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Banks urged to protect diaspora remittances

‘ENGAGE’: Gibril Faal

FOR AGATHA, a former nanny living on the Caribbean island of St Vincent and the Grenadines, money from her son in the UK is her only source of income.

“I don’t have a pension and I am unable to work because of health problems. All I have is what I get from my son. Without this money I can’t pay for my medication, electricity, water and gas and I can’t buy food. It is as simple as that.”

The 65-year-old is one of millions in the Caribbean and Africa who survive on remittances – money transfers from family or friends who have migrated to wealthier nations.

According to the United Nations, more than 230 million people live outside the country of their birth. Migrants sent an estimated $581 billion back home in 2014, $436 billion of which went to developing countries.

In May this year, the Inter-American Development Bank (IDB) reported record-breaking amounts of remittances to Latin America and the Caribbean in 2014, where $65.382 billion was received.

The IDB report highlighted this as a milestone for the remittances sector, which had seen a worrying decline in the wake of the 2008 international financial crisis. Africa also saw an increase, receiving 2.2 per cent more than the previous year.

These money transfers are not only important to individuals but are vital to the economies of many developing countries, and in some cases represent a significant proportion of gross domestic product (GDP).

But measures to tackle money laundering and the financing of terrorism have led to ‘de-banking ’of the sector, with banks closing the accounts of money service businesses.

This, experts say, is putting money transfer operators out of business and causing people to turn to underground operations.

Earlier this month, Central Bank Governors at the annual meeting of Commonwealth Finance Ministers, called for urgent action to protect remittance flows.

Samantha Attridge, the Commonwealth Secretariat’s Head of Finance and Development Policy, said there was “genuine concern among our membership about the impact of anti-money laundering and counter terrorist financing regulations on remittance flows.”

Attridge warned that de-banking is increasing and spreading to countries where it did not exist previously, driving people to use informal money transfer channels.

Commonwealth Deputy Secretary-General Deodat Maharaj said the Commonwealth recognises the need to regulate against money laundering and terrorist financing.

“But for millions of people in developing Commonwealth countries, remittances from relatives and friends abroad make it possible for them to send their children to school, pay for basic healthcare and put food on the table. They form a significant part of the economy, often exceeding all other forms of external finance. 

“Protecting remittance flows and reducing their transaction costs are priorities for the Commonwealth – that’s why we put it on the agenda of our annual meeting of finance officials. We will also be working with policy-makers, central bank governors and others to support cost-effective and safe transfers of this lifeline.”

Use of new technology such as Bitcoin for sending remittances was one of the proposals discussed at the finance ministers meeting. But delegates agreed that shorter-term solutions were needed.

Jwala Rambarran, Central Bank Governor of Trinidad and Tobago, called for “an appropriate middle-ground” where the integrity of the remittances system is maintained without negatively affecting the ease and cost of transactions.

“Perhaps we should concentrate on low-hanging fruits,” he suggested.

Rambarran added: “The Commonwealth Secretariat has a key role to play in sharing knowledge and developing research on the potential and implications of this new technology.

“If we decide to regulate virtual currencies, we are unaware of the financial instability risks posed by this currency. This is an area we need to determine carefully.”

Gibril Faal, chairman of the African Foundation for Development, pointed out that remittances were a key part of deliberations at the International Financing for Development Conference, where guidance for international development aid was agreed.

The world, he said, “agreed that means should be found to promote remittances as a form of international development finance”. He called on regulators to give banks “the comfort they need” to engage in the remittance sector.

Paralympian and author Anne Wafula Strike, who regularly sends money for disabled young people and to her family in Kenya, spoke about the importance of contributions.

CONCERNS: Experts fear that recent measures to tackle money laundering will negatively affect the remittance service business

“I understand the need to ensure that everything is going through the right channels. But we need to protect this sector and the big banks need to play a role.

“As migrants we know first-hand what the people back home are going through and the challenges they face. International aid is important, but remittances reach the individual and addresses specific needs in a way that other external finance cannot.”

Victoria Adu Brako, who helps family and friends in Africa, highlighted the potential of remittances to stimulate local economies.

She said: “For example people send money back home for buildings, this is good for the construction industry.”

Odingo, who sends money every month to his children in the Caribbean, stressed the importance of affordable money transfers. High costs, he said, will have the greatest impact on those receiving remittances.

“This money makes sure that my children are properly cared for, so it is really important to me that transfers remain affordable. The more we have to pay for fees the less people on the other side receive,” he said.

Juan Manuel Vega Serrano, Vice President of the Financial Action Task Force (FATF) which was set up to combat money laundering, said that the issues of de-risking and de-banking are complex, the effects of which are not yet known.

“De-risking should not be an excuse for financial institutions to avoid a risk-based approach to combat money laundering and terrorist financing. We will continue our dialogue with the public and private sector to implement this approach,” he said.

He urged financial institutions to take a risk-based approach towards money service businesses on a case-by-case basis to avoid cutting off important economic corridors.


‘Remittance problem needs radical solutions’

By Leon Isaacs

THE UK is one of the main remittance sending countries in the world and it has been well documented that ‘de-risking’ has been taking place for the last five years in this country. The issue came to a head in May 2013 when Barclays closed, en masse, all but a handful of the accounts that they held for remittance companies. To be fair to Barclays, they really were the last bank standing in this space at that time.

The impact of de-risking was feared to be so great (particularly for certain communities such as the Somalis) that the UK government undertook research and established the Action Group for Cross-Border Remittances (AG) to address the issue. The Action Group is comprised of representatives from banks, remittance companies, government, regulators and consumers.

One of the key purposes of the AG is to bring the parties together and to try and work out a way of moving forward.

Unfortunately, the experiences of remittance companies in trying to open accounts since May 2013 has not been positive and shows that the AG has some way to go if it is to make a positive difference. A recent study by AUKPI (a remittances trade body) found that of 41 businesses who tried to open accounts in the last two years, not one has been successful.

Undoubtedly, this is a complicated area. The root cause is that the risk/reward relationship for banks has become highly unbalanced. Basically, banks perceive there is a high risk that they may fall foul of international regulators and incur major fines by serving a group of businesses from whom they don’t make a significant amount of money. If they don’t have to provide services to remittance companies, then it is better for them that they don’t.

While the British government has been very active in trying to address this issue through the AG and has made great efforts for Somalia in particular, de-risking is proving a very difficult nut to crack and appears to be at an impasse. Although a combination of actions is required, it may be time to take a radical approach.

One idea may be for government to make it a legal requirement that banks have to open accounts for SME businesses, including remittance companies, in a similar way to the rights we, as individuals, have to a bank account.

Of course there would need to be checks and balances, such as businesses must be operating legally and, where required, be regulated. The onus could be put on the banks that if they declined to open an account then they would have to provide reasons why.

There would also need to be an independent appeals process that could come into effect so that the process will work. It sounds complicated and radical but at the current time we need something different.

Leon Isaacs is the chief executive officer of Developing Market Associates (DMA). He is recognised as a global authority in the remittances and money transfer industry.

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