At both the macro and micro level, the social and economic impact of international remittances in developing countries is well documented. In 2018, the value of global remittance flows increased to $689 billion, of which $529 billion was to developing countries. In 2019, remittance flows to low- and middle-income countries are forecast to exceed foreign direct investment (FDI) as the single largest source of external financing and, according to the World Bank, remittances are already more than three times the size of official development assistance (ODA).
However, a critical threat to the continued growth of formal remittance flows is de-risking by correspondent banks, which involves denying or restricting banking services to certain types of remittance service providers for specific corridors. Banks use de-risking on the send side as a catch-all tool to avoid, rather than to manage, money laundering and terrorist financing risks. While efforts to strengthen AML/CFT processes are understandable, such practices disproportionately limit competition and increase the costs of remittance transactions. The global average cost of sending remittances currently stands at around 7 per cent – well in excess of the UN’s Sustainable Development Goal 10c target of 3% – with many African corridors notably higher.
Recent discussions among policymakers and remittance service providers (RSPs) have focussed on the need to implement robust compliance frameworks to counter de-risking. RSPs have also called for banks to provide greater transparency on their risk assessments for remittance providers. However, the reality is that these risks are not uniform: each banking relationship with an RSP is unique, requiring specific mitigation actions. The onus is therefore on the RSP to meet compliance requirements and to aim for greater harmonisation with international best practices and guidelines to avoid being de-risked.
An example of such international best practice is the GSMA Mobile Money Certification, a global initiative promoting safe, transparent and resilient financial services. The Certification defines and promotes excellence in eight core areas including AML/CFT risks, such that an RSP can safely identify the individual end recipient. Principle 2.5.1, for example, explicitly requires providers to adequately identify clients, outlining the minimum requirements under a risk-based approach. Principle 2.1.1 supplements this by requiring providers to have a ‘suspicious activity’ management process in place to deal with suspected money laundering and terrorist financing activities, providing clear guidance on appropriate actions to be taken (including raising suspicious activity reports). Such accurate identification measures can help RSPs secure the correspondent banking relationships they need to operate in higher risk corridors.
In line with the Financial Action Task Force’s recommendations, a risk-based approach underpins the GSMA Mobile Money Certification, requiring providers to achieve 300 detailed criteria when undertaking the voluntary certification process. The Certification represents a proactive move by the mobile money industry to demonstrate its commitment to risk management best practice, and to enhance trust with local regulators. The criteria also align with the Wolfsberg Group’s Correspondent Banking Due Diligence Questionnaire (CBDDQ), and the Certification has been recognised by industry thought-leaders such as the IFC’s Responsible Finance Forum and Greta Bull of CGAP.
Since the Certification’s launch in 2018, 11 mobile money providers across Asia, Africa and Latin America have successfully certified to date, covering close to 150 million registered mobile money accounts. Eight of these providers participate in sending and/or receiving remittances averaging around $85 per transaction. The total value of mobile money-enabled international remittances processed in 2018 was $4.3 billion, with an average cost of sending $200 via mobile money of 1.7% of the transaction, easily meeting the SDG 10.c target of 3%.
With the GSMA Mobile Money Certification gaining traction across developing countries, RSPs and correspondent banks can leverage the scheme as a tool to re-risk banking relationships. By gaining the trust of banking partners, other players in the remittance ecosystem will be encouraged to achieve higher levels of risk compliance, creating a cycle of continuous improvement. This, in turn, ensures that mobile money providers can continue to facilitate cheaper and affordable international remittances to millions of customers in low- and middle-income countries, creating widespread socioeconomic benefits and lowering the risks associated with cash-based international remittance transactions.