Why Most Ethiopians Abroad Still Avoid Banks to Send Money Home

In recent years, a quiet but steady exodus of Ethiopians has grown into a wave, driven by the pursuit of economic opportunity, safety, and stability beyond the country’s borders. Every week, thousands depart for the Gulf, Europe, or North America, often risking perilous routes for a future they feel is increasingly out of reach at home.

For many, success abroad translates into financial lifelines sent back to Ethiopia, not just for survival, but for transformation. Yet, behind the billions Ethiopia reports receiving in formal remittance inflows lies perhaps a larger, untracked economy of informal transfers, one that continues to undermine financial systems and distort real remittance potential. One report by the International Organization for Migration estimated that informal remittances accounted for 78% of all remittance inflows to Ethiopia.

Amina Mohammed (pseudonym), a 26-year-old Ethiopian nanny working in Sharjah, United Arab Emirates, earns the equivalent of over 70,000 Birr a month. Originally from Jimma Agaro in Oromia Regional State, she sends home over 40,000 Birr every two months to support her family. 

“Most of my expenses are covered by my employer,” Amina told Shega. “I’ve been able to build a home for my mother, buy my brother a rickshaw (commonly referred to as a Bajaj), and even purchase a house for myself.”

All of her transfers are made through a network of informal operators she met upon arriving in the UAE. For most Ethiopians living in the Gulf, their first few contacts become a lifeline for a slew of services, including remittance. For those who arrived through illegal channels, the lack of official resident permits and proper documentation makes formal financial channels an unviable alternative. A network of unregulated money operators commonly known as Hawala, fills in the gap.

Selam Mebratu, a housemaid living in Dubai, has had a similar experience. The single mother moved to the Middle East two years ago in search of employment prospects. Every two months, she sends a few thousand dirhams to her family, but the thought of using a bank never crosses her mind. 

“The price difference is too much,” Selam told Shega.

She explained how a thousand dirhams through a bank would translate to around 37,300 birr, while the parallel rate was 5,000 Birr higher. A man comes to her place of employment, takes the money, and within minutes, a deposit is made to an account back home

“That degree of convenience can't be matched,” Selam stressed. ” It is not only about the prices.”

While most opt for informal channels due to price differences others do so out from a mater of trust. Aside from Hawala operators, family members travelling back home provide a trusted channel for Ethiopian diaspora seeking to send money particularly to remote rural areas. 

Significant differences between the parallel market and official exchange rates have long been tension point in Ethiopia’s exchange rate policy. Eleven months ago, Ethiopia transitioned into a market-based exchange regime, which significantly narrowed the gap between selling and buying rates. However, a difference of around 25 Birr continues for currencies like the US dollar, which is enough to persuade some to opt for informal channels over financial institutions. A difference particularly striking considering how the Birr has depreciated over 100% against the dollar in the period since.

Throughout the 2023/24 financial year, Ethiopia’s government reported receiving 6 billion dollars in remittance inflows. Nonetheless, remittance earnings in the first nine months of the 2024/25 financial year were 5.1 billion dollars, according to statements Fitsum Arega Director General of Ethiopian Diaspora Services. The figures suggest a slight uptake in earnings at best, if not a dip, since the Birr was floated. 

While several companies, including the state-owned telecom giant ethio telecom, have begun remittance services, many Ethiopian diasporas appear to still rely on informal channels. High cost of bank transfers, fear of backlash from immigration authorities and taxes are part of the reported barriers. With some countries like the US considering taxation on remittance outflows, the figures could easily increase in the coming few years. President Trump’s 3.5% excise tax on remittance transfers could cause millions of Ethiopian migrants to opt for informal remittance channels.

Robel Ayele, an Ethiopian living in Belgium for the past four years has never resorted to a formal banking institution to send money back home. He fears going to a bank will catch the eye of officials who might overstate his income.

“I don’t want them thinking I am making a whole lot of money,” Robel told Shega.

He finds it easier to send the money directly to his family through a network of trusted contacts that guarantee it reaches the intended target.

With an increasing number of Ethiopians migrating to countries through informal channels, the implications of informal remittance channels has only increased in recent years. A 2023 report by the Mixed Migration Center estimates that the number of Ethiopians who entered Saudi Arabia through illegal channels might be around 450,000. Many are employed in casual occupations and other undocumented jobs, earning an income at irregular intervals. According to the Pew Research Center, the total number of unauthorized immigrants in the US labor force was 8.3 million in 2022. Over the past few years, as Ethiopia was assailed by the impacts of conflict, COVID, and drought, unknown numbers have crossed international borders illegally, potentially contributing millions of dollars to informal remittance flows. This does not just undermine remittance earnings but also risks the money flowing to organized crime groups and terrorist organizations.

Tinsae Desalegn, CEO of SantimPay, a payment operator that recently began offering digital remittance services, says the problem needs quick policy intervention. He believes that remittance flows from the Middle East particularly would rise if there was a way to channel the funds through formal means.

“Bilateral agreements between governments might be necessary,” the CEO told Shega.

SantimPay unveiled its FrankRemitt remittance service last month, which does not charge transaction fees and offers a 15% bonus on transactions. However, users need international cards like Visa and Mastercard rendering the service out of reach for most undocumented migrants.

“I think informal remittance is an area that requires deep research and policy,” Tinsae says.

Several countries have attempted to capture the billions lost through informal channels through innovative approaches. Mexico introduced the Matrica Consular in the early 2,000’s which allowed citizens living abroad to have a government-recognized identity. The cards were immediately welcomed by Mexicans living in the US, with 1.6 million cards issued in the year they were upgraded with security features. Ethiopia's central bank launched the Debo initiative in September which allocated 100 billion Birr for Ethiopian diaspora. While the move aspired to dissuade them from using informal remittance channels through incentives millions continue to flow in the shadows. Some fintech companies have recognized the potential in addressing part of the problem for Ethiopia.

Fast Pay, a US-based remittance company that began offering services over the past year, is working on tackling this issue. Amanuel Melesse, the company’s country representative, says they are developing a solution that can integrate these unknown remittance inflows into formal channels.

“Informal remittance inflows are probably equal to those coming in through the banking system,” he told Shega.

Estimates by the World Bank have also calculated that the size of the informal remittance channels accounted for around half of all inflows. Identification challenges are cited as the most crippling barrier to developing Ethiopia’s formal remittance inflow. With remittance accounting for around 5% of Ethiopia’s GDP, figuring out ways to channel the potentially billions of dollars lost in the shadows could prove extremely consequential. Innovative technology, bilateral agreements and a robust digital public infrastructure may provide the necessary foundation.