A handful of firms are exerting a stranglehold over the global remittance industry by charging huge fees on money sent from friends and family abroad, choking an annual half a trillion dollar lifeline for countries that face sweeping economic challenges.

Remittances generate three times more money every year than the total global aid budget, according to the World Bank, which projects that $436bn (£261bn) will be sent overseas this year.

The value of transfers often overshadows huge sectors of a country’s economy: Filipinos, for example, received $25bn in remittances last year, eclipsing the total value of the country’s $22bn electronics industry. In Vietnam, cash transfers worth $11bn nearly equalled all petroleum exports, which were valued at $12bn, according to World Bank data.

But fees of up to 29% are still being charged on money transfers between some countries, despite a pledge by the G8 at the L’Aquila summit in 2009 to halve the world’s mean remittance fee to 5% (pdf). Such a reduction would save poorer countries as much as $16bn a year, the World Bank says.

The average transfer fee is more than 8% (pdf). The average surcharge from the G8 group of rich countries is just 0.5% lower, with Japan the most expensive country to send money from, and Russia the cheapest.

There are five “corridors” – a country to country transfer – with an average fee higher than 20%, all of them in Africa. Migrant workers in South Africa, for example, paid an average of just over 23% in fees on the money they sent to Botswana in 2012, making it the most expensive remittance channel in the world. Sending money from South Africa to Mozambique was the second most costly channel, with an average 22% fee imposed on transfers.

“Forcing migrant workers to pay as much as $50 to send $200 is wrong, especially when they are sending salaries they have earned in the hope of supporting their families back home,” the World Bank said in a report. “Two-hundred dollars often is a very significant sum for migrants’ family income.”

The World Bank said: “These funds would simply remain available to migrants and their families and could contribute significantly to improving the living conditions of the migrants themselves as well as reducing poverty in their countries of origin.”

Experts say the price of sending money is inflated by two companies – Western Union and MoneyGram – which hold a duopoly over the global industry.

Maria Quattri, co-author of a recent report by the Overseas Development Institute (ODI) on Africa’s remittance sector (pdf), said regulatory reforms in the EU and the US, coupled with parallel reforms in Africa, are needed.

“Financial regulators should investigate whether or not money-transfer operators are securing unreasonable margins on transfers to Africa by exploiting their market power. Several central banks and competition authorities in Africa have taken up the issue and the L’Aquila targets showed political commitment, but our sense is that far more could be done,” she said.

“Fundamentally, the problem comes down to three related issues: lack of competition, insufficient transparency and restrictive business practices.

“African governments should revoke exclusivity agreements that bind banks and agents to certain money-transfer operators. These are sole-use agreements which stipulate that once a bank or agent works with, say, Western Union or MoneyGram, they cannot work for other providers. This in turn restricts entry into the marketplace.”

Other money transfer operators agree. “Western Union and MoneyGram are ubiquitous and that dominance has allowed them to dictate terms in many markets – in some cases imposing punitively high fees,” said Ismail Ahmed, chief executive of online money transfer firm WorldRemit.

Euros and dollars. Kofi Annan has described remittance fees to Africa as ‘unethically expensive’. Photograph: Christopher Furlong/Getty Images Photograph: Christopher Furlong/Getty Images

In the 2014 Africa Progress Panel report (pdf), chairman Kofi Annan said remittance fees to Africa were “unethically expensive”, adding that sending $1,000 to Africa costs consumers an average of $124, eclipsing the global average of $78 and south Asia’s average $65 fee.

“That is not simply varying logistical costs – there is exploitation going on,” Ahmed said.

But Carl-Olav Scheible, MoneyGram’s executive vice-president for Europe and Africa, dismissed this allegation. “To imply that MoneyGram is part of a duopoly would mean that we have a large share of the African remittance market. In reality, MoneyGram’s market share of inbound African remittances is less than 15%, and over 85% of our agent locations are non-exclusive,” he said.

“The funds that MoneyGram retains from the fee cover the costs of compliance, customer service, operations, technology and global funding and settlement, all of which are essential for the secure movement of funds on behalf of our customers.”

A Western Union spokeswoman said: “Our pricing varies between countries depending on a number of factors, such as consumer protection costs, local remittance taxes, market distribution, regulatory structure, volume, currency volatility and other market efficiencies. These factors can impact the fees and foreign exchange rates offered by corridor and service type.

“Western Union has operated in Africa for nearly 20 years and has delivered much-needed services to individuals looking for fast, convenient and reliable ways to send money to family and friends.”

“Remittances are essential for peoples’ livelihoods,” Ed Pomfret, a policy manager at Oxfam, said. “In Somalia, around 40% of people receive money from loved ones abroad and they spend this on essentials like food, medicine, clothes and schooling. Around 3 million people in Somalia are in humanitarian crisis, and we can be sure that without the money from loved ones abroad, many more would fall back into need.”

Last year, a legal battle between Somali remittance firm Dahabshiil and Barclays highlighted the humanitarian value that small cash transfers bring to the developing world: for some, remittances are their only means of survival.