Informal Remittance Research Articles

Why Only Scrutinise Formal Finance? Money Laundering and Informal Remittance Regulations in Indonesia

Why Only Scrutinise Formal Finance? Money Laundering and Informal Remittance Regulations in Indonesia

The Magnitude Of The Informal Remittances Flow To Kenya: An Augmented Gravity Model Approach.

Background: In Kenya remittances are now a proper source of external finances. Kenya received $4.19 billion in form of diaspora remittances in year 2023. Over the years, remittances are proving to be more stable, well diversified and are promising more growth relative to foreign direct investments, official development assistance, private capital and exports. On the micro scale the remittances are helping achieve Kenya’s developmental goals of having a globally competitive human resource and an adequately and decently housed population as outlined in the country’s development blueprint - The Kenya Vision 2030. Though the remittances are these important, official remittance data in Kenya, as well as in many African countries, only include remittances sent through formal channels such as banks and Money transfer Operators. Remittances through the informal channels such as hawalas and hundis are not recorded. This means that the recorded remittances are grossly understated impeding the capacity of policy makers to design appropriate policies aimed at encouraging remittances. The study employed panel data analysis and a thought experiment on remittance data between 2013Q1 and 2022Q4. Through a thought experiment, the study asks what impact a reduction of the costs of sending remittances would have on remittances if the transaction costs were reduced to that of the informal channels of sending remittances. The analysis revealed that the size of the informal remittances in Kenya is between 20% and 26% of the formal remittances. On the determinants of remittance flows to Kenya, the study establishes that Kenyan migrants send more when the economic freedoms and economic conditions improve in their host nations but send less when economic freedoms back at home improve. Accurately measuring informal emittances in Kenya is vital for creating effective government policies. This data would reveal the true extent of remittances' impact on the economy, allowing policymakers to develop strategies that fully utilize their potential for development. By encouraging people to send money through official channels, the government can increase tax income, improve access to financial services, and better monitor these transactions. Additionally, understanding the size of informal remittances is essential for combating financial crimes like money laundering and ensuring that resources are used efficiently

Are remittances “resilient?” Evidence from Sri Lanka between COVID-19 and the crisis

Remittances have been characterized as resilient flows of capital that provide financial relief to migrant households and emerging economies during downturns, crises and other periods of hardship. This article examines patterns of remittance transfer to Sri Lanka between January 2020 and December 2022, drawing on Central Bank statistics and online remittance surveys with migrant workers to test prominent assumptions about the drivers of remittance behavior. Findings indicate little evidence to support explanatory factors linked to the resilience hypothesis, instead pointing to the likelihood that fluctuations in official remittance figures reflect shifts between formal and informal remittance channels.

Examining the Impact of the Hundi System on the Economy of Bangladesh: Evidence from the Northern Area of the Country

"Bangladeshi law forbids the use of the informal remittance system known as “hundi.” It is not supported by law. The purpose of this study is to comprehend the benefits and drawbacks of Bangladesh’s Hundi system. Data from 400 respondents in total were used to assess the survey results. The research was conducted using both a qualitative and quantitative technique. The research employed purposive and snowball sampling. Descriptive statistics revealed that three-fourth of the hundi consumers, 40% of the hundi business operators, and 67% of the key informant’s transacted money to India only, and the rest transacted to India, Nepal, Bhutan, and Sri Lanka. All the respondents transacted a huge amount of money to the above countries for the purpose of business, treatment, education and migration. The consumers provided and the business operators took commissions at a rate of 2-10 Taka for money transaction. To transact money via hundi, majority of the respondents did not require to submit/have any document, whereas a few required to provide/have NID and mobile or bank details. The respondents brought goods/ products through hundi, and goods/products were cosmetics, stones, Agri products, medicine, bicycle/ bike parts, electronic products, spices, cow, fish, and Sharee. Majority of the consumers felt comfortable sending money through hundi, and majority of the respondents suggested to provide business license/ legal basis to the hundi business. The findings and associated policy recommendations are deemed helpful to understand the impact of hundi system on Bangladesh economy. The findings of this project would help the policy makers and planners formulate appropriate policy and programs regarding hundi system in Bangladesh."

Digital Disruptions in the South Africa–Zimbabwe Remittance Corridor During COVID-19

The impact of the COVID-19 pandemic on migrant remittances has generated a great deal of confusion and debate. This article aims to test three conflicting global and local narratives about the relationship between the pandemic and remittance flows in the South Africa–Zimbabwe remittance corridor. We refer to these as remittance pessimism, remittance resilience and remittance rerouting narratives. The article presents the pre-pandemic background context of migration from Zimbabwe to South Africa, the evidence for a shift from informal to formal remitting during the pandemic, and the implications of the remittance rerouting narrative for other corridors. We find that many Zimbabwean migrants in South Africa experienced severe economic impacts including unemployment, income loss and lack of access to COVID-19 relief measures. We conclude that there was a significant increase in formal, primarily digital, remittances during the pandemic and a decline in informal remittance conveyance. We highlight the need for more research in other remittance corridors to identify similarities and differences between them in terms of COVID-19 impacts and the shift from informal to formal remittances enabled by digital platforms.

Impact of informal remittance channels in Bangladesh: Understanding the role of hundi in financial crime beyond economic aspects

Despite the existence of legal and regulated systems, a significant proportion of Bangladeshi immigrants choose to utilize informal channels for the purpose of transferring funds. This practice has the potential to result in macroeconomic ramifications for Bangladesh. The rise of Hundi in Bangladesh has emerged as a noteworthy economic issue in recent times, particularly owing to its detrimental impact on the nation's foreign reserve and its utilization as a conduit for money launderers to unlawfully move funds abroad. The primary objective of this research is to analyze the implications of Hundi as a means of facilitating illicit financial operations. This study utilizes a qualitative research approach and a purposive sample consisting of 16 hundi dealers, 23 customers, and 7 senior bank officials working in the banking intelligence sector to investigate the hundi system's role in money laundering, despite the difficulties in accessing influential hundi dealers involved in significant transactions. The findings underscore the adverse economic consequences of Hundi, as it bypasses formal channels, thereby failing to contribute to Bangladesh's foreign reserves. Furthermore, it points out the exploitation of Hundi as a means for money laundering, enabling the assimilation of illicit funds into the legitimate economy, and supporting unlawful endeavors such as overseas property acquisition. The recommendations put forth suggest the implementation of strategies to enhance digital transactions, the establishment of a dedicated remittance application, and the design of a user-friendly agent banking system within the formal banking sector.

Remittance Modality: Unpacking Canadian Money Transfer Mechanism Choices

Numerous international development targets aim to encourage and formalize remittances, because they can support development efforts while controlling and monitoring illicit capital flows. Despite continued efforts to promote formal remittance channels, informal remittances flourish among specific population groups. This study uses data from the Canadian Study on International Money Transfers to analyze the determinants of remittance modality or channel choice. Previous empirical work tends to classify remittances as either formal or informal. In contrast, this article considers a variety of channels. It shows that the dichotomization of formal versus informal remittances masks crucial differences across remittance channels. Due to Canada's unique geographical positionality, cash transfers operate distinctly from informal methods despite often being treated as a homogenous group in other studies. Interestingly, remitters are also more likely to use formal money transfer operators (most of which offer cash pickup options to recipients) than informal channels to send funds to countries with larger informal sectors. Within the context of Canadian remittance outflows, this invalidates the frequent assumption that more informal destination country economies push remitters to opt for informal transfer methods.

The role of formal and informal remittances as the determinants of formal and informal finan-cial services

Research background: The choice of financial services and remittances are important as they influence the livelihood of remittance recipients, who are mostly poor and financially excluded. In literature, extensive evidence suggests a positive impact of the size of remittances on access to financial inclusion and financial development of remittance-recipient countries. However, a concern of such studies is that they might provide a biased outcome as the available data of remittances tend to be formal, whereas informal remittances are difficult to observe. Hence, their evidence might not be applicable in developing countries where remittance transfer via informal channels is very popular. Purpose of the article: The main objective of this study is to examine the effect of the remittance channel (formal and informal) on the choice of formal, informal financial services of credit and savings of remittance recipients. Methods: As our dependent variable is a financial service which is a categorical variable (formal and informal), the paper will employ a multinomial logistic regression model to estimate the impact. The data employed in this analysis is from the Finscope survey conducted in Myanmar in 2013 and 2018. Myanmar is the best context for our study, as it is one of a big migrant-sending countries and a developing country whose financial sector is significantly underdeveloped. Findings & value added: Our findings show that formal remittances promote the use of formal financial services such as credit and savings. However, there is no evidence regarding women recipients` informal channels and formal financial services. Our evidence also suggests there is a need for the government to encourage migrant workers to transform informal remittances into formal ones by removing the barriers of formal remittance channels to promote the use of formal credit and saving among remittance-recipients who are poor and financially excluded.

Interactive effect of exchange rates with remittance on informal remittance channel: a dynamic analysis

Purpose- It has been commonly observed that remittance flows to low- and middle-income countries surpassed overseas development assistance. It is also often noted that the sums remitted through formal channels represent only a fraction of total remittances: a large though unknown amount of funds finds its way to families in migrants’ areas of origin through informal channels. In Nigeria for instance, there is high prevalence of informality and the country currently has multiple exchange rates and adopts the managed floating exchange rate system. The objective of this paper is to examine whether multiple exchange rate has been an incentive for the popularity of unsafe informal channels in the remittance ecosystem of Nigeria. In order to achieve the objective, this study examines the interactive effect of exchange rate with remittance on informal remittance channels in Nigeria. Methodology- Annual time series data were employed for the study. The data spanned the period 2004 to 2020 and were sourced from Index Mundi.com and the Global Economy.com. Autoregressive distributed lag (ARDL) model was used to analyze the data. Findings- The interactive term i.e., LOGOEXC*LOGREMR (official exchange rate * personal remittances received) has positive and significant influence on informal remittance channel only in the short run. Conclusion- Exchange rate has been an incentive for the popularity of unsafe informal channels in the remittance system of Nigeria. The implication is that government must carry out exchange rate reforms, including a unified market-clearing rate that reduces the gap between official and parallel market exchange rates which would enhance sending remittances through formal channels. Keywords: Exchange rates, remittance, commercial banks, autoregressive distributed lag (ARDL), Nigeria. JEL Codes: B26, C51 F31

Financial Sector Development and the Preference for Informal Remittance Channels: Evidence from Bangladesh

The potential socioeconomic benefits of remittances remain untapped as a large portion of remittances is transferred through informal channels worldwide. In this paper, we explored the effect of the financial sector development in the home country on the preference for informal remittance channels using a nationally representative household dataset from Bangladesh along with subdistrict level data on bank branches. However, the identification of the effect of the banking network on the choice of remittance channel is challenging due to the unobserved heterogeneity problem. We circumvent this problem by using an instrumental variable (IV) approach. We found that greater accessibility to the banking network at the subdistrict level significantly reduces the use of the informal remittance transfer channels: a 10% increase in the availability of the total number of bank branches reduces the probability of using the informal channels, at least once, by 1.79% and hundi by 2.3% on average. The results are consistent and robust across different specifications and estimation methods. The main policy implication of this result is that the expansion of bank branches can enhance the inflows of remittances through formal channels and thereby can magnify the macroeconomic benefits of remittances globally.

The Impact of Remittances on the Trade Balance: Empirical Evidence from North Macedonia

The impact of remittances on various economic indicators has been analyzed for many developing countries, however, there is little evidence about their impact on the trade balance. For North Macedonia, remittances play an important role because they completely compensate the trade deficit, but on the other hand these remittances are expected to affect the trade deficit, because a large part of these remittances is oriented for further consumption. This paper aims to examine the impact of remittances on North Macedonia’s trade balance using quarterly data for the period Q12003 - Q32019. Like many developing countries, North Macedonia’s economy relies heavily on remittance flows making it an interesting laboratory for the research question at hand. We differentiate between formal remittances, as measured by workers’ compensations and informal remittances, as measured by private current transfers. We find that private current transfers have a significant impact and improve the trade balance, whereas workers’ compensation significantly worsens the trade balance. In addition, our results show that inflation worsens the trade balance and past trade rates themselves affect current trade rates. These results point to the need for a more accurate measure of remittance flows in official statistics to be able to capture the full extent of their impact in various economic indicators of a country.

Re-branding remittance fee reduction policy goals: from combating terrorist financing to poverty alleviation

ABSTRACT After the 2001 9/11 terrorist attacks in New York, attention to informal migrant remittance flows were increasingly seen as a tool for terrorism financing due to their lack of oversight. After increased regulation was deemed to have the adverse impact of reducing the appeal of formal alternatives, security scholars and practitioners resorted to formalisation policies through transfer fee reductions that make formal options more accessible. In international development circles, similar policies gained traction. International commitments, such as the Sustainable Development Goals (SDG 10c) and objective 20 of the 2018 Global Compact for Safe, Orderly and Regular Migration, aim to lower transfer fees to promote remittance growth and alleviate poverty. This article scrutinises the shift in remittance policy framing, primarily driven by security concerns, to promote development. Findings suggest the 9/11 terrorist attacks provided the punctuation that gave institutions the policy tractability to act upon pre-existing privatisation motives within Bretton-Woods institutions. The findings contribute to the understanding of policy creation and the cross-pollination of policies in the security-development space.

Estimates and economic analysis of informal remittances for Pakistan

While inflow of remittances through informal channels are widely discussed in terms of their opportunity cost for the recipient country and likely instrument of illegal activities, the size of such inflows is indeterminate. Pakistan is on the forefront of global efforts to curb hawala transactions yet no consistent estimates are available. This study attempts to use an indirect macroeconomic approach to estimate hawala transactions from United State of America (USA), United Kingdom (UK), and Saudi Arabia (KSA) for the period 2010Q3 to 2019Q2. These three countries host around 50 percent of Pakistani emigrants and account for almost 55 percent of total remittances received in Q1FY20. Our estimates show that hawala transactions have significantly declined in Pakistan as percentage of official remittances from all three countries. This demonstrates that the enhanced monitoring, regulations and various policy measures by the Government of Pakistan have proved instrumental in reducing hawala transactions over time.

Epistemic Challenges in the Studies of Remittances: Denomination and Ostensive Definition in the Exploratory Research on Informal Value Transfer System

There are certain areas of study in which researchers deal with and even create a plethora of terms. The Informal Transfer of Values Systems (IVTS) are one of these areas. There are many terms available in the lexicon of research on IVTS around the world, such as hawala, hundi, fei ch’ien, encomenderos etc. The informal remittance system, typical of Venezuelan migration, appears to be located in the grey zone between the large irregular money transfer markets and the modest, informal systems allowing money transfers to people who are struggling in their countries. That is why it is important that Venezuela’s IVTS receive a unique label. In search of an appropriate label that reflects the peculiarities of Venezuela’s IVTS, it is important to pay attention to the linguistic aspects that come with the epistemological challenges. Almost a century ago, the philosopher Ludwig Wittgenstein highlighted the importance of the ostensive definition to make sense of the words we use ordinarily. Without neglecting his epistemological warnings, this article argues that migration studies have advanced in expanding their own terminology, in a relatively consistent way with the Wittgensteinian linguistic approach.

“Underground banking” and Myanmar’s changing hundi system

PurposeThe purpose of this paper is to examine Myanmar’s “hundi” system, an informal value transfer system used widely by local Myanmar citizens and offshore migrant workers to remit money domestically and internationally. Due to historically stringent banking and foreign exchange controls and a lack of domestic and internationally linked financial services, the system grew to become the dominant medium for remittances in Myanmar. It also remains unregulated despite authorities acknowledging its use in criminal and terrorist activity. However, with an expanding and modernising financial sector, there is now increasing competition and challenges facing Myanmar’s hundi system.Design/methodology/approachThis paper draws on available literature and open source reporting, as well as interviews with former Myanmar Police Force officials.FindingsThis study provides a unique insight into Myanmar’s hundi system, its history and the challenges it faces. The once dominant system remains a known anti-money laundering and countering the financing of terrorism (AML/CFT) risk and is having to compete with an expanding and modernising formal banking sector and the introduction of fintech and mobile money services. In the short term, these are unlikely to eliminate the hundi system completely, but may instead push hundi operators towards adopting these networks and technologies in their own operations.Originality/valueMyanmar remains a very under-researched area and there has been a limited focus on its informal hundi remittance system and related AML/CFT issues. This paper will be a useful source for academics, development professionals, policymakers, law enforcement agencies and private sector actors seeking to understand Myanmar’s informal remittance system.

Irregular migration, informal remittances: evidence from Ethiopian villages

Although Ethiopia has seen a reduction in refugee flows over the past decade, documented and undocumented labour migration has significantly increased. International migration has changed from that born out of conflict to irregular migration mainly driven by economic reasons. The source of migrants has expanded from urban centres to include rural areas, making them an important source of low-skilled labour for the international labour market. Based on a qualitative study, this paper explores the process and pattern of Ethiopian migration to South Africa, an emerging destination in the global South. This migration corridor is increasingly characterised by its irregularity. The paper also reflects how migration patterns shape the pattern of remittance flow, along with the way in which migrants and their networks substitute the function of financial institutions engaged in the remittance industry. It also highlights the features of remittances utilisation in emerging rural migrant community in Southern Ethiopia.

Evolving informal remittance methods among Myanmar migrant workers in Thailand

ABSTRACTIn the Thailand–Myanmar remittance corridor, while the bulk of Myanmar migrant workers rely on informal money transfer operators, the informal operators themselves utilise a bank branch network to deliver funds to families of the migrant workers. Paradoxically, the expanding bank branch network has fostered informal money transfers. Against this backdrop, we examine determinants in migrant workers’ choice of informal operators based on a questionnaire survey of Myanmar migrant workers in Thailand. The empirical results indicate that migrant workers who sent remittances to town were, while having alternative choices of remittance operators, more likely to choose the informal operators that utilised bank branches for delivery of funds to recipients. It implies that expanding the branch network of Myanmar banks is conducive to competition among informal money transfer operators.

Remittances, mobile phones and informality: Insights from Cameroon

Research on mobile phones abound. However, the use of the mobile phone as an informal value transfer mechanism has received little attention. This paper attempts to fill this lacuna in academic literature by focusing on the ‘why’ and ‘how’ of ‘airtime remittances’ in Cameroon. The paper shows that remittance mechanisms are embedded in social relations, and sheds light on the social meaning of informal remittance sending practices. It argues that although formal and informal remittance channels may be conceptually mutually exclusive, in practice they are interrelated. Depending on the local context, formal and informal remittance mechanisms may be mutually reinforcing.

Kinship Care and Transnational Parenting: The Intersection of Cultural Values and Practices

This study uses ethnographic research to examine the phenomenon of transnational parenting by migrant mothers from the African Caribbean community and their family who care for the mothers’ children. Twenty women’s narratives demonstrate the complexity of relationships between migrant mothers living and working in New York City and their extended family or kinship caretakers who coparent their children in their countries of origin. The study reveals three main factors that contribute to the success of transnational parenting: (1) informal kinship care-child fostering, (2) remittances, and (3) social networks. Policy and practice implications are explored.

Ethnic Networks and Illegal Immigration

Illegal immigration through human smuggling originating from the Fujian Province, China, has become a global issue, affecting at least 30 countries. The empirical research on the financial element of illegal immigration suggests the important role of an underground banking system. This study examines the role of ethnic networks in sustaining the operation of Chinese-operated informal fund transfer systems in the United States. The primary source of data is from in-depth interviews with illegal immigrants in New York City and Philadelphia. The findings show that as opposed to lineage-based networks, the networks based on regional dialect allowed illegal Fujianese immigrants, as well as underground bank proprietors, to take advantage of social capital inherent in the expatriate ethnic community. The high levels of trust between underground bank proprietors and their clientele can be understood as resulting from ethnic solidarity and enforceable trust. These features are found to be troublesome at the community level because the research findings illustrate that a community of high ethnic interactions espouses a deviant culture or norms that encourage widely accepted but illegal practices. 1There is a lack of consensus on terminology relating to informal financial systems. The often used terms include “informal funds transfer systems,” “alternative remittance systems,” “underground banking,” “ethnic banking,” and “informal value system.” A more detailed description of these systems can be found in El Qorchi et al. (2003). Some scholars argue that a distinction should be made between “informal funds transfer systems” (IFTS) and “informal value transfer mechanisms” (IFTSM), two different types of informal remittance system. See El Qorchi et al. (2003), Maimbo (2003), Passas (2003). Both refer to “mechanism or networks of people facilitating the transfer of funds or value without leaving a trail of entire transactions or taking place outside the traditionally regulated financial channels” (El Qorchi et al. 2003). However, IFTS is mainly used for pure monetary value transfer carried out by ethnic businesses. The practice was widespread in sub-continental India and China and now their services are available across the globe. They are subject to financial regulations applicable to money services businesses. Examples of IFTS include the hawala system (prevalent in India and the Middle East) and Chinese underground banking systems (Qianzhuang in Chinese). IFTSM refers to the transfer of value in the form of goods, or a combination of goods and money, for their monetary value. Examples of IFTSM include in-kind transfers/payments, invoice manipulation, trade diversion, etc. They usually have interface with the formal banking institutions, but leave no money trail. See Maimbo and Passas (2004). The IFTS is used in this paper to stand for Chinese-operated informal remittance transfer systems.