1. VOTING WITH THEIR MONEY IN A RIGGED ELECTION1
The Demand for Alternative Mechanisms for Remittance Transfers from
Immigrant Families and Migrant Workers
Campaign for Remittance Justice Update
In December of 2010, ACORN International’s opening report of the remittance
campaign, Past Time for Remittance Justice, exposed the trials and tribulations of migrants
around the world who pay exorbitantly high fees to send small amounts of their hard-earned
money back to their home countries to support their families. The message was clear: the
high costs charged by money transfer organizations were predatory and no one was taking the
plight of the remitting migrant worker seriously. When ACORN International’s second
report, Looking the Other Way: The Absence of Remittance Regulation, was made public,
sadly not much had changed.
Our calls for regulation and doing away with exorbitant fees are only being seriously
engaged at the provincial and federal levels in Canada, and even there the response remains
grossly inadequate. Elsewhere in the world, the financial community, aided and abetted by
the responsible national banking authorities and their global counterparts, continues to ignore
this scandal. This is easy for them to do. This is a crisis for poor people, immigrants, and
migrants, not a crisis for bankers and governments. In other words, regardless of their
responsibilities to protect and serve, the people in a position to remedy the situation have no
interest and are feeling no pain.
In both of these reports, ACORN noted that alternatives to formal restraint or
regulation of fees and predatory practices were being sought every day by victims of the
system, and in the absence of real progress, people would be voting with their money for
different systems throughout the world. Change will come here. The party will not last
forever.
Informal Money Transfer Systems
Today the largest informal money transfer system is likely “hawala.” ‘Hawala’ is a
term that is regionally-specific to the Middle East, but similar systems exist elsewhere under
different names (such as ‘hundi’ in Pakistan and India and ‘fei ch’ien’ in China). Together
they all fall under the technical, World Bank-like title of ‘Informal Money Transfer Systems’
(IMTS). Since hawala is the most popular IMTS, and the one that has gotten the most
publicity, this report will refer to IMTS as ‘hawala’ with the understanding that it is
interchangeable with other regional-specific versions.
1
This is the third report ACORN International has issued as part of its Remittance Justice Campaign. This
report and the earlier two reports are all available at www.acorninternational.org. For more information
contact chieforganizer@acorninternational.org.

2. Before discussing more about the size, scope and importance of hawala, we will
examine more closely how hawala works using the following example:
A migrant worker in country A wishes to send money home to his family in country
B. He has no bank account and is not an excellent speaker of country A’s language
thus he finds dealing with any bureaucracy extremely intimidating. In his local ethnic
paper, written in his own language (and perhaps even own dialect if he’s lucky), he
finds an advertisement for cheap money transfers back to country B through a small
local business. The worker goes and meets hawaladar A, the owner of that business,
to whom he gives $150 to send to his family. Hawaladar A is an importer of
handicrafts from country B and thus he has many business contacts there, one of
which will be referred to as hawaladar B. After receiving the migrant worker’s
money, charging him a commission between .25% and 1.25% and giving him an ID
number that can be used to pick up money in country B, hawaladar A rings up
hawaladar B and informs him of the transaction. Within 24 hours the migrant
worker’s family can go to hawaladar B in country B and pick up the amount
transferred by the worker.
What is important to note is that this entire transaction has taken place without any
physical movement of funds. The only debt that exists is the one between the two
hawaladars. Sometimes this debt will be settled via a formal bank transfer or perhaps
hawaladar B owes hawaladar A money and this is a settling of that debt. More likely,
however, both hawaladars are in an import-export relationship and by over/under
invoicing for goods shipped between countries they can settle their debts through
manipulation of their balance sheets.
We could substitute a thousand other examples from neighbours to personal business
acquaintances or family friends and relatives. This example highlights many of the attractive
features of IMTS; It’s cheaper, faster, and often more accessible than formal systems which
the World Bank claims cost an average 10% worldwide (as compared to .25%-1.25% of the
informal sector and the over 20% found through ACORN International’s own surveys), and it
often takes several days for transactions to go through.2 However, it is also very important to
note that no paper trail is left and the balance-book manipulation makes the transaction
untraceable and therefore illegal in many countries, including India where it is widely used.
So How Important is the Informal Sector Anyway?
In Past Time for Remittance Justice, ACORN International estimated that if
quantified, volumes of money going through hawala (and other equivalent informal money
transfer systems around the world) may add 20-40% to the value of worldwide remittances.
2
World Bank Global Remittances Working Group
(http://siteresources.worldbank.org/FINANCIALSECTOR/Resources/282044-1257537401267/RomeConference
Remittances.RathaAndCirasino.pdf)

3. Having looked further into informal money transfer systems, we now have reason to believe
that this amount may be much larger. Official figures, such as those referenced by national
governments and the World Bank among others, do not take informal money transfers into
account when quantifying remittances. Even academic attempts to measure the size of hawala
(and other equivalent mechanisms) admit that the best that can be done is to simulate rather
than estimate. From our example above it becomes very clear why such difficulties exist. The
most reliable estimation that our research has come across is a 2002 estimate of the United
Nations Department of Economic and Social Affairs (DESA) that $100-$300 billion flow
through Informal Money Transfer Systems each year.3 In 2010, the World Bank estimated
that global remittance flows would reach $440 billion by the end of the year, $325 billion of
that going to developing countries.4 If both of these estimates are valid then the importance of
the informal sector is much greater than we had anticipated. Rather than 20-40% of formal
remittance figures, it could be anywhere from 25-75%.
$440 billion in remittances and transfers is a huge amount, but the importance of this
figure is dwarfed by something that the banking authorities and others are missing. When we
take estimates of informal remittance flows into account, the real values of remittances
worldwide can be conservatively calculated to be at least $550 billion and more aggressively
to be $770 billion. When we apply the .25%-1.25% range of fees charged by the informal
sector, the $44 billion in fees paid on remittances, using the 10% figure used by the World
Bank as a global average, increases as well. At the lower fee level of .25% the range in
additional money is anywhere from $275 million to $825 million. At the higher level of
1.25% this range increases to be $1.4 billion to $4.4 billion. We can now see that by
quantifying informal remittances and their additional costs, the $44 billion could be increased
by up to 10% and we start knocking at the door of $50 billion in fees collected for various
forms of transfers.
A senior economist in the World Bank, when fielding our queries on informal
remittances, admitted that he was not able to come up with a ballpark figure though he
suspected that numbers had decreased since 2003, largely due to impacts of the recession.
Regardless, he maintained that informal flows were still significant and categorically
confirmed that hawala and other informal systems are not included in any of the World Bank
estimates on remittances which are the gold standard in this area of inquiry. While it may be
impossible to accurately measure the use of informal money transfer systems, one thing is
extremely clear: the informal sector is an extremely popular way to send money around the
globe.
Security Concerns
3
United Nations Department of Economic and Social Affairs
(http://www.un.org/esa/desa/papers/2002/esa02dp26.pdf)
4
World Bank
(http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22757744~pagePK:64257043~piPK:437
376~theSitePK:4607,00.html)

4. The same characteristics that make hawala and other IMTS attractive to migrants
looking for a quick, easy and cheap alternative to formal Money Transfer Organizations have
also been flagged as conducive to money laundering and terrorism financing. In the wake of
September 11th, IMTS, especially hawala due to its Middle Eastern origin, were considered
security threats. Most of the literature on hawala is from this period where international
bodies and national governments sought to work together to combat such threats through the
attempted regulation of hawala.5 However, as the United Nations DESA points out, while
hawala is an attractive medium for illegal transactions, it is also extremely important to many
migrants around the globe who are using it for perfectly legal means.6 For this reason it is
important that any attempts to combat terrorism and crime through the hawala system take
the importance of legal activities carried out through the hawala system into account.
Paradoxically, the global and developed world concerns for increased security in these times
has not tempted them to trifle with the more than $40 billion in transfer fees in the formal
section in order to compete with the hawala system or create a more efficient system for
immigrants, migrants and others.
The anonymity and absence of a paper trail that are hallmarks of the hawala system
are enough to cause great concern to national security. It is also enough for ACORN
International to remain wary, despite all the benefits the hawala system presents to migrant
workers. Just as we can never quantify the volumes of remittances that flow through these
informal channels, we will never be able to know when, and how often, the system breaks
down to the misfortune of migrant workers and their families. Even though anecdotal
evidence leads us to believe that hawaladars are typically honest, since their customers would
“vote with their feet” presumably, with any system as opaque and off-the-record as hawala,
one must always remain vigilant.
It is here that ACORN International and national security workers find common
ground: the desire to bring hawala and similar systems into the open. Given the World
Bank’s only argument for reducing the fees to G8 targeted 5% by 2014 is “competition,”
moving the informal system towards the formal would finally introduce real competition
rather than the nodding and yawning between banks and MTOs that exists now. In a joint
World Bank-IMF paper, the recommendation was made that hawala operations existing
5
Interpol (http://www.interpol.int/Public/FinancialCrime/MoneyLaundering/Hawala/default.asp);
Financial Action Task Force (http://www.fatf-gafi.org/dataoecd/16/8/35003256.pdf) and (http://www.fatf-
gafi.org/dataoecd/32/15/34255005.pdf);
US Department of Justice (http://www.ncjrs.gov/pdffiles1/nij/grants/208301.pdf);
West African Institute for Financial and Economic Management (WAIFEM) (http://www.waifem-
cbp.org/v2/dloads/INHERENT%20RISK%20IN%20GLOBAL%20REMITTANCES.pdf)
6
World Bank
(http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:22757744~pagePK:64257043~piPK:437
376~theSitePK:4607,00.html)

5. parallel to the formal remittance channels be brought into light ‘without altering their
specific nature’.7 This paper cannot ignore one of the most important points about hawala: it
is an extremely attractive and efficient option for remitting money!
Glimmers of Hope
One country that has had great success in formalizing remittances is the Philippines.
Their official remittance figures show $3 billion having been remitted in January and
February of this year (2011) alone. This is a 6.2% increase from the same period last year.8
Following from the discussion above, official statistics do not necessarily reflect the total
flow of remittances into a country due to the non-quantifiable nature of informal remittances.
The increases seen in the Philippines have been greatly influenced by their pro-remittance
policies. ACORN International has found that the Philippine government now trains migrant
workers in the smartest ways to send remittances home before they leave the country for
work. The Banker’s Association of the Philippines has even encouraged banks to innovate
and replicate the advantages of the informal sector. One company, SwiftCash (UK) in
cooperation with a Philippine bank has offered another incentive not to use informal channels
by using the receipt from the transaction to enter the customer in a raffle where a multitude of
prizes can be won ranging from a sack of rice to medical services (For an example visit:
http://www.suremoney.swift-cash.com/promo-mmp.php).
Bringing the informal money transfer systems into the light is advantageous for many:
• Migrants will enjoy greater transparency and protection through the documentation
of their transactions;
• National Security Workers will be able to target illicit operations occurring in the
informal sector without the worry of severely damaging the financial life-lines
migrant workers send to their families;
• Governments of the remittance receiving country will benefit from the knowledge of
the true capital flows in their economies and thus will better be able to construct
economic policy.
Learning Lessons
While hawala operations often occur illegally and without documentation, we can
learn from them how to best serve migrant workers and immigrant families. Perhaps the
biggest lesson to be learned from hawaladars is that overhead costs to send remittances need
not be large at all as ACORN International has consistently argued. The reason why a
hawaladar can charge only .25%-1.25% to send a remittance is because it does not cost much
to carry out the transaction! Many banks have high overhead costs (for example, heavy-duty
safes, large, expensive buildings and highly trained and paid staff), but all a hawaladar needs
7
Joint World Bank – IMF Commissioned Paper
(http://johnfwilson.net/resources/Hawala+Occasional+Paper+_3.24.03_.pdf)
8
The Philippine Star (http://www.philstar.com/Article.aspx?articleId=676699&publicationSubCategoryId=200)

6. is some form of communication (often a telephone). He or she doesn’t even need an official
location for hawala as many hawaladars are already business owners with small shops. If
your average small business owner can operate a small scale remittance business and charge
less than 2% in fees then it further drives the point home that it is completely indefensible
for organizations that enjoy economies of scope and scale to charge fees that are much
higher.
Logically in a computerized and electronic world, the same hawala principle of cash
received in one place and cash turned over in another would work easily within different
branches of the same bank, different offices of Western Union, MoneyGram, and other
MTOs, and even between banks in the developed world and their correspondent banks in the
developing world. In fact for all we know similar adjustments may be already happening
between a Citibank and a Banamex for example and simply adjusted with real dollars or
pesos on a quarterly or annual basis and done as entries on accounting ledgers at other times.
Recently for example, ACORN International’s own US-based bank ran a test run on
its international transfer system and inadvertently used our “live” account number and moved
unimaginable (to us!) sums between our account supposedly and our payees. The bank was
apologetic of course, since it was their error, and furthermore they needed our help to
potentially recover their money. In difficult cases like those in India and Kenya, they sent
electron “messages,” as our banker described it to the recipient bank where our payee had an
account saying that the XX amount was mistakenly sent, and asking for it to be routinely
transferred back. We all fretted for a day or two, and our bank was less than thrilled with
how quickly their correspondent bank was able to assist them when it seemed to be taking too
long in Nairobi, but it worked out well for our bank, no harm, no foul. We cannot have a
hawala system for banks managed digitally and electronically, and a paper, cash, hope and a
prayer system for immigrant families and migrant workers, but that is exactly what “look the
other way” national banking regulators and “everything my way” financial institutions are
maintaining today.
Other Alternatives to Money Transfer Organizations
Besides hawala, ACORN International has identified several other methods that can
be used to remit money abroad and avoid the predatory money transfer organizations.
If the migrant worker has a bank account, he or she may be able to send an extra debit
card to his/her family that can be used at any ATM to access the bank account from anywhere
in the world. However, this is not a satisfactory scalable solution because many migrants do
not have bank accounts. Even if they do, the ATM withdrawal fee (which can be several US
dollars) and exchange rate used by the banks will greatly diminish the value of the funds that
will actually be available to the family. Not all banks will agree to provide an extra ATM or
debit card and thus this solution only works for a small percentage of migrants.
If a bank does not allow one to obtain an extra card then services such as Ikobo
(www.ikobo.com) that enable you to send a Visa pre-paid card to your family can be used

7. instead of a debit or ATM card from your bank. However, there is a $500 daily limit on
withdrawals and each time you withdraw there is a $2.25 ATM fee charged. You also have to
physically send the card to your family which represents yet another cost.
Services such as PayPal have also been cited as good ways to send money over the
internet across borders. However, the problems with PayPal include the cumbersome nature
of its operation (ACORN International staff still don’t completely understand the ins and outs
of it, and we use it!) and the necessity of having either a bank account or a credit card. To
compound the problems of using PayPal, a recent study has shown that migrant workers tend
not to have the level of technological literacy necessary to utilise such tools.9 Add all of
these problems to the well publicized capriciousness involved in PayPal opening and closing
accounts, and even though the company estimates it may move $3 billion by the end of 2012,
this service is not ready for prime time for migrants and immigrants yet.
And the Campaign Pushes On...
Overall, while there are formal alternatives to Money Transfer Organizations,
none of them really fit the needs of migrant workers.
It is obvious to us that the potential for low-cost, accessible solutions are available,
but up to now the formal sector obviously has not felt the need to develop them (and with
charges on global remittances exceeding $44 billion USD it is easy to see why they face no
pressure to feel otherwise!)
We have seen both the formal and informal alternatives to using banks and Money
Transfer Organizations to remit money and our argument remains strong: The only true
solution today is regulation and cost cutting. We have seen that both are possible and there
is no defensible reason to continue brushing the plight of the migrant worker aside.
There can no longer be any doubts about the importance of remittances worldwide
and the severe injustices that migrant workers face every time they attempt to send their hard-
earned money home to their families. With this report we have repeated the irrefutable case
that costs do not have to be as high as they are. All the pieces of the puzzle are exist to create
a better alternative for immigrant families and migrant workers and their families.
ACORN International is committed and determined to put these pieces together. It is
past time for the world financial community and governmental banking systems to join us!
9
Orozco, Burgess and Ascoli, 2010 http://www.thedialogue.org/PublicationFiles/a%20match%20in
%20migrants%20remittances%20and%20technology%20MO_FINAL_11.4.101.pdf