CreditRemittance Standards Or Lack Thereof
Throughout the years, there has been a surplus of new laws, regulations, recommendations and best practice statements on the regulation and supervision of informal remittance systems. The content of most of these initiatives has been put into place due to anti-money laundering and terrorist financing concerns.
At the same time, and due to the overpopulation of these services, the regulations are insufficient to address the abundance of remittance systems in developed and under developed countries. Recent research brings to light the legitimate economic reasons for the existence of these systems.
Due to the lack of formal financial systems in countries such as Afghanistan and even the absence of government structures in Somalia, migrant workers have very few options to be able to send support their families. In light of these issues, the challenge for regulators is to oversee the remittance system and identify a ways to design, develop, and implement more effective systems to cope with these problems and to prevent money laundering and terrorist financing issues.
Same Meaning Different Name
There are many terms used to describe informal remittance services including "alternative remittance," underground banking," "ethnic banking," and "informal value transfer systems." In other parts of the world, the remittance systems are also referred to as fei ch'ien (China), hundi "Pakistan, Bangladesh), padala (Philippines), hawala (India and Middle East), phei kwan (Thailand), and hui kuan (Hong Kong).
How Informal Remittance Systems Work
Despite the differences in terminology, all of the systems are one in the same. For a basic informal remittance transaction to take place there needs to be a remitting party, two remittance service providers, and a recipient. The service provider contacts a partner service provider who arranges payment in local or other currency to the remitter's recipient.
Success or Failure of the Systems
Unfortunately, success of these systems has been slowly unraveling, causing governments to take a closer look at how these systems operate. The anonymity has always been of some concern with law enforcement. In some countries such as India, governments have been so concerned regarding the abuse, that there were talks of banning remittances all together. Concerns have grown drastically since the September 11, 2001 terrorist attacks in New York and Washington after journalists and others made acknowledged connections between the financing of terrorism and informal remittance systems.
Undoubtedly, these systems require standard guidelines be put into place and monitored closely to ensure that everyone operates within those guidelines.