Black market remittances thrive in SE Asia
Black market remittances thrive in SE Asia
Yasmine Yahya, Agence France-Presse, Singapore
Once a month, Nisha sends the money she saves from her job as
a maid in Singapore to her family back home in Sri Lanka.
But like millions of her fellow Asian migrant workers, she
does not use a bank. She gets an unlicensed remittance agent in
Singapore's bustling Little India district to send the money to a
collection point in Colombo.
An underground remittance market is thriving in Asia as
overseas workers continue using informal channels to send money
home despite governments' efforts to regulate and police the
multibillion-dollar industry.
The global remittance market is estimated to be worth S$95
billion, much of it within Asia or involving Asian workers in
other continents -- and that figure only takes into account
official transactions.
Governments and financial regulators are seeking to formalise
the underground part of the industry in order to promote national
development and prevent criminals and terrorists from exploiting
the black market.
For most of the 1990s, remittances exceeded official
development assistance, the World Bank said in its 2003 Global
Development Finance report.
But economists say remittances can be only be tapped
effectively for national development if sent through official
banking systems.
"Remittances sent through formal channels will enable the
receiving person to leverage it," said Nimal Fernando, a rural
finance specialist at the Asian Development Bank (ADB) based in
Manila.
"Banks know that a regular flow is coming based on past data.
Banks can offer credit based on this for productive purposes, say
for housing or microenterprises.
"The person who receives money can also save a part of the
amount on a systematic basis to improve household welfare. Money
can be diverted to education of children on a more systematic
basis."
On the other hand, money transferred through an informal
system is sent and received in the form of cash, usually
resulting in immediate consumption.
These informal transfers involve asking a friend or relative
who is returning home to bring the money along with them, or
employing the services of unlicensed remittance agents or
networks that act as intermediaries.
Such networks have always been worrisome to governments and
financial authorities as they have often served as covers for
money laundering syndicates.
But now, there is the added fear that they could also be
funneling funds to terrorist groups.
Investigations conducted after the Sept. 11, 2001 attacks in
the United States pointed the U.S. government to the "hundi"
system, a money transfer service through which perpetrators of
the attacks allegedly received funding.
The system, especially popular in the Middle East and the
Indian subcontinent, consists of a network of intermediaries who
send money directly to the recipient's doorstep, or a collection
office, for a low charge.
Governments have mounted various attempts to encourage
citizens working overseas to make use of official banking systems
to send money home.
The efforts so far have shown encouraging results.
Raids carried out on hundi centers, especially in the United
States and Britain, contributed to the sharp increase in the
formal flow of remittances between 2001 and 2002 in Pakistan,
from $1.1 billion to $2.4 billion, according to an ADB
newsletter.
The increase was also brought about by government incentives,
which promised benefits such as free issuance and renewal of
passports to Pakistanis who remitted at least 2,500 dollars
through official channels.
In Bangladesh, the crackdown on the hundi system, as well as a
reduction in the commissions on remittances, improved banks'
efficiency, while incentives to workers who sent money through
banks boosted the official remittance flow by 21 percent between
2001 and 2002.
The Philippines, ranked third among developing country
recipients of workers' remittances, has attempted to capture
remittances by establishing Filipino bank branches in major
destinations like Singapore and Hong Kong.
While some governments are using the carrot, others are
turning to the stick. South Korean migrant workers are required
to remit at least 80 percent of their earnings through the Korean
banking system to qualify for an exit permit.
While this has worked for South Korea, attempts by the
Philippines, Thailand, Pakistan and Bangladesh to implement
similar laws have failed because much of labor migration occurs
outside of government influence.
But despite the various government efforts, many workers are
still clinging to the underground way of moving money.
Although official remittance flows into Pakistan have
increased, senior bankers in the country estimate the actual flow
to be between $8billion and $10 billion, geography professor
Graeme Hugo wrote in a report for the International Organization
for Migration.
In Bangladesh, a study published by local newspaper The
Independent in 2002 found that 40 percent of remittances were
still being sent through the hundi system.
This is due to the efficiency of informal networks. An ADB
report on Bangladesh said the hundi system is dependable as it
works on the basis of trust and goodwill.
"Hundi operators also maintain complete secrecy of transaction
and thus ensure safety from theft or robbery. Sending money
through hundi is also more profitable as the remitters get a
premium rate of exchange, which is often significantly higher
than the official rate," the report stated.
The inefficiency of official channels compounds the problem.
"Absence of investment opportunities, political instability
and inadequate social security discourage the inflow of
remittances through the official channels," the report said.
In Singapore-based maid Nisha's case, it is simply a matter of
economics. The official exchange rate used by a bank would value
the S$300 Singapore ($178) that she remits each month at 14,400
Sri Lankan rupees, while her underground agent converts that to
17,100 rupees.
"The Sri Lankan government tells us to use the banks, but
people just don't want to," she said.