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“Underground banking” and Myanmar’s changing hundi system
Abstract
Purpose
The purpose of this paper is to examine Myanmar’s “hundi” system, an informal value transfer system used widely by local Myanmar citizens and offshore migrant workers to remit money domestically and internationally. Due to historically stringent banking and foreign exchange controls and a lack of domestic and internationally linked financial services, the system grew to become the dominant medium for remittances in Myanmar. It also remains unregulated despite authorities acknowledging its use in criminal and terrorist activity. However, with an expanding and modernising financial sector, there is now increasing competition and challenges facing Myanmar’s hundi system.
Design/methodology/approach
This paper draws on available literature and open source reporting, as well as interviews with former Myanmar Police Force officials.
Findings
This study provides a unique insight into Myanmar’s hundi system, its history and the challenges it faces. The once dominant system remains a known anti-money laundering and countering the financing of terrorism (AML/CFT) risk and is having to compete with an expanding and modernising formal banking sector and the introduction of fintech and mobile money services. In the short term, these are unlikely to eliminate the hundi system completely, but may instead push hundi operators towards adopting these networks and technologies in their own operations.
Originality/value
Myanmar remains a very under-researched area and there has been a limited focus on its informal hundi remittance system and related AML/CFT issues. This paper will be a useful source for academics, development professionals, policymakers, law enforcement agencies and private sector actors seeking to understand Myanmar’s informal remittance system.
... Myanmar migrant workers also generated US $2. 8 billion in remittances, equivalent to more than 4% of Myanmar's GDP ( Tual , 2021) . The reason why hundi is so useful for them is due to banking restriction and currency controls (Thompson , 2019). ...
Myanmar considers border trade more important than international trade. Due to the economic sanctions imposed by the West since the military government took power in 1996 up until the latest one in 2021, Thailand -Myanmar border trade has been characterized by more informal trade than previously. Border trade has developed despite being subjected to long-standing international trade barriers. This study aims to convey an understanding of how the informal border payment, “Hundi”, works as the border-trade -payment between Myanmar and Northern Thailand. Even though hundi is an informal transfer system it is widely used as an alternative banking system. Especially, hundi is used in the financing of legitimate businesses, to prevent exacerbating the problems of access to credit of different states. This study draws on available literature and open-source reporting, as well as extensive field research by interviewing trusted sources for more than 30 informants (i.e., border-trader, money changer, money transfer operators, business leaders, hundi operators, immigrant labors, government officials, commercial banking staffs) in the northern part of Thailand with the border city in Shan state, Myanmar during 2017-2022. This study found that hundi plays a significant role as both a substitute and complement to cross-border trade and payment across the border of Myanmar-Thailand. After the recent political instability, and expansion from a formal banking sector to a mobile money services, in the short term, we are unlikely to see an elimination of the hundi system completely.
... Compounding the cash challenges, millers reported 12 per-cent less working capital available to buy paddy in June 2021 than in June 2020. Millers also began using a modified 'hundi' payment system to sell rice, whereby a sale is negotiated, and payment is transferred from a trusted third party with cash available (Thompson, 2019). In June 2021, 10 percent of all rice sales were conducted via the hundi system, compared to just 1 percent of sales prior to the coup. ...
The large majority of extreme poor in the world lives in fragile states. Yet, despite the enormous importance of these areas for global poverty and food insecurity, there is relatively little research examining how agricultural value chains, crucial for assuring food security, respond and adapt to such contexts. This paper analyzes Myanmar's rice value chain-its most important staple and biggest value chain-during the economic collapse and political instability caused by a military coup in early 2021. It relies on unique data collected with a large sample of rice retailers and millers before and after the coup. Despite many challenges in the rice value chain after the coup-most importantly linked to banking and transport-rice processing and trade continued, assuring availability of rice in most retail markets and illustrating the resilience of the value chain to such major shock. While processing margins were mostly stable, an increased distribution margin (between rice millers and retailers) led to 11 percent higher average retail prices after the coup, implying welfare losses of almost USD 0.5 billion for the country. Using a market-pair regression method, we further find that localized violence near sellers and buyers, distances traveled, and distance of vendors from borders are associated with significantly increased rice price dispersion between rice retailers and mills. Despite the amalgam of problems to address in such settings, prioritizing the easing of transport restrictions and facilitating cheap and safe spatial arbitrage of food products would likely help prevent further food price inflation, assure higher farm prices, and therefore improve welfare.
... Greater transparency and social awareness could foster a fair and sustainable lending environment that accounts for the socioeconomic aspirations of individual consumers. However, this can be challenging to achieve, especially in emerging markets with historically stringent banking controls (Thompson 2019). ...
The synthesis of technology and finance is known as financial technology (Fintech), which brings together two of the biggest industries in harmony. Fintech disruption is a deviation from the norm, resulting in a significant shift in banking services and, as a result, risk. This article aims to investigate how Fintech has influenced recent changes in the banking industry and upcoming challenges, with a particular emphasis on blockchain technology. We perform a comprehensive thematic analysis of recent studies on Fintech in the banking industry. We found that Fintech has enormous potential to grow and impact the banking industry and the entire world. The banking industry could benefit from combining emerging technologies such as blockchain, AI, machine learning, or other decision-making layers. However, with the benefits come drawbacks, such as increased reliance on technology, high costs, increased job losses, security risks related to data and fraud, and so on. The use of emerging technology and collaboration between Fintech firms and banks can improve system-wide financial stability while minimising the negative externalities of disruption and competition. These findings can help regulators, policymakers, academics, and practitioners understand the opportunities and challenges of emerging technologies in the banking industry.
Purpose
This study aims to convey the understanding of the ecosystem – how “hundi” works on the border trade between Myanmar and northern Thailand, which is an informal transfer system and is widely used as an alternative banking system. Even though the role of hundi is unable to declare the sources of money under the standard settlement of formal banking system, a failure to operate of its official mechanism are carrying using hundi, as a financial platform across the border between Thailand and Myanmar. This study surveys the best practice mechanism for the regional and international cooperation.
Design/methodology/approach
This paper draws on relevant literature, open-source reporting, and interviews with more than 30 interviewees on the border between Thailand and Myanmar. Interviewees includes border-trader, money changer, money transfer operators, business leaders, hundi operators, immigrant labors, government officials and commercial banking staffs.
Findings
This study provides a unique insight of hundi system, which work as the alternative mode of formal banking. It is an informal fund transfer payment platform used on the border between Thailand and Myanmar in the past five decades. It insists that hundi plays a significant role in both substitution and complementary on the trade and payment across the border of Myanmar–Thailand. Even though confronting with the barriers of financing of terrorism (anti money laundering AML/combating the financing of terrorism CFT) risk, the competition with the expanding and modernizing formal banking sector, and the introduction of Fintech and mobile money services. In the short term, these are unlikely to eliminate the hundi system completely, but may instead push hundi operators towards adopting these networks and technologies in their own operations.
Social implications
This paper will be a useful source for academics, development professionals, policymakers, law enforcement agencies and business actors who are seeking to understand Myanmar’s informal payment system, hundi.
Originality/value
This is the latest work for border trade payment or trade financing role of hundi which has hidden under the informal market of the border for several decades. It has few research of hundi on border trade and payment, particularly after the military coup in 2021 which made hundi return to be on the spotlight and simultaneous mechanism of border trade and payment ecosystem of Myanmar. This paper will be a useful source for academics, development professionals, policymakers, law enforcement agencies and business actors who are eager to understand Myanmar’s informal payment system, hundi, especially during the hardship.
This article examines nalehmu, a set of informal relational practices for negotiating power across scales which have facilitated access and enforced accountability through mutually recognized norms and social sanctions in Myanmar. Like Asef Bayat’s “quiet encroachment” in the Middle East, nalehmu is Myanmar’s discreet and prolonged practice of agency that has enabled ordinary people to survive and better their lives despite the multiple ruptures in Myanmar’s history, as seen most recently in the February 2021 coup d’état. The paper analyzes how nalehmu serves as a hidden-in-plain-sight social infrastructure across three different scales: relations of mutuality, obligation, and reciprocity between individuals; implicit connections for accessing goods, services, and recognition; and a means of interacting with the state via the nalehmu economy. This analysis seeks to do more than add a different case to studies of urban Southeast Asia, but also to help produce further theorization that takes seriously the actually existing contexts and practices in the global South.
Purpose
This paper aims to examine the authorities tasked to fight against money laundering in Tanzania and appraise the efficacy of the country’s anti-money institutional framework to tackle the problem.
Design/methodology/approach
The paper draws on a qualitative research and data generated from the analysis of documentary materials. It surveys the anti-money laundering (AML) law in Tanzania to describe the legal and institutional frameworks for tackling money laundering. It explores law-related and non-law aspects to interrogate and appraise the efficacy of Tanzania’s AML law and authorities. The qualitative data were generated using the thematic content analysis technique.
Findings
The law in Tanzania establishes authorities and vests them with powers to combat money laundering. The authorities, which are part of Tanzania’s AML institutional framework, have been instrumental in combating money laundering. Nevertheless, several law-related and non-law factors emasculate the efficacy of the AML law and authorities in Tanzania. Some political and economic factors wear off the effectiveness of the country’s AML institutional framework. The transnational nature and complexity of money laundering overwhelm the capacity of the AML authorities in Tanzania.
Practical implications
The paper provides useful insights on money laundering and the legal regime to counteract the scourge in Tanzania which sets up the country’s AML institutional framework. It raises some issues for researchers, policymakers and law enforcers who can re-examine the problem and revisit the law and re-evaluate authorities and propose measures that will enable the government to reinforce the country’s AML regime. The paper makes a case for the government to implement the reforms of the country’s AML policy, legal and institutional frameworks.
Originality/value
The paper investigates issues relating to money laundering and its control in Tanzania beyond the legal perspective to uncover limitations and challenges that emasculate the efficacy of the AML authorities in the Tanzanian context. The issues examined in this paper are not unique to Tanzania and, hence, have relevance to other jurisdictions in sub-Saharan Africa.
Purpose
This paper aims to undertake a thematic review of academic papers on financial technology (FinTech) to identify three broad categories for the purpose of classifying extant literature. The paper summarizes the research and findings in this emerging field. Thereafter, it identifies the gaps and provides directions for further research. Simultaneously, the paper collates technical terms related to FinTech that appear repeatedly in each category and explains them. Finally, the study highlights the lessons that growing FinTech firms and their regulators can learn from the experiences of their counterparts across the globe.
Design/methodology/approach
A systematic review of literature consisting of 130 studies (social science research network [SSRN]-29 papers, Scopus-81, other sources-20) on FinTech is carried out in this thematic paper.
Findings
This thematic paper divides FinTech into three themes, i.e. financial industry, innovation/technology and law/regulation. The paper suggests that a thorough impact of FinTech on various stakeholders can be understood using three dimensions, namely, consumers, market players and regulatory front. It is noted that FinTech is in its nascent phase and is undergoing continuous development and implementation through product and process innovation, disruption and transformation.
Research limitations/implications
The paper reports that FinTech promises huge potential for further study by various stakeholders in the FinTech industry – from academia to practitioners to regulators.
Practical implications
The paper summarizes lessons that could be of significance for FinTech users, producers, entrepreneurs, investors, policy designers and regulators.
Originality/value
The paper is believed to add value to the understanding of FinTech in light of the emerging threats and opportunities for its various stakeholders.
This paper examines the remarkable political transition underway in Myanmar/Burma since the inauguration of President Thein Sein at the end of March 2011. It begins with the historical background and the political context and then addresses the main features of the economy, highlighting current performance, major reforms, and key issues. It concludes by characterising the progress to date as verging on the miraculous, while stressing that future progress is highly uncertain. The next two years leading up to a national election in 2015 are unlikely to be as easy as the past two. Outsiders can be most helpful by giving senior officials more space to concentrate on policy formulation and implantation.
Transnational organized crime groups in Burma (Myanmar) operate a multi-billion dollar criminal industry that stretches across Southeast Asia. Trafficked drugs, humans, wildlife, gems, timber, and other contraband flow through Burma, supporting the illicit demands of the region and beyond. Widespread collusion between traffickers and Burma's ruling military junta, the State Peace and Development Council (SPDC), allows organized crime groups to function with impunity. Transnational crime in Burma bears upon U.S. interests as it threatens regional security in Southeast Asia and bolsters a regime that fosters a culture of corruption and disrespect for the rule of law and human rights. Congress has been active in U.S. policy toward Burma for a variety of reasons, including combating Burma's transnational crime situation. At times, it has imposed sanctions on Burmese imports, suspended foreign assistance and loans, and ensured that U.S. funds remain out of the regime's reach. Most recently, the 110th Congress passed P.L. 110-286, the Tom Lantos Block Burmese JADE Act of 2008 (signed by the President on July 29, 2008), which imposes further sanctions on SPDC officials and prohibits the indirect importation of Burmese gems, among other actions. On the same day, the President directed the U.S. Department of Treasury to impose financial sanctions against 10 Burmese companies, including companies involved in the gem- mining industry, pursuant to Executive Order 13464 of April 30, 2008. The 111th Congress may choose to conduct oversight of U.S. policy toward Burma, including the country's role in criminal activity. This report analyzes the primary actors driving transnational crime in Burma, the forms of transnational crime occurring, and current U.S. policy in combating these crimes. This report will be updated as events warrant. For further analysis of U.S. policy to Burma, see CRS Report RL33479, Burma-U.S. Relations, by Larry A. Niksch.
People mobilise depending on their social, economic, cultural and political differences. The effects of migration produce different impacts on both economic and social aspects of a community. Many studies on migration have focused on remittance payments, which are often seen to have a positive effect on the migrant-sending communities. Yet there are also wider societal impacts beyond income alone. This pilot study undertakes an assessment of the migrant-sending community households in southern Mon State in Myanmar from which a large number of people migrate, especially to Thailand and Malaysia, due to the lack of economic opportunities in their communities of origin. For this project, a household survey was conducted in three villages with 120 sample households, using both quantitative and qualitative approaches to analyse the characteristics of migrant-sending families and their views on migration. The results show that remittances contribute to a household's expenditure significantly. In this case, remittances are likely to be used to smooth out consumption expenses rather than as investments for future profit. Another significant finding of this study is the educational status of both members of migrant-sending households of origin and migrant workers themselves. People seek out unskilled-labour work rather than investing in their education. It can be said that there is a negative impact on the human capital development in the long-term. These non-monetary indicators need to be considered for the development of Myanmar.
Since the September 2001 attacks in the USA, 'terrorism' has leapt to the top of the Western political agenda. Within this context, as soon as the word 'hawala', in particular, was uttered in Congress, lawmakers, policy think-tanks and the media turned their attention to what they defined as a financial tool for terrorism. This knee-jerk response to hawala may have serious effects on age-old methods employed by Asian expatriates remitting funds to their families. Thus it is important to understand some of the basic facts about hawala: who are the clients, how much they are charged, why they do not use banks, the settlement processes involved, the division of labor, and so on. This paper offers a summary of the mechanics and settlement processes in hawala networks. It concludes with some policy implications.
Purpose
– The purpose of this paper is to raise the question of whether the combating the financing of terrorism (CFT) arsenal following the attacks of 11 September 2001 was developed and applied too fast, to the point of being unnecessarily costly, ineffective, unfair and even counterproductive.
Design/methodology/approach
– An outline of two private sector contributions follows two illustrations of areas in which CFT policies may be resting on shaky assumptions, missing their targets and rendering the international community more vulnerable to extremist actions: the regulation of cross‐border fund transfers and commodities trade.
Findings
– Many of the control functions have been de facto outsourced to the private sector without proper guidance and accountability.
Originality/value
– The paper goes beyond a mere critique of current regulatory and control arrangements to suggest concrete ways in which the private sector can support the objectives of CFT policies more efficiently and productively.
This paper challenges the widely shared view that the United States and international frameworks regulating terrorist finance
and money laundering (AML/CFT) is productive and effective. Through a careful look at the evidence regarding the formal and
informal fund transfer systems, this paper shows that security, crime control and economic policy objectives are systematically
frustrated by ill-conceived and misapplied rules. US federal and state regulations in particular illustrate how unrealistic,
unaffordable and counter-productive are current arrangements. The paper concludes with some suggestions about how to reverse
the ongoing fact-free policy making process.
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