February 25, 2015
The FATF and the War on the Poor: 0.2% effective against Money Launderers, 300% more effective against the poor than aid?
(Ed: copying direct from pymnts.com, with my emphasis:)
Global efforts to prevent money laundering are both ineffective and incredibly expensive to maintain - and poor countries are the ones hit hardest by that cost, according to a commentary for Bloomberg.
At best, the global anti-money-laundering (AML) system "snares just a fraction of 1 percent of criminal income flows," wrote Charles Kenny, a senior fellow at the Center for Global Development. Citing numbers from a 2006 study, Kenny said global money-laundering transactions are at least 2 percent of global GDP, or roughly $1.5 trillion. Actual money laundering convictions worldwide involve at most hundreds of millions of dollars, and in the U.S., the amounts seized in AML efforts is less than 0.2 percent of all laundered money.
"A system that misses all but a fraction of a percent of criminal financial flows is almost guaranteed to miss terrorism finance in particular, which involves very small sums," Kenny wrote, noting that no known AML prosecutions have involved terror financing.
But AML efforts still cost money: an estimated $7 billion annually in the U.S. alone for implementing AML regulations from the international Financial Action Task Force (FATF). The cost is disproportionately more in smaller countries such as Mauritius, which has 1.3 million people and 25 government officials working on AML implementation - more AML bureaucrats than the country has opticians - and that's not counting bank staff who carry out customer investigations.
FATF rules are also why Somalian expatriates can no longer send money home. Last week, the last U.S. bank that allowed remittances to Somalia, Merchants Bank of California, cut off the $160 million to $180 million in money transfers, citing potential liability if a transfer was linked to terrorism.
However, there's no evidence that was the case, Kenny wrote: "Most [remittances] were being used to support schooling, housing, food, and other living costs for Somalis. The country is one of the poorest in the world and remittances are equal to about one-third of the country's GDP."
Remittances worldwide totaled $582 billion in 2014, with $435 billion - 75 percent of the total - going to developing countries. That amount is three times larger than official developmental assistance, according to the World Bank.
February 16, 2015
Google's bebapay to close down, Safaricom shows them how to do it
In news today, BebaPay, the google transit payment system in Nairobi, is shutting down. As predicted in this blog, the payment system was a disaster from the start, primarily because it did not understand the governance (aka corruption) flow of funds in the industry. This resulted in the erstwhile operators of the system conspiring to make sure it would not work.
How do I know this? I was in Nairobi when it first started up, and we were analysing a lot of market sectors for payments technology at the time. It was obvious to anyone who had actually taken a ride on a Matatu (the little buses that move millions of Kenyans to work) that automating their fares was a really tough sell. And, once we figured out how the flow of funds for the Matatu business worked, from inside sources, we knew a digital payments scheme was dead on arrival.
As an aside there is a play that could have been done there, in a nearby sector, which is the tuk-tuks or motorbike operators that are clustered at every corner. But that's a case-study for another day. The real point to take away here is that you have to understand the real flows of money, and when in Africa, understand that what we westerners call corruption means that our models are basically worthless.
Or in shorter terms, take a ride on the bus before you decide to improve it.
Meanwhile, in other news, Safaricom are now making a big push into the retail POS world. This was also in the wings at the time, and when I was there, we got the inside look into this field due to a friend who was running a plucky little mPesa facilitation business for retails. He was doing great stuff, but the elephant in the room was always Safaricom, and it was no polite toilet-trained beast. Its reputation for stealing other company's business ideas was a legend; in the payment systems world, you're better off modelling Safaricom as a bank.
Ah, that makes more sense... You'll note that Safaricom didn't press over-hard to enter the transit world.
The other great takeway here is that westerners should not enter into the business of Africa lightly if at all. Westerners' biggest problem is that they don't understand the conditions there, and consequently they will be trapped in a self-fulfilling cycle of western psuedo-economic drivel. Perhaps even more surprising, they also can't turn to their reliable local NGOs or government partners or consultancies because these people are trained & paid by the westerners to feed back the same academic models.
How to break out of that trap economically is a problem I've yet to figure out. I've now spent a year outside the place, and I can report that I have met maybe 4 or 5 people amongst say 100 who actually understand the difference? Not a one of these is employed by an NGO, aid department, consultant, etc. And, these impressive organisations around the world that specialise in Africa are in this situation -- totally misinformed and often dangerously wrong.
I feel very badly for the poor of the world, they are being given the worst possible help, with the biggest smile and a wad of cash to help it along its way to failure.
Which leads me to a pretty big economic problem - solving this requires teaching what I learnt in a few years over a single coffee - can't be done. I suspect you have to go there, but even that isn't saying what's what.
Luckily however the developing world -- at least the parts I saw in Nairobi -- is now emerging with its own digital skills to address their own issues. Startup labs abound! And, from what I've seen, they are doing a much better job at it than the outsiders.
So, maybe this is a problem that will solve itself? Growth doesn't happen at more than 10% pa, so patience is perhaps the answer, not anger. We can live and hope, and if an NGO does want to take a shot at the title, I'm in for the 101th coffee.