Title: Measuring the Immeasurable: Hawala International Remittances via Informal Channels
1Measuring the Immeasurable Hawala International
Remittances via Informal Channels
International Technical Meeting on Measuring
Remittances January 24, 2005
- John F. Wilson
- International Monetary Fund
2Lets Google Hawala.
- Jost and Sandhu (Jan. 2000, Interpol), The
Hawala Alternative Remittance System and its Role
in Money Laundering - -Works by transferring money without moving it
- -Abduls visa has long since expired Wants to
send 5,000 to brother in Karachi - -Manipulation of invoices common means of
settling accounts. - -Tax evasion. Money remitted through official
channels might invite scrutiny from tax
authorities - -Black Hawala Money laundering, etc.
(centered on HA) - Time Magazine (Oct., 2001), A Banking System
Built for Terrorism In the labyrinthine depths
of old Delhi, these men are moving money to
exporters, drug traffickers, tax evaders, corrupt
politicians. And terrorists. - Sanjay Kapoor, Bad Money, Bad Politics The
Untold Hawala Story , 1996
3Motivations for Informal Transactions
- Black or grey market exchange rates.
- High costs of banking or official channels
e.g., Western Union or MoneyGram - Lack of banking offices in some areas, e.g.,
Pakistan NWFP - Reliability and speed!
- Cultural factors family or tribal connections
4Hawala Basics
- Informal channels used for private transfers,
including workers and migrant remittances - Main actors
- 1. Sender and recipient
- 2. Financial intermediaries (hawaladars AB)
- 3. Higher level consolidators
- Technical mechanisms
- 1. Funds sent to recipient via intermediaries.
- 2. Hawaladars settle asset/liability accounts
later. - See Mohammed El Qorchi, Samuel Maimbo, and John
Wilson, Informal Funds Transfer Systems An
Analysis of the Informal Hawala System, IMF
Occasional Paper No. 222, October, 2003.
5How Informal Remittances Work Step 1
Country B
Country A
Sender
Recipient
Cash (LC)
Cash (LC)
Fax or phone call
HA
HB
LClocal currency HA, HBhawaladars
6Balance Sheet Effects of Informal Transactions
1. Principals remittance sent home (US assumed)
Remitter, in Country A
Recipient, in
Country B Assets Liabilities and NW
Assets
Liabilities and NW - -
(NW) LC
LC
Notes Net worth of remitter declines. Net
worth of recipient rises.
Transactions usually across international borders.
2. Financial Intermediaries
Hawaladar A (HA)
Hawaladar B
(HB) Assets Liabilities and NW
Assets
Liabilities and NW (cash) (HB)
-LC
(cash)
(HA)
Notes HB pays out cash to recipient and
acquires claim on HA. HA and HB
Change in balance sheet composition. Net worth
unchanged. No foreign exchange
transaction by any participant.
7Hawala differences from
? Institutional transactions? Only the
channels HA, HB vs. banks, Western Union,
exchange houses ? Technical/economic
mechanisms? Balance sheet effects No
differences Settlement mechanisms Usually
informal Foreign exchange Not captured by
authorities Statistical trail Little
chance ? Other systems such as fei-chien
(China), hui kuan (Hong Kong), hundi (India),
padala (Philippines), and phei kwan (Thailand)
etc.? No substantial differences ?
Remittances as source of development finance
e.g., Adams, Maimbo, Ballard, Seddon, Blackwell,
inter alia.
8Step 2 Clearing and Settlement Selected Options
1. SIMPLE REVERSE REMITTANCES (HIGHLY
IMPROBABLE) 2. BILATERAL FINANCIAL SETTLEMENT
THROUGH BANK (UNLIKELY) 3. BILATERAL SETTLEMENT
FINANCE EXPORTS TO COUNTRY B (POSSIBLE)
Various possibilities, including smuggling of
goods. Export/import settlement likely
to take place at consolidated level. 4. CLEARING
WITH SERVICES FOR RESIDENT OF B PAID FOR BY HA
(POSSIBLE) Resident of B presumably
pays HB in local currency. HB himself
could purchases the services, e.g, medical or
educational. 5. CLEARING BY MEANS OF
ASSET PURCHASES IN COUNTRY A (PROBABLE?)
Could be real estate or financial assets.
Likely to take place at the consolidated
level. 6. etc., etc., in many permutations Littl
e chance of statistical compilation that shows
any connection to original remittances! See El
Qorchi, Maimbo, and Wilson, Appendix I
9Informal Remittances Quantitative Dimension
Source Simulation model in El Qorchi, Maimbo,
and Wilson, Appendix II
10Improving Measurement of Remittances Source
Countries
- -- Focus on countries with large immigrant
populations - -- Attention to those with immigration from large
LDCs (e.g., GCC area) - -- Ensure compilation from relevant institutional
channels - -- Eliminate back of envelope estimates
- -- Reasonable geographic articulation
- -- Periodic consultations/peer review on findings
- -- Adherence to agreed BOP measurement norms
- -- Add estimates for flows via informal channels?
- -- Unlikely to help BIS statistics and similar
11Improving Measurement Recipient Countries
- -- Remove impediments to institutional channels,
especially - Exchange market and capital control
impediments - Costs and administrative issues
- -- Ensure relevant institutional coverage
- -- Field surveys on amounts and channels of
remittances received - -- Proper analytic classification (e.g., SBP
forex purchases Philippine procedures) - -- Better data on emigration and overseas
workers Philippine model - Further recommendation
- Revive periodic measurement and publication of
black/gray market exchange premia (Pick, et al.),
now essentially lost from all statistical
sources, - via Bank/Fund collaboration.
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