoMo 1.65 1.05 1.87 6.90 0.99 1.19 1.69 3.38 - - - - Remitly Internet Immediate Cash/MoMo - - - - - - - - 0.00 0.66 0.66 1.31 Source: Adapted from Remittance Prices Worldwide (World Bank, 2021a) University of Ghana http://ugspace.ug.edu.gh 30 2.7.3. Access to financial services A well-developed financial system means that a large proportion of the population has access to financial institutions. The status of the financial system has been found to have a positive relationship with the use of official remittance channels (Ferriani & Oddo, 2019; Orozco, 2009; Ratha, 2003a). Ghana currently has a financial inclusion rate of 58% (World Bank, 2019), leaving a large portion of the population with no access to financial services. Since most commercial banks also double as MTO agents, this poses a challenge, because the banks do not only lack a presence in many rural communities, but recipients are required to have a bank account in order to access the service. Recently, telecommunication companies have made efforts to bridge some of these gaps via their mobile money (MoMo) platforms. The main risk associated with mobile money is that the transfer could go to a wrong recipient at the slightest error in the phone number. Other disadvantages include: lower exchange rates used for currency conversions and “cash-out” fees, for recipients who choose to withdraw the money (Teye et al., 2017). 2.7.4. Recipient’s Preference Given that the ultimate aim of remittance senders is to send remittances through channels that are fast, reliable and accessible for both the sender and recipient alike, remittance receivers also exert a considerable influence on the choice of a channel (Higazi, 2005; Kosse & Vermeulen, 2014; Makina, 2013). The role of recipients in determining the remittance channel cannot be underestimated, they provide valuable information on the local exchange rates, their access/proximity to certain channels as well as the cheapest and efficient channels for sending money to Ghana. Teye et al. (2017), found that recipients in rural areas often prefer informal channels, since financial University of Ghana http://ugspace.ug.edu.gh 31 institutions and MTOs do not have wide spread penetration in rural areas, forcing rural dwellers to travel several miles to access these services. Informal remittance agents on the other hand are more mobile and even provide door to door services. A baseline assessment of 1200 household conducted by the Ghana Statistical Service in six administrative districts in the Ashanti and old Brong Ahafo regions found that 23% of respondents preferred to receive remittances in cash through friends and relatives (Ghana Statistical Service, 2017). 2.7.5. Social factors In addition to the above listed considerations, there are also non-logistical issues that affect the choice of a channel. These include discretion, anonymity, trust issues, convenience, culture and language. Discretion is especially important for irregular migrants who do not want to expose themselves to possible prosecution and deportation for living and working in a country without the necessary documentations (Buencamino & Gorbunov, 2002b; Kosse & Vermeulen, 2014; Pieke et al., 2007; Teye et al., 2017). A distrust of the financial system is also a contributing factor to the choice of a remittance channel. Following the 2008 financial crisis, there have been growing sceptism and distrust towards the financial sector in Ghana. To make matters worse, the consolidation of the banking sector between 2017 and 2019, lead to the closure of some commercial banks, thereby contributing to the distrust in the banking sector (Gyamfi, 2019). This distrust could lead to remitters and recipients deciding to operate outside the financial system. A study of the UK- Nigeria remittance corridor also found that distrust of the financial system contributed to the use of informal remittance channels (Hernandez-Coss & Egwuagu Bun, 2007). In other climes, Freund & Spatafora (2007) found that 50% of Dominicans in the US declined using banks for University of Ghana http://ugspace.ug.edu.gh 32 money transfers, following the collapse of the second largest private bank in the Dominican Republic in 2002. In addition, a study of migrants in South Africa found that a distrust of the financial sector contributed to a preference for informal channels (Genesis, 2004 as cited by Pieke et al. 2005). The influence of the migrant’s social network, on the choice of a channel, should also not be overlooked (Thebe & Mutyatyu, 2017). A study on remittance flows from Italy to 40 countries, between 2005 and 2016, found that a high concentration of foreigners from a particular country (ethnic density) had a negative effect on the use of formal channels, because migrants relied on their social networks to facilitate remittance through informal channels (Ferriani & Oddo, 2019). Similarly, Higazi (2005) found that ethnic camaraderie plays a role in Ghanaians, in the UK, patronising informal transfer services offered in ethnic stores. 2.8. Risks of utilising informal remittance channels? Following the September 2011 terrorist attacks in the US, there has been a lot of focus from Western countries on regulating the financial sector. Thus, promoting the use of formal money transfer channels, which is seen as more secure, beneficial to national development and less prone to abuse by criminals for illegal activities (Buencamino & Gorbunov, 2002; Kosse & Vermeulen, 2014). This is because the discretion and simplicity of informal channels that endear some migrants to its operations, are also the same characteristics criminal elements seek for illegal activities such as money laundering, smuggling, terrorism etc. This is because the origin and destination of funds sent via these channels do not leave an audit trail and identification cards are not required to execute a transaction. However, there is insufficient evidence on the use of informal channels for criminal activities (Buencamino & Gorbunov, 2002; Pieke et al. 2005; Quartey, 2015). University of Ghana http://ugspace.ug.edu.gh 33 Informal remittance channels thrive on mutual trust, social connections and discretion, which explains why Ghanaians in Diaspora might prefer sending money home through ethnic stores, as mentioned in the previous section. However, this trust does not always hold-up, since there have been cases of informal operators not paying the full amount to recipients or travellers not delivering the cash to the migrant’s family (Higazi, 2005). Unfortunately, most transactions are based on verbal agreements with no written contract, which make seeking legal redress problematic (Kosse & Vermeulen, 2014). 95% of remittances from Nigeria to Ghana are sent through informal channels; agents, hand delivery and bus companies, with bus companies presenting the highest risk of theft and long wait times (DMAglobal, 2020). According to the report, remittances sent via a commercial driver or transport company could take up to 1 to 3 weeks to get to the recipients in rural areas, if it gets there at all. Hand delivery of remittance through friends, relatives or bus drivers, present the greatest risk of theft, loss or corruption (Pieke et al. 2005). Despite the associated risks, many migrants seem to find that the benefits of utilising informal channels (convenience, speed, cost, and accessibility) outweigh the associated risks (Chisasa, 2014; Teye et al., 2017). Since patronage of informal remittance agents is based on referrals from satisfied clients, the informal money transfer systems are mostly self-regulating, with fraud seen as economic suicide (Buencamino & Gorbunov, 2002). 2.9. Theoretical framework Trust is an integral aspect of all human relations, and forms the basis for economic, political, and social interactions (Cook, 2001). Consequently, the key concepts underpinning this study will be drawn from Mark Granovetter’s (1985 as cited by Portes and Sensenbrener, 1993) concept of social embeddedness, but specifically based on Portes & Sensenbrenner’s University of Ghana http://ugspace.ug.edu.gh 34 application of the concept to migration and migrant communities. Portes & Sensenbrenner used the social embeddedness concept to elaborate how social structures and considerations influence economic action of migrants. Thus, the concept of social capital comes into play, defined by the Organisation for Economic Co-operation and Development (OECD) as “networks together with shared norms, values and understandings that facilitate co-operation within or among groups” (Organisation for Economic Co-operation and Development, 2009, p. 103). Networks in this case, refers to links between individuals or groups of people, and these links are formed on the basis of trust between the parties. Social capital is an important arsenal for migrants who find themselves in another country with different cultures, norms, rules and way of life. Consequently, migrants often rely heavily on their social network to navigate life in the destination country (Portes & Sensenbrenner, 1993). Russell Hardin’s (2002) concept of trust as an “encapsulated interest” also presents an interesting concept for this study. According to Hardin, one person (e.g., Kojo) can trust another person (e.g., Kwabena) to perform a particular task, like delivering money to family members back home, but that does not mean Kojo trusts Kwabena to perform other tasks (e.g., drive his car or take care of his children). Hence, the trust relations between Kojo and Kwabena is strictly confined to a particular, well-defined task. This concept also applies to formal channels, where we often trust staff of banks or MTOs to do their job of initiating financial transactions within the confines of the institution they represent, but we may not trust them to do anything else. Some of the key questions this study seeks to answer revolves around risks associated with different remittance channels and corresponding mitigation strategies. Portes & Sensenbrenner’s illustration of the concept of bounded solidarity and enforceable trust provides valuable insights. Bounded Solidarity seeks to explain the group behaviour of migrants, who bond and support each other based on the singular unifying factor of all of them being University of Ghana http://ugspace.ug.edu.gh 35 foreigners. Enforceable trust, goes further to explain how conforming to a group’s expectation can yield marginal benefit. In the case of a migrant community, it is in the best interest of a hawala agent, for instance, to show integrity and accountability in handling remittance transfers for members of the community, since that is the only way to ensure that members of that community will continue patronising his/her services. As Buencamino & Gorbunov (2002), collaborates, a bad reputation is a sure way to bankruptcy for a hawala agent. This concept can also apply to formal channels, since no one wants to entrust their money to a financial institution with a history of bad service delivery. Therefore, in examining the factors that influence migrants’ choice of remittance channels, the social embeddedness concept is instrumental in understanding the ethos of the informal remittance channel, which explains how migrants can trust an unofficial and unregulated business or an individual to deliver remittances to his loved ones in the country of origin. Therefore, the capacity of the migrant to meet his social obligations towards his loved ones back home seems dependent on the perceived goodwill of another individual or institution. 2.10. Conceptual framework The migrant’s status (regular or irregular) determines their level of access to remittance channels. Irregular migrants by virtue of their migration status do not have the full range of options available to regular migrants. Therefore, the alternatives considered for decision making by this category of migrants is constrained by their circumstances and the need to fulfil their obligations to their dependents. Regular migrants on the other hand have several alternatives and have the luxury of developing a list of preferences and alternatives. To explain migrants’ choices and the factors that informed them, this study used an adapted rational choice model. Originally propounded by Adam Smith in 1776, the theory was based University of Ghana http://ugspace.ug.edu.gh 36 on a number of axioms which determined people’s decision-making process. Smith posits that people would generally act in their best interest, and would analyse all alternatives objectively before making decisions based on a cost-benefit basis, preferring and subsequently choosing actions with the highest benefit when compared to the cost. Initially applied to economics, the theory has also been adopted in the social sciences, thanks to the work of George C. Homans, Peter Blau and James Coleman on the social exchange theory. Similar to rational choice, social exchange theory posits that at the individual level, people consider the costs and benefit of relationships (individual or group), and would only engage in or continue relationships where the rewards outweigh the cost (Appelrouth & Edles, 2010, pp. 120-173). Furthermore, the outcome of the last relationship determines the individual’s approach to the next. For instance, if one gets defrauded by a business partner, it would make that person approach the next business relation in a cautious manner and vice versa. Rational choice and social exchange theories provide interesting insights on the concept of social embeddedness and encapsulated interest, with migrants choosing to bond together because of the benefits (social capital) they would derive from such associations and will continue to interact with their migrant community as long as they are reaping some form of reward. Regarding irregular migrants, for instance, the benefit can entail depending on fellow migrants, with legal status, to help them remit money through formal channels or simply help them carry cash whenever travelling to their country of origin. There are several critics of the rational choice theory, Herbert Simon, for instance, countered rational choice with the bounded rationality theory, which highlights the cognitive limitations (lack of information and foresight), which impedes the ability of the individual to make an informed decision that maximises utility (Simon, 1955). According to Simon, individuals tend to make choices that satisfy their need at that time, even if the choice is not necessarily the most optimal. The bounded rationality model can help understand why migrants would choose University of Ghana http://ugspace.ug.edu.gh 37 informal channels (such as bus drivers, travellers etc.) despite the associated risk of the remittance not getting to the intended recipient, and why some migrants are willing to pay higher transaction fees as the cost of convenience. The concepts derived from these theories throw more light on the decision-making paradigms of migrants, and provides the conceptual lens through which the findings of this study will be analysed. Figure 2.10.1 Conceptual Framework: key concepts and linkages Figure 2.10 illustrates the different intervening factors that inform the decision-making process and the subsequent choice of remittance channels. Firstly, the migrant’s legal status determines the options available to them in the first instance. For irregular migrants, their lack of a legal status means they lack the needed documentation required to access formal channels, hence restricting them to informal channels, which makes “accessibility” a primary intervening factor for irregular migrants. Regular migrants on the other hand do not have this constraint, and can Choice of Remittance Channel Regular migrant channel Irregular migrant Social obligations Transaction cost Convenience Trust Accessibility Source: Adapted from Smith,1776; Homans, 1958; Simon, 1957. University of Ghana http://ugspace.ug.edu.gh 38 choose to patronise any of the remittance channels (formal or informal) based on a purely risk- benefit approach.; they may decide to send money through a traveller simply because they feel the benefits (savings on transaction cost, time etc.) outweighs the risk of the money not getting to the intended recipient. Ultimately, the need to fulfil social obligations, transaction cost, trust and convenience (in no particular order) are some of the main considerations of migrants before they make the final decision on a remittance channel. 2.11. Conclusion of the literature review Based on the reviewed literature, it is clear that a wide variety of factors influence migrants’ decision of a remittance channel. Ferriani & Oddo, (2019) adequately captured these factors by classifying them into four distinct groups: (i) Channel characteristics (cost, speed, convenience, security); (ii) Transaction characteristics (cost, speed); (iii) Economic and institution environment in the both destination and countries of origin; and (iv) socio- demographic characteristics of the migrant. In conclusion, the dynamics that inform the choice of channel is still relatively under- researched in Sub-Saharan Africa. Although there are a number of studies on the remittance and service providers in Ghana, there is still a dearth of information on the determining factors behind migrants’ choice of a channel, this study seeks to contribute to this body of knowledge. University of Ghana http://ugspace.ug.edu.gh 39 3 CHAPTER 3: METHODOLOGY 3.0 Introduction This chapter elaborates the methodology deployed in responding to the research questions, to ensure that the objectives of the study are attained. This includes information on the research design, the sampling method, the criteria for the selection of respondents, the kind of data collected and the analysis technique employed. 3.1. Research design Studying human behaviour necessitates a research design that is flexible enough to explore and capture hidden meanings (Sandelowski, 2000). For this reason, a qualitative research design was employed for this study. Qualitative research probes and digs deep to understand the meaning of actions, the underlying belief systems and values which prompt human behaviour in the first instance. Qualitative studies call for a focus on words, perspectives and experiences, and not quantification for the purpose of generalisation (Bryman, 2016). The qualitative approach is quite common and has been adopted in other studies on remittances. For instance, Thebe & Mutyatyu (2017) employed ethnography to gain a deeper appreciation of the social characteristics of the informal remittance corridor between South Africa and Zimbabwe. Teye et al., (2017) also used the qualitative approach in their study to explore the different practices of remittance service providers as well as remittance recipients in Ghana. The DMAglobal report (2020) employed in-depth interviews with remittance senders in identifying the bottlenecks migrants face when using formal channels. In all, qualitative research has proven to be instrumental in understanding underlying social issues and practices around remittances. University of Ghana http://ugspace.ug.edu.gh 40 3.2. Sources of data The study utilised both primary and secondary data for the analysis. Primary data was collected through in-depth interviews with 15 migrants, using semi-structured interview guides (see Appendix B). The semi-structured format allowed the study probe for further explanation of responses and explore new themes that came up in the course of interviews. In addition, secondary data was gathered from existing studies, assessments, and journal articles on remittances. Similar studies on remittance channels, conducted in Europe, Asia, and Africa were consulted and their findings helped in defining the variables and methodology for this study. They also provided background data and useful insight on the dynamics and effects of remittances. 3.3. Sampling Strategy To enable targetted and in-depth study of migrants’ remittance behaviour, the study adopted the purposeful sampling technique, to enable precision in identifying and selecting a unique profile of respondents with the requisite characteristics and lived experience needed to appropriately study the phenomena. Furthermore, the study employed the snowballing sampling method in contacting the respondents, which is an appropriate technique for identifying respondents, based on a set of predefined criteria, who are not easily accessible (Taherdoost, 2018). Data on Ghanaians in the diaspora, who are dispersed across different countries, is not easily available, moreover, people are often wary and reticent about discussing their finances, hence the referral-based nature of the snowballing method was essential. The snowball sampling method ensured the pre-selection of respondents who fit the predetermined criteria (see below) and are best suited for the study, in terms of their status as migrants and their experience in sending remittances via the different channels. A sample frame of 35 University of Ghana http://ugspace.ug.edu.gh 41 Ghanaian migrants was established through the website2 of the Diaspora Affairs, Office of the presidency (DAOP). Emails were sent to the 35 migrants requesting for interviews, out of which only three agreed to be part of the research. Subsequently, contact was made with three migrants who had returned to Ghana within the past three years. Then for every respondent interviewed, the researcher asked them to recommend other migrants who fit the pre- established criteria: a. Level of education: skilled (with tertiary education) and unskilled (with basic or no formal education) migrants were interviewed; b. Host country regulatory and financial framework: considering that different countries have their unique regulatory and financial framework, the study specifically included respondents from Sub-Saharan Africa, Europe and the United Kingdom, to enable a cross-country comparison. c. Gender balance: effort was made to ensure balance in the number of male and female respondents under each category in criteria (a - c) above. Despite an initial sample frame of 35, only 15 respondents were interviewed eventually. The number of respondents was deliberately kept low to enable the study explore attitudes, preferences and motivations, which entailed sacrificing breadth for depth. 3.4. Method of data collection An interview guide was developed (see Appendix B), which guided the interviews with respondents. The interview guide is divided into four sections. Section one included questions on the socio-demographic characteristics of the Ghanaian diaspora (age, gender, duration of 2 https://diasporaaffairs.gov.gh/ghanaian-associations-abroad/ University of Ghana http://ugspace.ug.edu.gh https://diasporaaffairs.gov.gh/ghanaian-associations-abroad/ 42 stay, civil status etc.); section two included questions on the frequently used remittance channel and the reasons for the preference; the questions in section three was used to explore the risks associated with different remittance channels; and the fourth section included questions on the migrant’s risk mitigation strategy and conflict resolution mechanisms of different remittance channels. 3.5. Data management and analysis Content analysis was applied to the qualitative data. Out of the 15 in-depth interviews, only nine respondents gave permission to be recorded, nevertheless, copious notes were taken for the remaining six. The recorded interviews were transcribed and coded, together with the interview notes. An initial 76 codes were identified, but following further refining, they were reduced to 20 based on (i) the research questions and (ii) recurring topics that came up in the interviews. The interview transcript and notes were then sorted in line with the codes, and eight most relevant themes in line with the research interest extracted, namely: Perception of obligations; stringent legal/financial framework; Convenience; leveraging social networks; privacy; safety nets; trust; and consequences of breaking trust (figure 3.5).Where relevant, direct quotes from respondents were used to further buttress some salient perspectives, which explain the choice of a remittance channel. University of Ghana http://ugspace.ug.edu.gh 43 Figure 3.5.1 Identified themes 3.6. Ethical consideration All research ethics were duly observed whilst conducting the study. An introductory letter (Appendix A) was obtained from the university and shared with everyone contacted for interviews. The scope and objectives of the research were clearly explained to all respondents, and they were given the opportunity to ask questions on the research topic. Recognising the need to protect the data of respondents and respect their privacy, permission was clearly sought before interviews were recorded, and the wish of respondents who did not want to be recorded was respected. Finally, to preserve the anonymity of respondents, pseudonyms were adopted in presenting their experiences. University of Ghana http://ugspace.ug.edu.gh 44 4 CHAPTER 4: FINDINGS AND ANALYSIS 4.0. Introduction This chapter presents the findings and analysis from the in-depth interviews. The findings are instrumental for responding to the research questions and fulfilling the objective of the study. The socio-demographic profile of the respondents is presented as a precursor, which helps better understand the respondent’s standpoint. The findings are organised according to the themes identified during the content analysis. 4.1 Socio-demographic characteristics of respondents The respondents were made up of nine males and six females, all of whom fall within the 30 to 65 years age bracket. This tallies with Ghana Statistical Service data (2010 as cited by Awumbila et al, 2014) which found that Ghanaian emigration is male dominated, with most migrants between the ages of 15 to 65 years old. Fourteen of the respondents were first- generation migrants (born and raised in Ghana before migrating), while one respondent was a second-generation migrant (born and raised abroad, by Ghanaian parents). Regarding family ties, five respondents had their nuclear family with them abroad, while the remaining ten had their dependents in Ghana, indicating a preponderance of transnational family relationships (Caarls et al. 2018). University of Ghana http://ugspace.ug.edu.gh 45 Table 4.1.1 Profile of respondents and their preferred remittance channel S/N Pseudonym Sex Age Education Marital status Host country Dependents Location Employment status Gene ration Legal Status Remittance channel Service 1. Adwoa F 39 Tertiary Married Nigeria Ghana Employed 1st Regular Formal Bank 2. Ben M 32 Tertiary Single Australia Ghana Unemployed 1st Regular Formal App 3. Dan M 61 Secondary Married Belgium Belgium Unemployed 1st Regular Mixed Hand- delivery, App 4. Dona F 38 Secondary Single Kuwait Ghana Employed 1st Regular Mixed Bank, Trade- based 5. Fifi F 40 Tertiary Married Nigeria Ghana Employed 1st Regular Formal Bank 6. Frank M 43 Tertiary Married Nigeria Ghana Employed 1st Regular Formal Bank 7. John M 60 Primary Married Burkina Faso Burkina Faso Employed 1st Regular Mixed Bus, MTO 8. Kweku M 33 Secondary Single Germany Ghana Employed 1st Irregular Mixed Hawala, MTO 9. Mandy F 60 Secondary Married Nigeria Nigeria Unemployed 1st Regular Mixed Bank, trade- based University of Ghana http://ugspace.ug.edu.gh 46 10. Mary F 35 Secondary Widow Algeria/ Kuwait Ghana Employed 1st Irregular Mixed Hand- delivery, DHL 11. Owen M 32 Secondary Single Germany Ghana Employed 1st Irregular Mixed MTO, Hawala 12. Sam M 30 Tertiary Single UK Ghana Employed 1st Regular Formal App 13. Tim M 40 Tertiary Married Qatar Ghana Employed 1st Regular Formal App 14. Vivian F 42 Tertiary Single UK UK Employed 2nd Regular Mixed Hand- delivery, App 15. Yendi M 63 Tertiary Married UK UK Employed 1st Regular Formal App University of Ghana http://ugspace.ug.edu.gh 47 In terms of educational status, seven respondents had primary or secondary education, which puts them in the low skilled migrant category, while eight respondents had tertiary education, putting them in the skilled category. The three respondents with irregular status were all in their thirties and low skilled, which is consistent with earlier studies which found that most irregular migrants are low-skilled migrants with fewer legal pathways for migration (Ferriani & Oddo, 2019; Higazi, 2005; Pieke et al., 2007; Ratha, 2006; World Bank, 2009). All the respondents indicated that they sent money to a family member or friend in Ghana on a monthly basis, with some respondents reporting that they sent money on a weekly basis to meet consumption needs. Even respondents who had their nuclear family members (spouses and children) with them abroad, still sent remittances to support the upkeep of extended family members and friends. In addition, three respondents remitted towards a building construction projects, and one respondent sent money towards establishing a business in Ghana. 4.2. Remittance as an obligation The transnational nature of Ghanaian families came with a sense of obligation, irrespective of the distance between the country of origin and destination (Caarls et. al, 2018). All the respondents expressed a sense of duty towards extended family members such as uncles, nieces, cousins etc. Yendi, a 63-year-old migrant, based in the UK, elaborated on this sense of obligation towards extended family members: When you are big brother and big uncle living in the UK, everybody thinks you’re rich … So for the siblings and nephews and nieces and friends and extended relations and those people who love you and care about you, anybody who knows me in Ghana could ask for help. You know how the extended African relations work, with all its pros and cons. You University of Ghana http://ugspace.ug.edu.gh 48 cannot pick and choose, it’s a package. (Yendi, personal communication, October 13, 2021). Most respondents described remittances as something they “have to” or “need to” do. The chief consideration was meeting the needs of loved ones back home. Family members, on their side, did not only expect to receive remittance from the migrant, but expected to receive it in a timely manner, to enable them meet immediate needs. Hence, despite the migrant’s effort to maintain a remitting schedule in line with their pay cycle, monthly or weekly, they were constantly faced with urgent requests, as explained by Mary, a 35-year-old migrant, who worked as a cook in Algeria before moving to the middle east. I send money every month, at the end of every month . . .but then you know families, they can call you at anytime, anywhere, ‘we are in need or this or that, we need this urgently, we need money’, then you have to send it. (Mary, personal communication, October 19, 2021). The sense of obligation towards loved ones back home manifests itself in different ways. For five of the respondents who did not have their family members (spouse and children) with them abroad, it seemed that they were under pressure to ensure a sense of normalcy at home, to cover up for their absence in the day-to-day lives of the family. Using remittances to maintain a semblance of normalcy in daily lives of transnational3 families has been described by Carls et al. (2018) as a coping mechanism utilised by migrants to “enact family life across borders” (p.9). For Frank, a 43-year-old skilled migrant, who works with an international organisation in Nigeria, ensuring that his family receives the needed support in his absence was a very important issue, to the point of negotiating a special arrangement with his employers. 3 Nuclear families with a family member in another country University of Ghana http://ugspace.ug.edu.gh 49 Before I moved, the arrangement was for my organisation to divide my salary and pay a percentage to me, and the rest goes to an account in Ghana that my wife and I are co- signatories, so the larger part goes there. I didn’t want to come here and have transfer issues. (Frank, personal communication, November 22, 2021) Adwoa, another 39-year-old skilled migrant in Nigeria, who had a similar arrangement with her employer, seemingly compensated for her absence by managing the home remotely: paying utility bills and organising birthday parties. Some months my kids have birthdays, my mum has her birthday, my friends have birthdays. I'm surprising my family with cakes and something like that, I order directly and pay by MoMo. . . Outside of upkeep, I pay my nannies and all the people that provide support for me. They need to be paid their monthly allowances. (Adwoa, personal communication, November 22, 2