CHAPTER 1
Introduction
R
emi ances of migrant workers in developing countries are increasingly considered an important source of income, both for migrant families’ households and the countries’ economies. Migrant workers use both formal and informal transmission mechanisms for remi ance purposes. In many countries, using a formal remi ance channel requires proper identification, documentation, and higher transaction costs. In some cases, requirements are more stringent, and services are inconvenient and expensive. Thus, the undocumented population without bank accounts tends to use the informal channels more extensively. Regulatory oversight of these informal channels hardly exists. Transparency of such systems is minimal. Therefore, there are growing concerns that these unregulated and obscure remi ance flows could a ract illegal activities such as money laundering and terrorism financing. In order to enhance the existing knowledge on remi ances to developing countries, the Financial Market Integrity Unit (FPDFI) of the World Bank launched the Bilateral Remi ance Corridor Analysis (BRCA). The intention of these series of reports is to use the accumulated knowledge to develop schemes of good practice that will protect the integrity of remi ance markets and improve efficiency and transparency of transfer channels for remi ance flows. Remi ance Corridors to Uganda: United Kingdom, United States, and South Africa is the first in the BRCA series to analyze and compare together three bilateral remi ance corridors: the United Kingdom–Uganda, the United States–Uganda, and South Africa–Uganda. The comparison highlights similarities and differences of the three remi ance corridors and the significance of the sending countries to Uganda in terms of volume, formality of remi ance corridor, and risks and vulnerability to money laundering. The population dynamics reveal that the Ugandan population and its labor force will continue to grow around 3 percent annually in the next two decades, which indicates that Uganda will be able to increase labor export in future years. This would mean that the worker remi ances, which accounted for around 5 percent of gross domestic product (GDP) in 2008, would continue to generate increased welfare gains and contribute to investment and wealth creation. Hence, understanding the dynamics of the Ugandan remi ance market will enable the authorities to improve efficiency of the remi ance market as well as mitigate related risks. Barriers in the banking system inhibit the growth of the remi ance industry and curtail financial outreach. These barriers include lack of an efficient nationwide payment system, infrastructure, remi ance distribution network, and affordable financial services. As a result, informal cash-to-cash channels thrive, exacerbating concerns over money laundering and terrorism financing. The BOU has issued guidelines on anti–money laundering and combating financing of terrorism (AML/CFT). The guidelines are meant to encourage financial institutions to improve preventive measures; however, the absence of an AML/ CFT law makes compliance weaker. As such, perceived risks have a negative impact on the credibility of the Ugandan banking system. Lack of access to financial services due to immigration status in the remi ancesending countries has resulted in the use of informal channels for remi ance transactions 1