Projects

1. Catalyzing policy change on payments systems issues and policies through international partnerships.

International remittance transfers are cross-border person-to-person payments of relatively low value. In practice the transfers are typically recurrent payments by migrant workers. But while there are well established policies and principles applied to payments systems and its use, broad awareness of the impact of remittances on the application of these policies has been limited. One of the important means to raise such awareness was through discussions of such policies at the international level, in particular though the World Bank's participation in the Bank for International Settlements’ Committee for Payment and Settlement Systems (CPSS).

In 2004, the CPSS requested the Bank to co-chair the Task Force to establish General Principles of universal applicability identifying the features and functions that should be satisfied by remittance systems, providers and financial intermediaries, including the need for international policy coordination. The General Principles cover areas such as transparency and consumer protection, payment system infrastructure, legal and regulatory environment, market structure and competition, and governance and risk management. The Report also identifies what the role of the remittance service providers and authorities should be to achieve the public policy objective of a safe and efficient market for remittance services.

In parallel with the finalization of the General Principles, which was published in March 2006, the Bank is developing, together with other international financial institutions (IFIs), a Guidance Report with detailed guidelines and actions for the implementation of the General Principles. Remittance systems in sending and receiving countries will then be assessed against this framework.

The Bank plans to be involved in these assessments together with other development banks, the IMF and authorities of sending & receiving countries (pilots to begin in 2006). In this effort, the Bank will benefit from the experience accrued from the corridor studies (see below), which will be expanded to evaluate the situation of the assessed country more globally, i.e. vis-à-vis all relevant sources/destinations of remittances.

The Bank, in cooperation with other IFIs, will also support the implementation of policy recommendations and action points that stem from these assessments. In this regard, any necessary actions will be integrated in the context of the reform of the national payment system, which in many countries the Bank is supporting or has supported in the past. The Bank has supported payment system reforms in 70+ countries over the past 12 years and, in many of these countries, has already created the preconditions for an enhancement of the efficiency in the provision of remittances through better retail payment systems and more effective payment system oversight.

Available tools to foster the dialogue within the country and among countries include the Regional Initiatives in Payment Systems (Western Hemisphere Payments and Securities Settlement Forum, Arab Payments Initiative, CIS Payments Initiative), FSAPs, etc.

2. Understanding the Remittances Market and Institutions.

The discussion in GEP on reducing remittance costs shows the complexity of the measures that are needed to realize the gains from a financial system that provides efficient and safe cross border remittance services. Building knowledge on the nature and structure of diverse remittance service providers and business, the bottlenecks faced, the role of government where there are scale economies and network externalities involved in the investments in financial infrastructure, is crucial for policy makers to opt for, and for the World Bank to provide, suitable policy advice.

Over the past few years, there have been a variety of efforts undertaken in regions, FSEVP, CGAP, and regional units to build this knowledge on existing practices and institutions in various countries. The following lists these recent studies.

· Study of remittances business, policy and regulatory environment in Southern Africa: the following topics are covered in separate papers: i) Regulation and Public Policy Objectives for remittances in South Africa as a sender country; ii) Technical Overview of Remittance Payment Corridors from South Africa into six neighboring countries; iii) Review of Regulatory, Policy and Business Issues relating to Remittance Payment Corridors from South Africa into six neighboring countries. (FSE).

· Survey of Remittance Agents in the U.S. To investigate the business models, geographical coverage, size of flows and costs of remittance agents in the U.S. a policy research paper “Remittance service providers in the United States: how remittance firms operate and how they perceive their business environment” was produced (forthcoming). (FSE)

· Regional Study on Remittances to Latin America and the Caribbean (LCR). The objective of the regional study is to articulate the policy implications of available research findings on the impact of remittances on development in order to provide inputs for staff engaged in policy dialogue and other Bank operations. As secondary objectives, the study aims at generating new descriptive stylized facts on remittances flows to LCR and new robust estimates of the development impact of remittances in LCR. (LAC)

· Workshops on securitization of remittance flows to understand some of the requisites and bottlenecks, and consequences, of these securitization structures.

3. Understanding the various aspects of remittances and its links with migration, through bilateral corridor analysis.

Bilateral corridor studies have been used with a view to analyzing what are the major micro and macro determinants of remittances being channeled through informal or formal funds transfer systems, and identifying policy recommendations that may induce the shift to the formal sector.

In response to specific requests of member countries, since 2003 the World Bank's Financial Sector (FSE) has initiated eleven remittance corridor studies described in Table 1.

Table 1: Bilateral Remittance Corridor Analysis (as of February 2006)

The USA-Mexico, UK-Nigeria and Italy-Morocco can be characterized as mature corridors in which money flows mostly through financial institutions, statistics on remittances are reliable, and there is an active policy dialogue between financial sector authorities of the countries of the corridor. Other corridors analyzed can be characterized as incipient or informal due to, among other things, the large share of remittances that flow outside the financial system, and the lack of an articulated policy for remittances.

Corridor studies have shown that competition especially in the high volume corridors have led to a decline in the cost of remittances. But overall, the studies have also revealed that in most countries migrants and their families still prefer to send or receive money through friends and relatives traveling to their home country, bus drivers or other informal means. The share of remittances channeled through non-financial institutions is therefore large in some cases.

These studies have tried to understand the incentives behind this. Some of the preliminary findings of the studies include: i) the lack of trust of migrants in the financial institutions in their home country; ii) the lack of competitiveness of the banking sector versus other remittance service providers, including the limited number of bank branches and ATMs in most developing countries; iii) the existence of black markets for foreign currency; iv) the absence of pre-departure programs for migrants; and, v) a set of legal issues faced by undocumented migrants to open bank accounts in their host countries.

Going forward, the conclusions of the studies so far suggest a broader policy and institutional agenda for financial systems to improve the efficiency and outreach of financial service providers in recipient countries. But it also suggests the need for migration policies that touch on financial literacy and migrant identification. Finally, the collaboration with other units that will conduct bilateral corridor analysis that will focus on migration will clearly enrich the analysis.

4. Strengthening policy work to understand regulatory practices that will promote financial integrity (AML/CFT) and continue to develop access to financial services.The Bank has been engaged on policy dialogue with authorities and standard setters on AML/CFT rules and practices that will not have a significant impact in the cost structure of remittance service providers and/or will not discourage market participants from providing certain or all remittance services. To inform this dialogue, several pieces of policy work are being undertaken, such as the recently launched regional initiative on “AML/CFT Regulations and Access to Finance in LAC”. The objective of this regional work is to look at how the structural impediments, compliance costs, and regulatory/reputational concerns (that may lead to an attitude of “play it safe” by providers) combine to increase the cost of accessing finance, including remittance services. The ultimate objective of this LAC study is to understand better and identify ways to design and implement policies to promote financial integrity and still maintain access to formal financial services.

Similar to other financial sector activities, remittance systems face the risk of misuse for illicit activities such as money laundering or the financing of terrorism. Some remittance systems may be especially attractive due to, among other things, the anonymity of a share of total transactions, weak record keeping, and weak regulatory oversight.

AML/CFT initiatives are of great importance in reducing money laundering and preventing terrorist activities. However, such initiatives, unless properly planned and executed, have the potential of driving remittance services underground and may reduce competition and service levels. In a context where government agencies around the world face pressure to improve their AML/CFT programs, there is a particular role for the Bank in ensuring that such programs do not reduce the welfare of the poor and access to financial services by disenfranchised segments of the population.

The Financial Action Task Force on money laundering (FATF) encourages countries to put in place a regulatory framework for licensing or registering money transfer providers (Special Recommendation number 6). In this regard, the Bank has been assisting member countries in a variety of topics related to market integrity. Among others, these include: i) setting up licensing or registration procedures for all remittance services providers (RSPs); ii) the issuance of customer identification rules; iii) the reporting of suspicious transactions; iv) policies to prevent and detect money laundering operations through money transfer companies; and, v) training of the staff of financial supervisory agencies.

The Bank has been engaged on policy dialogue with authorities and standard setters on AML/CFT rules and practices that will not have a significant impact in the cost structure of remittance service providers and/or will not discourage market participants from providing certain or all remittance services. To inform this dialogue, several pieces of policy work are being undertaken, such as the recently launched regional initiative on “AML/CFT Regulations and Access to Finance in LAC”. The objective of this regional work is to look at how the structural impediments, compliance costs, and regulatory/reputational concerns (that may lead to an attitude of “play it safe” by providers) combine to increase the cost of accessing finance, including remittance services. The ultimate objective of this LAC study is to understand better and identify ways to design and implement policies to promote financial integrity and still maintain access to formal financial services.

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