Real lives, real risk: threats to small money remitters hit African families

All Australia’s major banks have largely stopped serving small money remitters, amid concerns about money laundering and terrorist financing risk. The options for sending money overseas are becoming limited to commercial banks and large international companies, often the most expensive remittance channel.

Almost one year on, we have interviewed 40 people based in Melbourne from Somalia, South Sudan, Ethiopia and Eritrea, to record, rather than debate, their views.

All senders of money worry they will not be able to send money home, money that feeds their families still in Africa and pays school and university fees. Some worry that if the money stops their parents will starve. Young people will join terrorist groups or decide to flee hunger by joining the boats. One Eritrean community leader said his cousin fled to the Mediterranean shores and died in the attempt to reach Europe.

Regulators are aware of what is happening. They meet with industry representatives, mainly behind closed doors, and debate whether the closures have any real impact. In this process no government or bank official is speaking with the affected communities. Community leaders fear that this marginalisation of those needing to support their families, increases their social exclusion and may feed radicalisation in Melbourne.

What they said

Community reaction is a mixture of bewilderment and a feeling of being sidelined. Badra (all the participants' names are pseudonyms), who supports her family in Somalia and Kenya, says she is “just outraged”.

“It was put in place without consultation. For me, it is another form of colonialism. People who have gradually built their lives after fleeing war and trauma, are now being cut down… My connection to my country of birth, my parents’ and grandparents’ country of birth, has been cut off.”

Community members rely on their community-based remittance providers. Banks and other large international providers are too expensive but most importantly they don’t have the reach in the recipient countries and are not located close to family members of many senders.

Ojala from Somalia says:

“Western Union doesn’t live in a remote area. It can take two days for our people to walk to the city. Then they don’t know English. And the fee is higher.”

Central to their comments is that sending remittances is not optional.

Faith from South Sudan says:

“I cannot let my mother die.”

She sends money every fortnight, turn by turn, to her mother and siblings in Uganda, her father and siblings in South Sudan. How do you manage? we ask. “I budget,” she says.

Helen from South Sudan says:

“Women send more often. They see the situation. They understand what is happening to the family.”

Dawood from South Sudan says his family is waiting for his support:

“Even though I have no money, I have to send. I ask others in my community, here or in Queensland to help. We have to.”

Views of remittance providers

Community-based remitters are stressed. Many who had lost bank accounts, moved to other smaller banks but are fearing that those accounts will be closed too. We interviewed one remitter who, with his last account eventually closed by a smaller bank, was in the process of closing his ten-year old business.

Fuad a small remittance provider from Somalia says:

“I am worried not only for the business, but …I don’t know how my mother, my brothers and sisters will live. It is very painful. If they close down this business, they close down the life of the people.”

“The Australian government gives us a licence… but the banks say you are too risky for us.”

These community-based remitters – like all formal remitters - are registered with AUSTRAC and have compliance programs. Most have a customer base of a few hundred customers drawn from their ethnic communities. They know their customers and often their families personally. Customers are registered and send on average A$100-$200 per month. The people who receive their money have to show their ID. Everybody agrees that if a provider is not following the rules, it should be closed.

Abbas from Ethiopia with a remittance business says he feels regulators see people like him as “aliens”. These policies are made without consultation and are further marginalising his community. He sees the move as banks wanting to increase their market share by closing competing businesses.

Identifying real risk

These providers and sending communities face a serious dilemma. Their families live in regions with conflict and so the families’ needs are acute. At the same time these regions carry a high terrorism risk, making it even riskier for banks to deal with them. Regulators’ concerns, however, do not resonate with the community. Kubira, a Somalian woman asks “Is sending $150 to your mother, terrorism?”

Senders all indicated that remittances will continue because the survival of their loved ones depend on it. If the formal sector provides no practical alternatives, money may be sent informally with friends or carried by hand. Some of the informal channels are managed by people who are viewed as radical. Community leaders fear the consequences of driving senders, angered by account and business closures, into the hands of radical elements. Regulatory processes aimed at preventing terrorism in the Horn of Africa, can perversely result in increasing radicalisation and risk in Melbourne.

Regulatory processes against money laundering and funding for terrorism require banks to adopt appropriate – and relatively expensive – measures to monitor these customers. This makes the retention of the business of smaller, community-based remitters unviable.

AUSTRAC, the relevant regulator, publicly encouraged banks to consider these relationships and to engage remitters with a view to maintaining accounts. This is helpful but regulatory authorities need to be more creative to address compliance costs and the risks of increased international penalties for compliance failures – a key driver of many of the closure decisions. In addition they need to address the threats by other international banks to cease doing business with Australian banks if they continue to service these providers.

Time to talk

An important step forward would be to engage the affected communities in Australia. It will show them the Australian government is concerned about their plight and enable officials to explain their regulatory objectives to these communities. A constructive discussion may assist in identifying factors that may lower the perceived risks posed by small community-based remitters.

Funds sent by these providers could be capped at $300 per customer per month, to limit the risk of terrorist financing. Regulators could leverage off the personal relationships between providers and their customers, supported by communities that have a stake in ensuring that these channels are used responsibly. That could open the door to more cost-effective risk mitigation measures by banks and help ensure continued flows of these vital funds.

Supriya Singh does not have any funding or affiliation that is relevant, or could be perceived to be relevant to this subject. Her academic affiliation is with RMIT University.

Louis de Koker does not work for, own shares in or receive funding from any company or organisation that would benefit financially from this article. He does provide policy advice to international bodies and groups that advance financial inclusion.