Pardee-CFLP-Remittances-TF-Report

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Informal Remittance Channels in Sri LankaAccording to research conducted by Cheran and Aiken (2005), there are a totalof 100–150 Undiyal (the popular informal remittance channel in Sri Lanka)outlets in Toronto. These outlets are run by local entrepreneurs with diverseactivity profiles. The transactions are fairly simple, cheap, and fast. The sendergives the cash to the Undiyal agent, who then fills out a form (including detailsof the sender and receiver and amount in both Canadian dollars and Sri Lankanrupees). A transaction fee of five or ten dollars for amounts below and above$500, respectively, is charged, with a promise that the money will be deliveredon the same day or next day. These agents have employees throughout theremote parts of the northeastern region, creating an effective delivery system.These informal agents route remittances through Hong Kong, Singapore,Jakarta, and Bangkok as these markets are less regulated. The foreign exchangeblack market in Colombo is used to convert the money into Sri Lankan rupees.These agents seem to bypass the formal banking services of Sri Lanka largelybecause of the lack of Sri Lankan bank branches abroad and regulatory restrictionsat home. Consequently, informal remittance systems such as this havegreater geographic reach than formal systems.Vidya Vermireddy, Department of Economics, Boston UniversityReference: R. Cheran and S. Aiken (2005). The impact of international informalbanking on Canada: A case study of Tamil transnational money transfer networks(undiyal), Canada/Sri Lanka. A Working Paper, Spring 2005.mated to have accounted for nearly 50 percent of total remittances to Sri Lanka(Foundation for Development Cooperation 2007). The preference for informalover formal remittance channels by poorer migrants may be attributed to factorssuch as lower service fees, lack of bureaucratic procedures relative to banksthat limit the affordability of formal services, absence of documentation requirements,lack of door-to-door services in formal remittance channels, and thelimited availability of formal financial services in areas of conflict (Lasagabaster,Maimbo, and Hulugalle 2005; Foundation for Development Cooperation 2007).Since the 2002 ceasefire, informal money networks have assumed an additionalrole as agents for relief, rehabilitation and reconstruction, by helping to channelremittances for rehabilitation and reconstruction activities in conflict-affectedareas (Cheran and Aiken 2005).Remittance Flows to Post-Conflict States: Perspectives on Human Security and Development 67
Challenges and Policy SuggestionsIt is important to emphasize that remittances by refugee migrants serve moreas a means of sustenance during and following a conflict than as a means forchanging lives and local communities (Lindley 2008). As previously discussed,remittances contribute to human security by providing coping strategies forhouseholds affected and displaced by conflict. Additionally, diaspora initiativesmay help post-conflict rebuilding and populations affected by the war by providingadditional financial resources for investments in health and education at thelocal level.While remittances have indeed enabled some Sri Lankan families to cope withthe effects of the war, challenges remain. The insecure situation in the conflictaffectedregion of northeast Sri Lanka has meant that the major part of diasporaremittances has been used for private consumption and war relief, leavinglimited resources for investments in long-term development projects and qualityemployment generation. Furthermore, as discussed previously, the distributionof remittances has been uneven with urban and richer households being themain recipients of remittances. Distribution has also been uneven across ruralhouseholds in the areas affected by the conflict (Orjuela 2008). Thus, the economicvulnerability of poor households with little or no access to remittancesremains a major problem. Furthermore, the uneven distribution of remittancesrisks increasing and perpetuating income inequalities in Sri Lanka.The predominance of unskilled and female domestic labor migration to theMiddle East and the prominence of the Middle East in contributing to remittanceinflows suggest that Sri Lanka has become increasingly dependent on exportingunskilled labor. Even assuming that the demand for such labor will continueto grow in the future, and ensure that remittances grow sufficiently relative toexternal financing needs, such a development strategy side-steps the broaderissue of developing and enhancing the skills of the Sri Lankan population, generatingquality employment and improving the living standards of the generalpopulation. Additionally, given that the EU region is the second major source ofremittances, and recent Sri Lankan labor migrants to Europe have been skilledworkers, this dependence on remittances to meet external financing needs alsocreates a brain drain concern.Moreover, a major part of the remittances from the poorer labor and politicalmigrants is through informal channels. Post-9/11, the activities of informalmoney transfer systems have come under closer scrutiny by international regula-68 A <strong>Pardee</strong> Center Task Force <strong>Report</strong> | October 2013
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Pardee Center TASK FORCE Report oct
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This series of papers, Pardee Cente
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AcknowledgementsThis Task Force on
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ITU International Telecommunication
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networks and migrant associations i
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to developing countries than other
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But most importantly, remittances a
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often mix in the countries of desti
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According to the World Bank estimat
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Because of its focus on the multidi
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eceiving remittances provides an en
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Page 27 and 28: Terry, D. 2005. Remittances as a De
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Page 33 and 34: That personalized nature of hawala
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Page 58 and 59: Some guidance may be found in the p
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Page 62 and 63: Foreign TaxesUnder the 2012 regulat
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Page 66 and 67: Section II: Remittances in Post-Con
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Page 70 and 71: Figure 2: Current Account, Trade Ba
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Page 88 and 89: Remittance Transfers in Sierra Leon
Page 90 and 91: Knowledge RemittanceThe Liberian di
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7. Remittances and Community Resili
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For quantitative data collection, a
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Remittances are perceived as playin
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the affected population. Internatio
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ReferencesAddleton, J. 1984. The im
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8. Filling the Gap in Health Staffi
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The alternative is for donors to se
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cians in the U.S. in 2000 (Clemens
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1. Remittances, Financial Inclusion
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networks, and communities. The role
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• In the present era of heightene
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the island of Kosrae, in the Federa
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and Sweden and has held visiting pr
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he organized a number of workshops
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Pardee Center Conference ReportsDev
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