A Costly Money Migration from Ottawa Citizen 

The Ottawa Citizen May 31, 2012

On Thursday, NDP MPP Jagmeet Singh introduced a private member’s bill in the Ontario legislature that deserves careful consideration from all parties. It would ensure that people in Canada won’t pay prohibitive fees to send small amounts of money overseas.

In general, the NDP instinct to solve the world’s problems by telling private businesses what they can and can’t do should be discouraged. But in this case, there’s a compelling argument for regulation.

International money transfers — also called remittances — are a bulwark against poverty. The World Bank estimates that $483 billion in remittances flowed in 2011, of which $351 billion went to developing countries. This is money that goes directly to people, bypassing governments. It’s more money than flows through foreign aid, it’s voluntary rather than taxed, and it’s resilient to political and economic cycles.

As migration plays an ever greater part in the labour market, there is great potential for remittances to improve the lots of families all over the world.

But there’s a big inefficiency in the system: fees and exchange-rate costs. According to a database maintained by the World Bank, if you’re in Canada and want to send $200 to family in Rwanda via Western Union, you’ll pay a fee of $16 and lose about 1.5 per cent on the exchange-rate margin, for a total cost of about $19.

The World Bank says the average cost of remittances in Canada is slightly more than 10 per cent, higher than both the global and G8 averages. Singh’s bill would cap fees at five per cent. The cost now varies by company, method of transfer and recipient country, and it’s worth noting that many fees are below five per cent already. But some aren’t.

The best way to drive costs down is to encourage competition. For some recipient countries, new players and technologies have led to better prices. For others, there’s an oligopoly and high prices. It seems unlikely that the most punitive fees will come down without regulation.

In 2009, the G8 vowed to bring global costs for remittances down to five per cent by 2014. Market-based approaches, such as greater transparency in fee structures, are crucial to this effort. But they haven’t brought fees down very far.

There could be unforeseen consequences to a cap on fees. The most reliable transfer companies could get out of the business for some corridors. Or they could try to make up costs by raising some fees that are currently under five per cent.

Legislators should consider these risks before passing the bill, but a cap of five per cent seems unlikely to have widespread dire consequences. We regulate other financial fees and interest rates. Remittance fees are particularly damaging because these tend to be small, frequent payments, destined for people who need every cent.

Ottawa Citizen
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All Ontario Parties Should Support Cap on Remittance Payments from Toronto Star

Members of Ontario’s legislature have a chance to take a small but important step toward preventing some of the most vulnerable workers in the province from being ripped off. They should seize the opportunity.

It comes in a private member’s bill introduced last week by Jagmeet Singh, the New Democrat MPP for Bramalea-Gore-Malton. Singh’s bill would limit the fees charged to migrant workers and immigrants who send money back to extended family in their home countries. All parties should get on-board with this measure.

Remittances, as they’re known, involve the transfer of hundreds of billions of dollars every year around the world. The World Bank says remittance payments amounted to $501 billion U.S. last year; $372 billion of that went to developing countries.

This is far more than all the official foreign aid ($133 billion last year, as calculated by the Organization for Economic Co-operation and Development), and amounts to a big chunk of the national income of some poor countries. Even more important, it goes directly to people — not through government officials who may skim off a share or manipulate it for political reasons.

There’s a big catch, however, for many of the hard-working migrant workers and immigrants who wire money home. Fees can be hefty, to say the least. A recent survey by ACORN, a national advocacy group that is campaigning on the issue, shows it can cost as much as $40 to transfer $100 abroad, depending on the destination and speed of service. The average cost of remittance services in Canada is just over 10 per cent of the amount transferred, according to the World Bank.

Singh’s bill would cap remittance fees in Ontario at 5 per cent, and require companies like Western Union and MoneyGram to disclose any other costs or exchange fees. The 5 per cent figure is the same as that recommended by the World Bank and by the G8 group of countries, which in 2009 pledged to bring remittance costs worldwide down to that level by 2014.

No other province caps remittance fees, but the idea is no different in principle from limiting the interest charged on payday loans to prevent low-income earners from being gouged. Ontario did that in 2008.

All parties at Queen’s Park should back Singh’s bill. It would be an excellent step toward helping out some of the hardest working and most deserving people among us.

http://www.thestar.com/opinion/editorials/article/1204701–all-ontario-parties-should-support-cap-on-remittance-payments

I join ACORN International and the Remittance Justice Campaign in demanding that any new candidate being considered as President of the World Bank commit to aggressively making all available efforts to achieve the World Bank and G-8 goal of stopping predatory pricing of remittances and reducing maximum costs for migrant workers and immigrants to no more than 5% for remittances.

Sign the petition >>

BENEFITING FROM MIGRATION: THE COSTS, BENEFITS, AND HISTORY OF ROMANIAN AND MOLDOVAN MIGRATION (1990-PRESENT)

Click to read Report

Migrants’ money channels are a murky world

Carol Goard

July 26, 2011

There is no paper trail. There is no oversight. There are no clear rules. But the cash flow is staggering: roughly $200 billion a year.

This amount, sent home by immigrants and migrant workers through back channels, dwarfs global foreign aid. Canada’s share — approximately $7.5 billion a year — is more than double the country’s official development assistance.

Although these hand-to-hand remittances do a tremendous amount of good in poor countries, they pose serious risks for both senders and governments.

Immigrants have no guarantee their earnings will actually reach their families. The money could be pocketed by greedy middlemen, stolen enroute or whittled down by bribes to corrupt local officials.

Financial authorities have no knowing whether this informal financial system is being used by drug dealers to launder dirty money or terrorist groups to finance international operations. It certainly has the potential to do both.

Yet few governments are taking steps to regulate this trouble-prone business. More surprisingly, they know almost nothing is known about it. All of the available statistics are ballpark estimates. All of the current knowledge is based on anecdotes and regional fragments.

A Toronto-based citizens’ group aims to spur reform. Acorn Canada, made of up low-to-moderate-income families, is conducting a multi-year campaign to make remittances safe and transparent.

It has taken the lead because its members — many of whom support families in Asia, Africa and Latin America — are tired of choosing between exorbitant bank fees and unreliable couriers.

Acorn has just released a report outlining the magnitude of “hawala,” as it is called, and the way it works.

A typical transaction unfolds something like this: An immigrant or seasonal worker wants to send money to his family back home. His English is rudimentary and he is intimidated by bureaucrats and paperwork and incomprehensible service charges.

So he checks an ethnic newspaper and finds an advertisement for cheap money transfers to his homeland. He visits the establishment, usually a small export-import business, and arranges to send a small amount — say $100 — to his family. The owner charges a commission ranging from 25 cents to $1.25 and gives him an identification number that can be used to pick up the money.

The merchant then contacts one of his suppliers or agents in the immigrant’s home country and arranges to get the money to its destination. The two traders settle their debt by manipulating their balance sheets.

When the system works, it provides a cheap, efficient way to send money overseas. When it breaks down, the immigrant is out-of-pocket and powerless.

There are safer ways to transfer funds, but they are extremely expensive. Acorn tracked the cost of sending a $100 remittance to Mexico, using recognized financial institutions, last fall. It found the cost could run as high as $50.

The cheapest option was MoneyGram, which charged between $3 and $10, depending on the speed and the level of service. The highest-priced was HSBC (Hong Kong and Shanghai Banking Corporation), which charged $50.84. The only Canadian bank willing to divulge its fees, Toronto Dominion, fell in the middle at $35.91.

“These rates are predatory,” says Kay Bisnath president of Acorn. They drive people to use they underground system. They induce risky behaviour.

This week, a delegation from the grass-roots group will attempt to convince deputy finance minister Michael Horgan that it would be in Canada’s interests to cap remittance rates and require banks to disclose their fees. Ottawa needs a window on this multi-billion cash flow and immigrants need a safe, affordable way to send money home.

It is unlikely that “hawala” will ever be eliminated. But in a 21st-century financial system that can move money securely around the globe with the push of computer button, immigrants deserve a better alternative.

Carol Goar writes for Record news services.

By Kay Bisnath, ACORN International, and Pascal Apuwa, ACORN Canada

The Canadian government can no longer afford to be apathetic towards the plight of migrant workers’ remittances when they are behind a guest-worker program that accepts candidates based on low levels of education and strong family ties. With such criteria it is unimaginable that the government would be unaware of the role of remittances in the lives of these workers’ families.

Every year, 20,000 workers from Mexico and the Caribbean, mostly men, make the journey to work in Canada’s agricultural sector, largely in southern Ontario and British Columbia. These migrant workers are brought to Canada through the government sponsored Seasonal Agricultural Worker Program (SAWP) for up to eight months. The program describes its function as matching “workers from Mexico and the Caribbean countries with Canadian farmers who need temporary support during planting and harvesting seasons, when qualified Canadians or permanent residents are not available.”

This is no sea cruise.  Workers in the SAWP are poorly treated. They are required to work overtime without extra pay and a significant portion of their wages (about 25%) goes towards Canadian taxes and government programs as a donation to the Canadian government since they will never reap any benefits.

The SAWP exploits workers’ desperation to earn Canadian wages. Workers’ strong family ties and socioeconomic statuses emphasize the widespread need for affordable money transferring services. When asked, SAWP representatives admitted to having little knowledge of which money-transferring services program participants utilized or the fees they faced. SAWP workers are left to find ways to remit money without any assistance from the governments that has brought them here.

Using easily accessible Western Union, fees to transfer funds increase dramatically as the transferred sum decreases, often making the service unaffordable. Migrant workers usually send half their paychecks home (about 200-300 dollars). To send these sums with Western Union, fees can range from 7.5% to 12%. This doesn’t include the hidden exchange rate fee that comes out of the amount transferred. This changes daily with the exchange rate fluctuation and has been estimated by ACORN Canada at 4 – 6 %.  Migrant workers in Canada have also been known to use Vigo Remittance Corporation to send their money home. While Vigo’s fees are lower than Western Union’s, the fees range from 6 % to 7% (for sums of 200 to 300 dollars), they are still sit above ACORN’s and the G-8’s, where Canada is also a primary participant, goal of a flat 5% rate and are still unaffordable for many migrant workers. For the low-wage migrant worker, such rates only further perpetuate their plight.

ACORN International and its federated partners ACORN Canada and ACORN Mexico have made continual demands of the Finance Ministry and provincial governments in both countries to regulate Money Transfer Organizations (MTOs) and cap fees, with only limited success and a limp promise thus far that there will be more disclosure. In the case of bi-national agreements that are moving migrant workers to Canadian soil to serve Canadian business and agricultural interests and profit Canadian tax coffers, can there be any moral or political justification for inaction around remittance profiteering by the Canadian government at all levels? ACORN, Canadian, Mexican, and Caribbean citizens are united in saying, “No!” and demanding change now!

New report from ACORN International

There is no paper trail. There is no public oversight. There are no clear rules. Yet the cash flow is staggering: roughly $200 billion a year.

That is how much immigrants and migrant workers send home though a makeshift network of traders and couriers. Canada’s share — approximately $7.5 billion a year — dwarfs the country’s foreign aid budget.

Although these untraceable remittances do a tremendous amount of good in poor countries, they also pose serious risks for both the sender and the state.

Immigrants have no guarantee their earnings will actually reach their families. The money could be pocketed by greedy middlemen, stolen in transit or whittled down by bribes to corrupt local officials.

Governments have no way of telling how much dirty money from drug dealers and terrorists is circulating in the system. It is certainly conducive to both.

But no one is stepping forward to regulate this trouble-prone business. More surprisingly, almost no one knows much about it. The statistics are all estimates. The academic studies are all based on fragmentary knowledge and conjecture.

A Toronto-based citizens’ group is working to change that. Acorn Canada, made up of up low- to moderate-income families, is conducting a multi-year campaign to make remittances safe and transparent.

It has taken on this ambitious task because its members — many of whom support families in Asia, Africa and Latin America — are tired of choosing between being gouged by the banks or swindled by greedy couriers.

Acorn just released an easy-to-read report outlining the extent of “hawala” (the colloquial term for the hand-to-hand system and the way it works).

A typical chain of transactions looks something like this: An immigrant or seasonal worker wants to send money to his family back home. His English is rudimentary. He is intimidated by big institutions, paperwork and costly service charges.

So he checks an ethnic newspaper and finds an advertisement for cheap money transfers to his homeland. He visits the establishment, usually a small export-import business, and arranges to send a small amount — say $100 — to his family. The owner charges a commission ranging from 25 cents to $1.25 and gives him an identification number that can be used to pick up the money.

The merchant then contacts one of his suppliers or agents in the immigrant’s home country and arranges to get the money to its destination. The two traders settle their debt by manipulating their balance sheets.

When the system works, it provides a cheap way to send money overseas. When it doesn’t, the immigrant is out-of-pocket and powerless.

There are safer ways to transfer funds, but they are extremely expensive. Acorn tracked the cost of sending a $100 remittance to Mexico, using recognized financial institutions, last fall. It found the fees could run as high as $50.

The cheapest option was MoneyGram, which charged between $3 and $10, depending on the speed and level of service. The highest priced was HSBC (Hong Kong and Shanghai Banking Corporation), which charged $50.84. The only Canadian bank willing to divulge its fees, Toronto-Dominion, fell in the middle at $35.91.

“These rates are predatory,” says Kay Bisnath, president of Acorn. They drive people to use the underground system. They force them to take unwanted risks.

This week, a delegation from Acorn met Deputy Finance Minister Michael Horgan hoping to convince him it would be in Canada’s interest to cap remittance rates and require banks to disclose their fees. It made the case that Ottawa needs to get a handle on this multi-billion-dollar business and immigrants need a safe, affordable way to send money home. The next step is up to the government.

It is unlikely that “hawala” will ever be eliminated. But in a 21st century financial system where money can be moved with the stroke of a computer key, immigrants deserve a better alternative.