At the end of November, Tessa Jowell, Labour MP, launched an attack on the remittance industry in a campaign called ‘Stop the Transfer Tax Rip Off'. Rajesh Agrawal was interviewed and quoted as an industry leader and pundit for the campaign in the Observer, alongside Tessa Jowell and Oxfam’s senior humanitarian policy advisor, Paul Scott. Read the article in full here.
In the 34 years since she arrived in the UK from Uganda as a student, Dorothy Mukasa has sent thousands of pounds back to her family. She paid the school fees for a niece who was orphaned, and now the cost of a nurse attending her elderly parents twice a week.
Mukasa, like countless others, has done this willingly, grateful that her relatively well-paid secure job as an NHS administrator allows her to help relatives back home. But she is angry at paying high charges to international money transfer companies: “They make so much money, it’s unbelievable. Sending £25 can cost an extra £6-£7. My family could do so much with this extra money.”
Annual remittances from the UK total in excess of £15bn, with two-thirds sent to developing countries. Many of those sending money are women doing two or three low-paid jobs to scrape together the small sums that make a big difference to parents, children or siblings.
An estimated one in 10 people around the world send or receive remittances. The World Bank says remittances to developing countries are expected to total £278bn in 2014, a rise of 5% over 2013 and three times the global aid budget. Mukasa’s experience is not an isolated one. And, given the scale of the global remittance economy, the money transfer firms are raking in big profits.
Earlier this year, former UN secretary general Kofi Annan demanded a formal investigation by London financial regulators into the operations of international remittance firms. Some charge up to 20% on payments from individuals to some of the world’s poorest countries.
Now Labour MP Tessa Jowell is launching a campaign to cap excessive charges on money transfers, saying remittance companies have become “the international Wonga”, referring to companies that charge exorbitant interest rates on short-term loans. She says the “transfer tax” can add £20 to a payment of £100, especially in the case of money sent to sub-Saharan Africa. Fees to countries in Asia and Latin America are also high.
“Many people who are trying to support friends and family abroad are being ripped off. Instead of their hard-earned money going towards medical bills, books or to cover the cost of failing crops, huge amounts are being creamed off by the giant money transfer companies who have cornered the market,” said Jowell, who will launch a campaign to “Stop the Transfer Tax Rip-Off” in Brixton on Sunday.
The costs of transferring money comprise a fee plus the foreign exchange margin, which varies from country to country and is particularly high for sub-Saharan Africa. For example, Western Union charges £8.90 to transfer £120 to Gambia. Its charge for transferring the same amount to India is £4.90.
Five years ago, the G8 set a goal of cutting the average cost of transferring money internationally to 5% by the end of November, a deadline that has been missed. India’s prime minister, Narendra Modi, pressed for a renewed commitment to cut costs at the G20 summit in Brisbane this month.
Jowell is calling for transfer companies to halve their fees in the run-up to Christmas, when amounts being sent to families abroad usually spike: “It’s time to put pressure on banks, the government and transfer companies to protect consumers. Rip-off fees have to stop and there has to be much more transparency on costs and charges.”
The money transfer market in the UK is dominated by Western Union and MoneyGram, which account for two-thirds of remittances sent abroad. Rules covering international money transfers are complex and have been drawn up to combat money-laundering or the financing of terrorism. Neither company responded to a request for comment.
Three weeks ago, London-based entrepreneur Rajesh Agrawal launched an online international money transfer service that allows customers to choose the amount they pay, or pay nothing at all. Xendpay.com tells customers that, for example, the standard bank fee for sending £1,000 to Nigeria would be more than £55. It recommends a “fair fee”, but allows customers to decide the amount.
According to Agrawal, 90% of customers are paying a fee, 70% choosing the recommended “fair fee”, and about 6% paying more. “Technology means money can be transferred cheaply and easily. Most money transfer companies are just overcharging. It’s a scandal – the cost is literally in pence,” he said.
“People work very hard for this money. The woman who cleans my office at night is from Ghana. She sends money back home to her children, and they are going to school as a result. Her parents have access to healthcare. People are helping their families.”
Agrawal arrived in the UK from India 13 years ago: “I’m a migrant worker who came to this country with £200 in my pocket. I still send money to my parents, and it infuriates me to see how much a typical retail customer is charged. My objective is not to make money but to bring down the cost – and if it forces others to follow suit, that is success.”
Remittances are vital for recipients. “People all around the world depend on help they receive, and remittances are a critical part of their efforts to overcome poverty,” said Scott Paul, senior humanitarian policy adviser for Oxfam. “They can invest the sums to meet their most basic needs or capitalise on their most promising opportunities.”
The UK government set up an action group on cross-border remittances last year, focused on the risks of money laundering and financing terrorism. “There are legitimate concerns [in the international transfer of money], but that has to be balanced against the needs of people wanting to send money home,” said the group’s chairman, Sir Brian Pomeroy.
For Mukasa and others who send remittances, it is an accepted part of life. “Those that have just arrived, and those of us who have been here 30-40 years, we all have the families in need. This is what unites us. But these companies are milking us.”