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How do countries ensure that remittance service providers – who are often serving the world’s poorest people – mitigate their risk for abuse by money launderers and terrorist organizations?
This important question is addressed by new Guidance from the Financial Action Task Force (FATF), the international standard-setting body for anti-money laundering and combating the financing of terrorism (AML/CFT).
The United Nations estimates that developing countries received over US$400 billion in remittances from migrants living abroad in 2014. These funds are often the first financial service that migrants and their families use, so it is important that people can send and receive funds with relative ease and at reasonable cost. However, remittance service providers and the governments that supervise them, must ensure that they are not abused by parties undertaking illegitimate activities such as money laundering or terrorist financing.
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An increasing number of anecdotal reports about banks’ de-risking remittances service providers and the negative impact these actions have had on the industry have been circulating within the international financial community over the last few years.
Different sources have for instance reported that banks are supposedly cutting off access to banking services to money transfer operators (MTOs) because generated revenue isn’t sufficient to offset the cost of complying with AML/CFT and other requirements.
MTOs are crucial to the international remittances industry and provide relevant services for many migrants and their families. They also help extend reach and access to remittances and other financial services since they operate in many remote locations where banks aren’t present.
The price of sending international remittances has reached a new record low in the first quarter of 2014. The global average cost of sending money across borders was recorded at 8.36 percent. This figure is used as a reference point for measuring progress toward achieving the so-called “5x5” objective – a goal endorsed by the G8 and G20 countries – to reduce the cost of sending remittances by five percentage points, to 5 percent, by the end of 2014.
Most indexes of international remittance costs – published by the World Bank in the new, ninth issue of the Remittance Prices Worldwide report, which was released on March 31 – indicate good progress in the market for remittances.
The global average cost is significantly lower when weighted by the volume of money that flows in each of the report’s country-to-country pairs. The weighted average cost is now down to 5.91 percent, following a further decline in the last quarter. For the first time, the weighted average has fallen below 6 percent.
Nearly one-third of the remittance-sending countries included in Remittance Prices Worldwide have now achieved a reduction of at least 3 percentage points. Those countries include such major sources of remittances as Australia, Canada, Germany, Italy and Japan. This is also the case for 39 out of 89 of the remittance-receiving countries.
"Project Greenback 2.0 – Remittance Champion Cities" was launched on October 29 in Turin, Italy.
A team from the World Bank's service line on Financial Infrastructure, hosting the launch event, was thrilled to welcome a room full of migrants, market paricipants, public officials, policy researchers and private-sector observers.
Since March 2013, in partnershp with the Turin city government, the World Bank team has been preparing for the launch of Project Greenback 2.0, which aims to foster the development of a sound and efficient market for remittances. The project pursues an important new approach: It focuses on remittance senders, and its priority is meeting their needs.
In the first months of our efforts in Turin, we have been working on a survey among remittance senders, and we have been mapping and monitoring the services that are available to them when they seek to send money home. The survey focused on Romanians, Moroccans and Peruvians – the most numerous immigrant groups in Turin, who together account for more than 60 percent of the city's immigrant population.
Governments and private sector actions can drive down remittance prices for migrants (Credit: DFID-UK, Flickr Creative Commons)
An estimated 215 million people – 3 percent of the world’s population – have emigrated far from home in order to earn enough to support their families. They include workers from Bangladesh who go to Saudi Arabia to work in the construction trade, Afghans who go to Iran to work in the oilfields, and workers from Burkina Faso who go to Cote d’Ivoire to work on the cocoa or coffee harvests.
Toiling far from their loved ones is not their only burden. When migrants send their money home, they are often charged exorbitant fees, which can account for a large portion of the small sums being sent - sometimes upwards of 20 percent – and can inflict a punishing burden on poor migrants.
In the old times, the post office was the main connector between cities and villages, moving letters and money to every corner of the country, and contributing towards the territorial consolidation of states under construction.
Nowadays in developing countries, the post office is often seen as an old, inefficient, deficit-making, and outdated public service which has not been able to keep up with the evolving markets. It takes some imagination to see the post office as a potential engine for economic growth and social inclusion.
Migrant workers, earning money in jobs far from home, sent more than $400 billion to their families back home in 2012. Such remittances remain a vital source of income for millions of people in developing countries: Food, housing, education, health care and more are paid for every day by workers who earn money abroad. Through a simple and repetitive transaction – sending money home – those workers are really sending heart-warming feelings like hope for a better future and love of family.
Should you ever need a haircut in South London, you would have the option to choose from a wide array of African hair stylists. There you can get your hair colored, cut, or braided, while chatting up the latest gossip in town, and... you can send money back to Nigeria.
Many stores in South London allow you to send money abroad. It looks just like a fruit market, where the sellers have to compete among each other. Aside from trying to lure customers in with the best looking apples and pears, they also keep their prices exposed.
But the world is not... ("...enough" you are thinking, if you are a James Bond fan) ...the world is not South London and remittance services are not crispy apples nor they are juicy pears. The price for sending money might include a fee, taxes, a margin on the exchange rate applied, and a commission to the receiver. And each service is different in terms of speed and extensiveness of the network where money can be picked up by the receiver. In other words, it is not as easy to compare as the price of apples.
Economists usually enjoy working on economic data and writing up reports. But Sudharshan Canagarajah also likes giving conventional economic thinking a nudge — in this case, on migration.
As the World Bank’s Lead Economist for Tajikistan, Sudharshan noticed that Tajiks were on the move. In response to the country’s various crises, they sought new opportunities, mainly in Russia. They had no support from government, and little attention from donors, but the money they sent home created a huge economic impact.
Minneapolis has the largest Somali population in the US. Sending remittances to Somalia was put at risk late December when the Sunrise Community Bank in Minneapolis announced that it was going to close the accounts of all Somali remittance companies on December 30th 2011.To our knowledge, the Sunrise Community Bank was the last bank that was serving Somali remittance companies in Minneapolis. Closure of accounts meant no operation for remittance companies. This in turn meant no money for remittance-dependent Somalis, who had no other options since remittance service providers such as Western Union and MoneyGram didn’t operate in Somalia. Aid groups lobbied to challenge the closure, and their petition reached all the way up to President Obama.