The money that is sent by migrants to their families back home provides a lifeline to people across the globe – millions would not survive without it. So it's crucial that those who are transfering money have good information and reliable ways to do it. Usually, trusted community networks are the best way of finding out which methods are best. But InfoMigrants has found that some migrants may still have concerns. Our list of five things to know about remittances aims to answer some of those questions.
Eight years of war in Syria has left the country without a functioning banking system – added to that, a regime of international sanctions means that transferring money to individuals in Syria via a licensed company like Western Union has become impossible.
Not that it makes much difference to Aref. For nearly two decades, he has been sending money from Germany back to his family in Syria – to his parents, while they were still alive, and now to his brother and his family, who live in a camp in Afrin. "One has to help them," he says simply.
Like many Syrians who have left the country, as well as millions of other migrants worldwide, Aref uses the informal "hawala" system. This works using brokers in the two countries: Aref gives the amount he wants to send, plus a commission of about five percent, to the broker or "hawaladar" in Germany. This person then contacts their partner – another broker – in Syria, who hands over the amount to Aref's family member there.
Aref finds the hawala system easy, uncomplicated and trustworthy, since the operators would go out of business, or worse, if they didn't deliver. As it's currently the only way to get money to Syria, aid organizations and non-governmental organizations are using it too.
However, Syria is a special case. For most other countries, there are more ways that people can send remittances, explains Leon Isaacs, a global authority on the money transfer industry and one of the heads of Developing Markets Associates. Even to Afghanistan, which is also subject to embargoes and financial sanctions, it is still sometimes possible to send money with formal companies like MoneyGram and Western Union, as well as several organizations based in the Gulf States that have offices in Europe and are compliant with European regulations.
Sending money to many African countries is easier still. In some cases there are several options, from the main international remittance services – Western Union, MoneyGram, and Ria are the biggest ones, Isaacs says – to increasingly popular online services which charge low fees, like WorldRemit and Azimo.
# 1 Entire countries depend on migrant remittances
For those on the receiving end of remittances, the money can be a matter of survival – according to Isaacs, it can amount to half of the total family income. The bulk of the money received – around 75 percent of it – is spent on consumption.
It's not only families that rely on money transferred from those working abroad, whole national economies do too. In Cape Verde, Gambia, and Lesotho, up to 20 percent of GDP comes in the form of remittances. In Liberia, migrants contribute more than a fifth of GDP.
For those sending the money, the remittances are about 15 percent of what they earn in their host countries, some studies have shown. 85 percent of their income is spent on things like housing, food and utilities. With very little left over, transferring money to family members can take its toll, even for those who choose to migrate for economic reasons (90 percent of people sending remittances, according to Isaacs).
"Particularly in the early days when they arrive, it's a very, very hard life for them," he says. "When you see a lot of the individual stories, you have people who are not having a particularly good life...in Europe, in order to be able to send money home. So they're living in shared accommodation, where there are a lot of people in a single room, and they have very little privacy."
The dream for many, Isaacs says, is to earn enough money to return home, and to have made such a difference that they have elevated themselves and created opportunities back in their home country.
# 2 Check that you are using a licensed money transfer company
Licensed money transfer companies can have their down-sides – their fees can be high, for one thing. Worldwide, institutions charge about 7.01 percent on a transfer of $200. At the same time they are practically risk-free. Before sending the money, you know exactly how much it's going to cost, including any foreign exchange rate. Also, under the Payment Services Directive, your money has to be protected by the organization you're dealing with, so the chances of losing money are very small.
This is why Isaacs says people should always use a registered company. "It's very important that they try and check that they're dealing with a licensed company and if they don't deal with one, then they've got a big risk that the money doesn't arrive there." The problem is, it can be hard to tell if an institution is registered or not. Each country in the EU has its own register of licensed money transfer companies, though most senders don't know it exists and would never consult it, Isaacs says. "Whenever we talk to migrants who send money, I don't think we've ever come across one who's checked that the business was licensed and they wouldn't know what the implications of that were," he says.
Isaacs admits that communities are generally well-informed about risky operators through informal information networks. But if in doubt, there is also an online register, published by the European Union (European Banking Authority) where it's possible to find up-to-date lists of all licensed money transfer operators.
# 3 Migrants should not send large amounts if they are receiving welfare payments
A lot of migrants receiving benefits, in particular those in Germany, have expressed concerns that the fact that they are sending money will be reported to the government, and that could impact their benefits.
It is true that asylum seekers and others receiving benefits should be cautious about how much they send, InfoMigrants has been told by an official source in Germany. In order to qualify for financial support, a potential recipient usually has to show their bank statements, effectively to demonstrate that they are in need. The welfare authority would seriously question whether someone was entitled to support if they were found to have sent money abroad, the source said. 10 or 15 euros a month would be overlooked, according to the source, but if someone were to transfer more than 50 euros, for example, they should expect to be questioned.
There is another concern shared by many that when they provide identification to make a money transfer, their information will be passed on to government or other authorities and their immigration status could be affected. According to Isaacs, privacy protection rules make the risk smaller than people think. While there are anti-money laundering checks and suspicious transactions are reported, he says that unless there has been illegal activity, data privacy regulations in Europe mean there should be no danger that the information will be passed on to immigration authorities.
# 4 There are no tax implications
To send a large amount of money, you have to provide proof of income, but when you're sending remittances, there are no tax implications on either side of the transaction, Isaacs told InfoMigrants. Governments have talked about trying to tax remittances – Italy is in the process of trying to implement a 1.5 percent tax on all remittances going outside the EU – but there are none currently in effect.
# 5 Only use hawala if there is no other option
Hawala is effectively an illegal system. However, Isaacs says, the migrant who's sending money through it is not actually committing a crime unless the funds are related to some illegal activity. The crime is being committed by the hawala operator themselves, and they can be open to severe sanctions including potential prison sentences or big fines. This rarely happens, Isaacs says, because it's hard for regulators to close down hawala operators. These are often family networks, and if one party is closed down or arrested, it's easy to set up an alternative system.
This tends to make hawala operators unpopular with the competition, the formal money transfer businesses that have to pay the costs of complying with all of the regulations while the hawaladars don't.
For these reasons, Isaacs says it's best not to use a hawala operator unless there is absolutely no alternative, such as sending money to Syria. There, because there are so many hawala operators and they are well known, community pressure offers some protection against losing your money. Everywhere else, his advice is, even if it means you have to pay a bit more, don't take the risk.