THE Central Bank of Kenya said yesterday the local international money transfer service is underperforming due to high cost of transaction, integrity issues and lack of competition.
The governor Njuguna Ndungu said past regulatory barriers crippled the entry of potential international money transfer service providers. He said the lack of world class infrastructure has led to the low penetration of the remittance services In Kenya adding that the adoption of international best practices in money remittance systems will increase consumer trust.
He said they are enforcing the money remittance regulation passed in April last year in order to harness international remittances as a key source of capital inflows for the country.
"The government recognizes the importance of remittances in boosting development. The regulation provides for the removal of entry barriers and formalization of money remittance sub sectors," he said during the launch of RIA international money transfer service by Postbank, in Nairobi.
He said the regulation has helped to counter money laundering and terrorism financing and the CBK has so far licensed seven stand alone remittance providers.
The latest CBK data on diaspora remittances show that remittances to Kenya increased by 8.6 percent, to $119.7 million (Sh10.5 billion) in May 2014 up from $110.1million (Sh9.66 billion) posted in a similar period last year.
According to the governor, the cost of transacting takes 11.55 per cent of the total money remitted. "We attribute the high cost of transacting to high service fees and foreign exchange conversion fees," he said.
Ndungu said Kenya has been previously profiled a high risk destination for international remittances due to poor money transfer infrastructure adding: "The Financial Action Task Force upgraded the country's anti money laundering and counter terrorism finance regime two months ago.
"Country risk is a major contributor to high transaction cost. The upgrade has lowered Kenya's risk and we will use this benchmark to lower the cost of transacting money internationally," he said.