Blog Naider
Blog: Back
Remittances for Development: Hawala or Western Union?
Tomislav Ivancic
Publication date: 25/08/2008
The common expression there is nothing more permanent than ‘temporary’ migration holds a considerable amount of truth. Human migration patterns demonstrate that the growing poverty and bleak futures of the underdeveloped world continue to fuel the desire of individuals to emigrate in search of a better life.
Figure One: Global Remittance Flows 2006 (Formal) Source: IFAD Indeed, a ‘privileged’ percentage may be welcomed to developed countries as temporary migrant workers, which will inevitably provide the means to an end of eventually settling in the host country. Sadly, a large percentage of migrants are often forced into attempting to cross dangerous sea and land borders, risking their lives in order to provide a more prospective future for their families. For the fortunate ones who do succeed and assume residency in the most popular target countries of Germany, Canada, Spain, the UK or France, a new life begins, often characterized by demanding physical labour, intense work schedules, cultural marginalization and the difficult separation from family in the country of origin. While these are only some of the thousands of tribulations experienced by migrants, it is clear that the way in which they live is far from ideal. Nevertheless, the search for stability is interesting to analyse so as to understand the mechanisms of development and immigration. The driving force behind this phenomenon is an estimated 150 million migrants worldwide. They sent some US$300 billion to their families in developing countries during 2006, typically US$100, US$200 or US$300 at a time, through more than 1.5 billion separate financial transactions. These impressive numbers only represent the tip of the iceberg, for they do not account for informal remittances sent as physical cash transactions via friends or family, or through difficult to trace (underground) transfer services. Even so, from the traceable sources including bank transfers, wiring services such as Western Union or Money Gram and government money transfer programmes, the five largest remittance-receiving countries in 2006 were India (US$ 25 million), Mexico (US$24 million), China (US$21 million), Philippines (US$15 million) and the Russian Federation (US$14 million). The phenomenon of remittances has such as strong impact that within some cases, it accounted up to 38% of GDP in 2006. Moreover, informal and formal remittances clearly exceed the billions of dollars allotted globally each year towards official development assistance (ODA). Hence, it is not a surprise that the diaspora plays a significant role in the socio-economic sustainability of the home country. As for informal funds transfer (IFT), the Hawala is among the most popular. Operating on the basis of the international services such as Western Union, but without its high-tech electronic system and exuberant costs, Hawala is an ancient system which is the embodiment of remittances. In the most basic variant of the Hawala system, money is transferred via a network of Hawala brokers, or Hawaladars. A customer approaches a Hawala broker in one city and gives a sum of money to be transferred to a recipient in another, usually foreign, city. The Hawala broker contacts another Hawala broker in the corresponding recipient city, provides disposition instructions of the funds (normally 1% of the total sum), and agrees to settle the debt at a later date. The unique feature of the system is that no promissory instruments are exchanged between the Hawala brokers; all transactions occur entirely on a system of honour. Owing to the fact that the system is not governed by legal authorities, it operates free of a juridical environment. There are no trances or records produced for individual transactions, only a running tally of the amount owed by one broker to another is kept. Settlements of debts between Hawala brokers can occur in a variety of forms and are not always repaid in the form of direct cash transactions. In addition to commission, Hawala brokers often earn their profits through bypassing official exchange rates. Generally the funds enter the system in the source country's currency and leave the system in the recipient country's currency. As settlements often take place without any foreign exchange transactions, they can be made at other than official exchange rates. Hawala is attractive to customers because it provides a fast and convenient transfer of funds, usually with a far lower commission than that charged by banks. Its advantages are most pronounced when the receiving country applies distortive exchange rate regulations (as has been the case for many typical receiving countries such as Pakistan or Egypt) or when the banking system in the receiving country is less complex (e.g. due to differences in legal environment in places such as Afghanistan, Yemen, Somalia). Furthermore, the transfers are informal and not effectively regulated by governments, which are great advantages to customers with tax, currency control, immigration, or other legal concerns. For the same reasons, governments do not favour the system, and accusations have been made in recent years that terrorist funding often changes hands through Hawala networks. Remittances for Development? The goldmine of formal and informal (or IFT) remittances is a source that has yet to be tapped in terms of sustainable development. Indeed, it is difficult to ask individuals to even fathom the possibility of investing in the development of their respected developing country, amid the urgency of funds which their families require for food, medicine and survival. It seems unlikely and disrespectful to even begin to demand migrants to channel their money in certain areas. To make matters even more complicated, creating development based alliances with Hawaladars is equally difficult owing to the underground nature of their global transactions. Among the only possible channels for creating a system which utilizes diasporic remittances for development is that of government involvement and corporate responsibility. Some governments have already been active and flexible with their diasporic communities in terms of economic assistance. The Overseas Workers’ Investment Fund in the Philippines is greatly transparent in its remittances and encourages overseas nationals to participate in official remittance programmes, where the commission/funds earned are directed towards alleviating the foreign debt burden of the country. However, most countries are not as progressive in this case and instead tend to try and control the flows of incoming funds or worse, pilfer transfers altogether. Therefore, if government sources and Hawala agents cannot be entrusted to contribute towards (economic) development, who can than ensure that the flow of funds is managed correctly and provides a means to sustainable development? To much surprise, some private actors have becoming more involved within this area and might possibly be the only reliable link to diasporic remittances and the nexus-country development. Van Doorn (2000) notes that Caja Madrid has attached itself to the Banco Solidario in Ecuador as a trial run to experiment with overseas development remittances. More specifically, their program called "My Family, My Country, My Return" is geared towards Ecuadorian migrants living in Spain and provides a package of loans to finance the migrants’ travel back home or to set up a small business upon their return, along with discounted money transfer services and savings schemes which are targeted towards buying a house or land in their home country. Hence, the private sector can and should do more to contribute to this phenomenon and it is clearly unfortunate that the most powerful agents, namely Western Union and Governments themselves, hold corporate interest or corruption as their primary objectives instead of contributing towards national development. Henceforth, there is a great need in international development practices to explore the relative cost-effectiveness of remittance-promoting policies and their conditions for international cooperation. If migrant remittances can somehow be geared towards productive investment, the economic gains are likely to be greater. For thousands of tiny villages around the globe, Western Union serves as the main link to the global economy. As for Hawala, it may not have the comprehensive network of its legal counterparts, but its cheap and efficient means will endure to supply both the demands of the diaspora and the household needs of their families in the nexus country. [1] Remittance Forum, International Fund for Agricultural Development, 2008. [2] Ibid. [3] According to the International Fund for Agricultural Development, the highest percentages of remittances/GDP were found in [4] The Hawala system now enjoys widespread coverage, but it is historically associated with the Middle East and [5] Sam Vaknin, Hawala, or the Bank that Never Was, [6] Judith van Doorn, Migration, Remittances and Development,
-1 Comentarios:
Enrique (29/08/2008)Brilliant T.
I really liked your article. However, I wonder if the Hawala system, or even the remittances themselves should be geared or expected to be, in some way relevant towards development objectives. For me it is clear that migration is a social problem that is caused by lack of opportunities and insecurity at home.
In Mexico, remmitances are the most important source of foreign exchange, even before oil exports, and together with money laundering/drug smuggling, they provide the resources that inefficient goverments cannot cope with. So you may see many small villages that get electricity, water sanitation, and so on and so forth because of remittances, whereas governments cannot attract the right investment to the right place. And this is not about finding the right ICOR, is about bad management. On the contrary, I believe that remittances are quite well managed, and that somewhat, these resources are being used productively. Further, we could say they´re actually formal investments, coming from an informal transaction, so it is not uncommon, that governments try to manage this transaction for taxing purposes, rather than creating opportunities before people migrate.
http://co2finance.blogspot.com/
Otros Artículos del Autor :
Tomislav Ivancic
Give us your opinion on this article (-1 comentarios)
Naider © 2010
Desarrollo: f-3.net | comunactivo
