Page last updated at 22:54 GMT, Tuesday, 23 September 2008 23:54 UK

Sending money home safely

By Alkarim Jivani
Follow the Money, BBC Radio 4

Oyinda's Grocery Store in Hackney, east London, is bursting at the seams - goods are stacked from floor to ceiling and cover the range from dried fish and Nigerian DVDs to copies of the Bible.

Money being taken out of a wallet
3bn is sent out from the UK each year

But one of the most important things Oyinda provides for her customers is invisible and requires next to no room: a money transfer service.

Oyinda runs one of the many thousands of money transfer facilities that have sprung up all over Britain in newsagents, internet cafes and, frequently, in mom-and-pop grocery stores.

In fact, there are now more money transfer premises in the UK than there are McDonald's and KFC outlets put together.

Big brands

The UK Money Transmitters' Association estimates the number of registered money transfer premises in the country could be around 25,000.

A Western Union store in Kenya
"We also choose our agents by opening hours - migrants are hard workers - some of them have two jobs
Hikmet Ersek, Western Union

The market is led by big brands such as Western Union and MoneyGram, but there are other, smaller, companies, specialising in specific geographical corridors. All of them are after agents like Oyinda.

"Migrant populations are where our customers are and we do a kind of ethnic mapping and go after and acquire these agents where the customer's needs are," explains Hikmet Ersek, Western Union's managing director for Europe, the Middle East, Africa and South Asia.

"We also choose our agents by opening hours - migrants are hard workers - some of them have two jobs."

Large market

"They start at six o'clock in the morning and end at ten or eleven o'clock in the evening, so we look at locations where they have 24-hour service and weekend opening'.

The need to get the right agent in the right place is essential for securing a slice of a very large market.

3 billion is remitted from the UK each year, according to a recent report commissioned by the UK Remittances Task Force and funded by the Department for International Development (DFID).

The key destinations are India, Pakistan, the Caribbean, Africa, China and, increasingly, Eastern Europe, reflecting the changing patterns of migration to this country.

On a worldwide basis the figures are even more eye-popping.

According to the World Bank, the true size of remittance flows to the developing world in 2007 is believed to be in the order of $300bn (162bn).

If that seems like a huge figure, prepare yourself for another jolt: most experts believe that it is an underestimate.

Informal systems

There are a large number of informal money transfer systems running in parallel. When these are factored in, they could add hundreds of millions of pounds to the total value of money remitted from Britain alone.

These informal systems are community-specific: hawala operates in the Muslim world; the Indian version is hundi, named after the collection box in Hindu temples. The Chinese version - thought to date back 500 years to the Tang dynasty - is called fei chien, which translates as flying money.

The appeal of the money transfer systems - both formal and informal - is their flexibility and their ability to adapt themselves to special circumstances.

"When there was the earthquake in Pakistan, the remittance companies were one of the first things that were reconnected to that region and there was a massive spike in the amount of money which was being remitted," says Leon Isaacs, chief executive of Developing Markets Associates, which provides consultancy on international remittances.

This gave money transfer an edge over international aid organisations in terms of speed and targeting.

Remittances provided a lifeline for people affected by the earthquake.

Arrangements for inflation

The story is the same when the receiving county is hit by a political disaster rather than by a natural one.

People remitting money to Zimbabwe are now offered a facility whereby their loved ones receive petrol vouchers or food coupons rather than cash, which is crucial in a country with an inflation rate of 40 million per cent at the latest count.

But even when the recipient is in a relatively stable country, the remittances received can make the difference between life and death.

Money transfer operators frequently tell stories of customers who need to remit money urgently in order to purchase healthcare for a dying relative or, if they are too late, to pay for a loved one's body to be released from the mortuary so it can be buried.

Hardship and bad luck are not confined to the recipients. The remitters are often some of the most poorly paid people living in one of the world's most expensive countries and there are plenty of rip-off merchants out there.

The commissions and fees charged vary enormously and can swallow up substantial chunks of the cash remitted.

Little protection

Even worse, the legal framework to protect the consumer in case of insolvency is sketchy. In the worst cases, remitters can end up losing all their money - as happened last year when First Solution, a money transfer operator based in the East End of London, went bust.

First Solution went under leaving 2,000 of its customers out of pocket to the tune of 1.7m with no effective means of redress.

Money transfer operators do not currently come under the jurisdiction of the Financial Services Authority (FSA), whose regulations can provide a safety net for customers.

However, both DFID and the European Union are keenly aware of this deficiency and things are about to change.

DFID recently launched a Customers' Charter that will allow consumers to compare prices and spot the best deal.

There will be even more protection when an EU directive comes into force in 2009 that will compel companies above a certain size to become registered with the FSA and to put up bonds proportionate to their turnover or profit.

The hope is that the victims of First Solution will be the last of their kind.

Follow The Money goes out on BBC Radio 4 at 1100 on 26 September

Help for money transfer customers
10 Jan 08 |  Business
Money transfer collapse
10 Sep 07 |  Moneybox
Millions lost in transfers
28 Jun 07 |  England

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