Regulations relating to anti-money laundering and countering the financing of terrorism appear to have become a constraint to cross border money transfers and remittances. This constraint is dominant especially for smaller remittance service providers dependent on correspondent banks.

These regulations are also affecting banks and cell phone companies interested in providing international remittances and mobile banking services.

The worrying remittance trend is raising the issue of a possible pressure on authourities to rethink the policy and find ways for harmonising these regulations.

Remittances are the largest source of external financing in many low income countries.

A look at the trends of remittance flows into countries in the past shows that as money transfers are being subjected to more intense scrutiny by regulators, the remittance industry experiences a shift in remittances from informal to formal channels.

For instance, large money transfer operators (MTOs) have therefore benefited from the shifting flows.

Investigation reveals how the remittance industry has also seen the introduction of cell phone-based remittances and several pilots involving remittance-linked financial products.

These changes, Business Day gathered may imply a shift from cash-based remittances to account-based remittances in future.

According to Migration and Development Brief III, mobile banking and partnerships with cell phone companies can potentially extend remittance services to millions of people in remote, rural areas.

Globally, the flows of remittances were expected to have reached $318 billion in 2007. Of this amount, remittances sent home by migrants from developing countries were expected to have exceeded $240 billion in 2007, up from $221 billion in 2006 and more than double the level reached in 2002.

This amount reflects only officially recorded transfers—the actual amount including unrecorded flows through formal and informal channels is believed to be significantly larger.

Recorded remittances are more than twice as large as official aid and nearly two-third of foreign direct investment flows to developing countries.

Also remittances have been less volatile than other sources of foreign exchange earnings in developing countries.