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.