Afghanistan Remittance Overview and Trends Annex to Afghanistan Migration Profile AFGHANISTAN REMITTANCE OVERVIEW AND TRENDS ANNEX TO AFGHANISTAN MIGRATION PROFILE Prepared for the International Organization for Migration (IOM) by Michaella Vanore Katrin Marchand CONTENTS List of Tables ...................................................................................6 List of Figures .................................................................................6 Acronyms .......................................................................................7 Foreword ........................................................................................9 Executive Summary ......................................................................11 1. Introduction .............................................................................19 2. Current Knowledge and Remittance Trends ..............................21 2.1. Measuring Remittances: Methodological Challenges ......................21 2.2. Remittances in Afghanistan: Current State of Knowledge ................25 2.2.1. Remittance Flows: Balance of Payment Statistics ....................25 2.2.2. Remittance Flows: Household Surveys .................................... 28 2.2.3. Remittance Flows: Case Studies ...............................................33 3. Remittance Infrastructure and Management Frameworks ........39 3.1. Remittance Channels ....................................................................... 39 3.1.1. Banks and Microfinance Institutions ........................................ 41 3.1.2. Money Transfer Operators/ Money Service Providers ............43 3.1.3. Electronic Money Institutions .................................................49 3.1.4. Other Transfer Methods ...........................................................54 3.1.5. Channel Use: Advantages and Disadvantages .........................54 3.2. Laws and Regulations ....................................................................... 60 4. Remittance Usage ....................................................................75 4.1. Profile of Remittance Senders .......................................................... 77 4.2. Remittance Prevalence and Livelihood Supplementation ................82 4.3. Remittance Use and Human Capital Investment ..............................90 5. Key Findings, Policy Implications and Recommendations ..........97 5.1. Key Findings ..................................................................................... 97 5.1.1. Current Knowledge on Remittance Flows ................................ 97 5.1.2. Remittance Channels ............................................................... 99 5.1.3. Laws and Regulations ............................................................. 102 5.1.4. Remittance Usage .................................................................. 106 5.2. Policy Implications and Recommendations ....................................112 References ..................................................................................119 Afghanistan Migration Profile 5 LIST OF TABLES Table 1: Net remittance flows (BOP, in USD millions), 2006-2012 ............26 Table 2: Origin country of incoming remittance flows, IS Academy .........31 Table 3: Remittance behaviour of return migrants, IS Academy ..............32 Table 4: Remittance transfer corridor volumes ........................................ 38 Table 5: Banking facilities, 2011 ...............................................................41 Table 6: Remittance channel usage and satisfaction, IS Academy ............58 Table 7: Level of satisfaction with remittance channel, IS Academy ........59 Table 8: EMI transaction limits ................................................................. 68 Table 9: Licensing and application fees ....................................................69 Table 10: Non-compliance fees and fines ...................................................70 Table 11: Characteristics of remittance senders, NRVA .............................. 78 Table 12: Characteristics of remittance senders, IS Academy ....................79 Table 13: Economic characteristics of remittance-receiving and non-receiving households, IS Academy ...................................... 84 Table 14: Household characteristics of remittance-receiving and non-receiving households, IS Academy .............................................................85 Table 15: Housing and facilities of remittance-receiving and non-receiving households,IS Academy ....................................... 88 Table 16: Remittance usage, IS Academy ...................................................91 Table 17: Education and health outcomes of remittance-receiving and non-receiving households, IS Academy ...................................... 92 LIST OF FIGURES Figure 1: DAB license issuance, 2006-2011 ................................................48 Figure 2: Remittance service provider comparison.................................... 55 6 Afghanistan Migration Profile ACRONYMS AISA Afghanistan Investment Support Agency AML/CFT Anti-money Laundering and Combating the Financing of Terrorism ANDS Afghanistan National Development Strategy BOP Balance of Payments DAB Da Afghanistan Bank EMI Electronic Money Institution FIU Financial Intelligence Unit FinTRACA Financial Transactions and Reports Analysis Center of Afghanistan FX Foreign Exchange IFAD International Fund for Agricultural Development IFC International Finance Corporation ILO International Labour Organization IMF International Monetary Fund IPS Interbank Payment System ITRS International Transactions Reporting Systems IVR Interactive Voice Recognition IVTS Informal Value Transfer Systems KYC Know Your Customer MFI Microfinance Institution MISFA Microfinance Investment Support Facility for Afghanistan MNO Mobile Network Operator MSP Money Service Provider MTO Money Transfer Organization NRVA National Risk and Vulnerability Assessment SWIFT Society for Worldwide Interbank Financial Telecommunication UNHCR United Nations High Commissioner for Refugees Afghanistan Migration Profile 7 FOREWORD This annex to the Afghanistan Migration Profile provides an overview of remittance trends, their implications for Afghanistan and the development trajectory of the country. Remittances, the money and goods sent from migrants living away from their places of habitual residence, can play an important role in contributing to economic resilience during conflict and post-conflict reconciliation and reconstruction phases. Remittances are unlike many other forms of financial flows, such as foreign direct investment and official development aid, in that they are countercyclical and less likely to evaporate during peaks in conflict. At the same time remittances are one of the least transparent sources of finance because they are generally private transfers between individuals. Such flows pose a number of challenges to governance and oversight authorities. While there is much debate about the most effective use of remittances and ways in which sustainable remittance use can be encouraged, the pivotal role of remittances in supplementing and buoying livelihoods and livelihood opportunities cannot be dismissed, especially in the Afghan context. This special supplement starts from this notion: remittances can offer vital means of support to individuals and communities but have yet to be properly canvassed in the Afghan context. It is our hope that this special supplement will demonstrate not only the important characteristics and trends of remittance flows to Afghanistan but also the impacts of remittances on the livelihoods of recipients and non-recipients alike. In line with the migration profile at large, this supplementary annex should also highlight sources of data and information that can be consulted on an ongoing basis. Much of the information in this report reflects only first attempts at large- scale data collection. Persistent insecurity over the last decades have considerably limited the capacities of the government, international organizations and civil society organizations to implement and maintain consistent data collection and reporting activities. With ongoing improvements to the security situation and increasing institutional capacity, many of the statistical sources consulted here may be further improved and expanded as well. This annex has benefited enormously from the data and insights so generously shared by respondents from a number of institutions. We would like to extend particular thanks to respondents from Da Afghanistan Bank’s Financial Supervision Department and Monetary Policy Department, M-Paisa and MTN for their willingness to provide ongoing information and consultation. Afghanistan Migration Profile 9 EXECUTIVE SUMMARY This annex provides a contemporary and comprehensive overview of the remittance situation in Afghanistan. Given the inherent complexities in measuring remittance flows and usage trends, particularly in a country like Afghanistan, this annex draws from a variety of information sources. A combination of desk research, household survey data, focus groups and in- depth interviews was used to collect the information presented in this annex. Following an introduction, this annex contains four key parts. Section 2 contains information on current knowledge about remittance flows and trends. Section 3 canvasses the operational infrastructure and management frameworks that facilitate and govern remittances. Section 4