Diaspora (Commonwealth Union) _ Senegal’s Prime Minister, Ousmane Sonko, recently revived a proposal to establish a bank specifically for the Senegalese diaspora. This initiative is designed to channel the substantial remittances sent by Senegalese expatriates into impactful and sustainable development projects, as reported by Ecofin agency.
The Senegalese diaspora sends over $2.9 billion back home annually, which constitutes around 12% of the country’s GDP. This figure surpasses both foreign direct investment (FDI) and public development aid. Speaking in Matam, a city approximately 620 miles from Dakar, Sonko highlighted that the proposed diaspora bank would enable better management of these financial flows. “Under President Bassirou Diomaye Faye’s program, we plan to launch a bank for the diaspora. They transfer around 1,500 billion CFA francs each year, more than the public aid received,” Sonko remarked, referencing the $1.4 billion in aid received in 2021.
Remittances play a crucial role in providing foreign currency for Senegal, heavily relied upon to support the national economy. In 2023, these transfers reached $2.9 billion, as reported by the World Bank. This amount is significantly higher than the $2 billion in foreign direct investments, which are more volatile and susceptible to global economic fluctuations. Remarkably, remittances remained relatively stable even during the COVID-19 pandemic.
Currently, most of the funds sent by the diaspora are used for immediate needs such as food, housing, and education. The government now seeks to redirect these resources toward more sustainable projects, including small and medium-sized enterprises (SMEs), real estate, and social infrastructure.
A key objective of the new diaspora bank is to reduce the high costs associated with money transfers. Despite advances in digital technology, these costs remain substantial. The World Bank notes that the average fee for sending $200 to sub-Saharan Africa was 6.4% in late 2023, well above the Sustainable Development Goals’ target of 3%. Traditional banking methods accounted for higher fees, averaging 7%, compared to 5% for digital transfer methods in 2023.
The proposed diaspora bank could also help formalize these financial flows and leverage them for economic development. Nearly 60% of Senegalese SMEs, which constitute 90% of the economy and generate 60% of jobs, face challenges accessing credit. The new bank would offer loans at favorable rates to support entrepreneurial initiatives and social infrastructure projects.
Dakar is hopeful that the institution will attract more national capital, reducing Senegal’s heavy reliance on foreign funding, which currently makes up over 60% of public investments.
The concept of a diaspora-focused bank is not new and has been implemented successfully in other countries. Ethiopia, for example, has the Commercial Bank of Ethiopia, which offers foreign currency accounts and investment products for its diaspora. In 2023, remittances from Ethiopians abroad reached $6 billion. Similarly, Morocco, through BMCE Bank, provides tailored financial services to Moroccans living overseas, enabling access to real estate and SME investments. In 2020, remittances to Morocco totaled $11.7 billion.
Countries like India and Israel have also issued diaspora bonds, raising $11 billion and $35 billion, respectively, for public infrastructure. Nigeria and Ethiopia have had success with similar approaches.
However, challenges persist. Some Senegalese in the diaspora remain cautious of local financial institutions due to previous experiences with poorly managed investments, especially in the real estate sector.
