A coalition of bankers in Asia has called on central banks in the region to slap tougher penalties on illegal remittance agents, citing the consumer risks associated with an expanding black market for money transfers.
The Asian Bankers Association (ABA), which concluded on Tuesday a two-day membership meeting in Manila, said remittances passing through informal channels were 30 to 40 percent more than those facilitated by banks and other legitimate remittance centers.
In the case of the Philippines, about $20 billion in remittances were facilitated by banks and duly registered remittance centers last year. Industry players, however, suspected that a lot of foreign exchange were sent to the Philippines—the fourth biggest recipient of remittances in the world with more than 10 million Filipinos working overseas—through unregistered remittance agents.
“At the moment, the illegal channels are much bigger than the legal channels for money transmission. Regulators are called to strengthen mechanisms [against informal channels] and make it difficult for illegal money transfers to take place,” Dilshan Rodrigo, chair of the advocacy committee of ABA, said in a briefing late Tuesday.
According to the ABA, the problem with informal remittance channels was the risk they pose to customers. Because they are not registered, their operations escape the eye of regulators.
Rodrigo said the Bangko Sentral ng Pilipinas and its counterparts in other Asian countries should come up with policies imposing strict penalties against unregistered remittance agents and providing incentives to legitimate remittance channels.
He said consumers would significantly benefit from an improved regulatory environment.
For one, he said beneficiaries of remittances would be less exposed to the risk of fraud. Rodrigo added that more remittance beneficiaries would be encouraged to invest in financial products offered by the banks if they were getting their money through these financial institutions.
“If funds come through banks, that presents more opportunity for money to be used for productive purposes. For example, recipients of remittances may be encouraged to avail themselves of savings and investment products of banks or to engage in entrepreneurship,” Rodrigo said.
The significant amount of money being sent through illegal channels was partly blamed on the gap in costs. Banks charge more than unregistered remittance centers in facilitating money transfer.
Rodrigo, however, said that if banks would be able to corner more remittances, then there would be scope for them to reduce remittance facilitation fees.
In the Philippines, remittance facilitation is a good source of income for businesses because of the huge amount of money being sent by overseas Filipinos.
For this year, the BSP expects remittances to the Philippines through banks to grow by at least 5 percent to more than $21 billion.
According to the World Bank, the Philippines is the fourth biggest recipient of remittances after China, India and Mexico.