Remittance channels and instruments

A characteristic of the global remittances trade is the prominence of informal as well as formal funds-transfer methods and instruments. Formality and informality are, of course, relative concepts in many developing countries (and especially in one such as Burma). For the purposes here, however, and consistent with the categories adopted in many countries and multilateral agencies, formal transfers and informal transfers are distinguished by the fact that the former operates via regulated institutions and the latter via entities that operate outside the regulated financial system (World Bank 2003:23). Typically, banks, dedicated money-transfer firms, other financial institutions, post and telegraph services and so on dominate formal transfers. Informal transfers are impossible to categorise narrowly and include everything from hundi systems, couriers and traders and ethnic store networks, to simply carrying money in person across borders. As the survey results show, the relative importance of formal versus informal methods varies wildly according to circumstance.[11]

Formal funds-transfer schemes

Funds-transfer schemes normally provide the least risky, but also the most expensive way of sending remittances, with charges typically ranging between 10 and 15 per cent of the principal transferred (World Bank 2006:135). The funds-transfer sector is dominated by dedicated money-transfer firms, of which Western Union (which commands an estimated 15 per cent of the global remittances business) is the giant (with more than 300 000 agents in more than 200 countries).[12] In recent times, however, formal banks have made inroads into the market share of firms such as Western Union. This is the result of a number of factors (including greater migrant familiarity with banks), but not least the aggressive entry into remittance markets by banks themselves. The latter include some of the most prominent global bank ‘brands’, as well as newly privatised and commercialised banks in migrants’ home countries. The trend is especially apparent in the highly lucrative Latin American remittances business, hitherto very much the preserve of Western Union and its peers. Representative of the phenomenon is the situation in the remittance trade to Mexico, where banks increased their market share from 4 to 17 per cent between 1993 and 2000 (Amuedo-Dorantes et al. 2005:52).

Informal funds-transfer schemes

Informal funds-transfer schemes are used by migrants all over the world where, legal status of sender aside, they thrive because financial institutions in their home country are few, weak or not accessible. If we add to this the fact that many migrant workers come from rural areas and have no familiarity with banks in the first instance, there is a situation in which informal transfer systems have managed to survive in a world of otherwise growing financial-sector formality and sophistication. The relative importance of formal/informal transfer systems varies widely. Informal mechanisms account for probably only 5–20 per cent of remittances in Latin America, but in Sub-Saharan Africa they probably make up 45–65 per cent of the trade (World Bank 2003; Freund and Spatafora 2005).

As noted above, there are many devices that come under the informal funds-transfer rubric. The nature and modus operandi of the most important of these are the issues to which this chapter now turns.


So labelled in Burma, hundi arrangements are known under a variety of names in the many countries and cultures in which they operate. Known variously as ‘hawala’ (in the Arabic-speaking world), ‘chiao hui’ (in China) and ‘poey kwan’ (in Thailand), hundi is an ancient device in which monetary value is transferred via a network of dealers or brokers from one location to another. While much mystery is sometimes made of hundi schemes, the mechanics of their operations are relatively straightforward—as can be seen in the following (equally simple) example:

Person A, a Burmese migrant worker in Thailand, desires to send money home to her family in Burma. To do this, she approaches a hundi dealer whom she knows and pays them, in baht, the amount she wants sent. The hundi dealer now contacts their counterpart (another hundi dealer) in Burma, who pays Person A’s family in kyat. The amount received by the family will be the kyat equivalent of that paid by Person A in baht, less an amount that represents the commission charged by the two hundi dealers. As far as Person A is concerned, the transaction is now complete. She has sent her money home.

A number of matters remain unresolved in the above example, of course. First, the hundi dealer in Thailand now owes the hundi dealer in Burma for the remittance payment. How will this be settled? There are a number of ways, depending on the circumstances. One of the most common methods (highly applicable in the context of Burma) is that the debt between the two hundi dealers will be settled in goods. Many hundi dealers are, in fact, shops and traders of various kinds, with hundi dealing a ‘side’ activity. In the case above, therefore, goods to the value of the remittance debt will ultimately make their way from the hundi dealer in Thailand to their Burma counterpart. In cases such as Burma, with little in the way of domestic production of complex consumer items, the importation of goods presents a ready avenue for hundi settlements. Beyond such ‘in-kind’ settlements, however, are a number of other reconciliation devices. Most obviously, in circumstances in which financial institutions are accessible to hundi dealers (if not to hundi customers), funds could be sent directly via banks or money-transfer firms. Such circumstances are mostly unlikely, however, which opens the way for settlement in near-monetary commodities such as gold, precious stones and (sometimes) contraband such as narcotics.

A related issue is the question of foreign exchange flows—or, rather, as the example above shows, their absence. Hundi mechanisms, because they are characterised by ‘netting’ or ‘book-transfer’ methodologies, transfer value rather than currencies. Accordingly, and as long as settlement between the hundi dealers is not ultimately made in cash, hundi systems do not deliver foreign exchange to recipient countries. As this chapter explains, this has implications—not least in that it hinders the development potential of remittances via the ‘leveraging up’ of such flows through formal financial institutions. Since hundi systems hide financial flows between countries, they can also be used for money laundering.[13]

In practice, various complications come into the simple picture painted above, most of which, however, only add to the appeal of the hundi system. For instance, to ensure security, the hundi dealer in Thailand usually gives the Burmese migrant worker an authentication code. This code is communicated by the hundi dealer to their equivalent in Burma (usually by phone) and by the Burmese migrant worker to their beneficiary in Burma (also usually by phone). This beneficiary must reveal the authentication code to the hundi dealer in Burma in order to receive the remittance payment. Another complication to the simplified example above is that often the hundi ‘commission’ is not an explicit independent ‘charge’, but an implicit fee levied via discounting the (baht/kyat) exchange rate through which the remittances are calculated. Finally, and as is readily apparent from the above, at the core of the hundi system is trust. For the senders and receivers of remittances, such trust is won by observation of the system in successful operation and repeated dealings. Among hundi dealers themselves, trust is often based on kith and kin relationships. Accordingly, it is no surprise that hundi dealers everywhere tend to assemble networks based on ethnicity. Given too that hundi operations are often a sideline to trading generally, so-called ‘ethnic stores’ are often integral to hundi networks.

Personal delivery

In the age of the Internet, the delivery of remittance payments by hand—via friends, family members, couriers and traders—remains surprisingly resilient in the remittance trade around the world, and not just in the poorest of countries. Suro et al. (2002), for instance, found that personal delivery accounted for 10 per cent of remittance payments to Latin America—a market otherwise dominated by money-transfer firms, banks and other financial institutions.[14]

Internationally, personal delivery ranks among the cheapest of remittance systems, but it is also the most vulnerable to theft and accordingly requires high levels of trust. It is therefore often the case that the ‘courier’ is a family member, a close friend or, in the case of the Thai–Burma border trade, a trader dependent for their own security on the discretion of their customers on either side of a dangerous frontier.

[11] While Freund and Spatafora (2005) nominate a ratio range of informal to formal mechanisms of between 20 and 200 per cent, in practice, almost any ratio can apply.

[12] Western Union’s closest competitor (with a global share of about 3 per cent) is MoneyGram, also based in the United States. For more on these firms, their background and their rivalry, see Lapper (2007). Money-transfer firms are especially dominant in the remittances business to Latin America (their share of the important US–Mexico market is about 70 per cent (Amuedo-Dorantes et al. 2005:51).

[13] Concerns about the use of hundi systems for money laundering and as a possible vehicle for terrorist financing have heightened greatly in recent years. For a review of some of the issues, see Financial Action Task Force (2005).

[14] Suro (2002) also found that an additional 7 per cent of remittance payments in the region were made sending cash through the post. This mechanism could not work in Burma since the postal system scarcely exists in most of the country and, even where it does, it is greatly distrusted.