Choosing between formal and informal transfer schemes

One of the major barriers to the use of formal transfer mechanisms is, not surprisingly, the legal status of the sender. If a migrant worker is without legal status in the host country, using a bank or a formal money-transfer firm (where formal identification is usually a requirement) is difficult and risky. In Thailand, foreigners wanting to access a bank need to set up a ‘non-resident’ baht bank account, which in turn requires the production of a passport, a long-term visa or work permit, as well as a letter of recommendation from an employer, existing bank customer or from the customer’s bank abroad. In contrast, informal funds transfers require minimal paperwork and are ‘anonymous’ as far as government authorities are concerned.

The legal status of the sender is likely the most significant reason for the use of informal funds transfers in most circumstances. There are other reasons, however, including the following.