Underground banking or hawala and Greece‐Albania remittance corridor

The purpose of this paper is to study underground banking between Greece and Albania and provide policy makers with specific policy recommendations to reduce hawala, reduce remittances commissions and improve access of banking services to both remittance senders in Greece and beneficiaries in Albania.

The authors measure loans to customers (non‐banks), total assets and net revenues from commissions, including remittances commissions, of a sample of 26 Greek commercial banks during 1996‐2004 and examine recent remittances commissions of the four largest Greek commercial banks and the Greek Postal Office.

Results indicate that Greek commercial banks charge less for remittances services than Western Union, Eurogiro and hawala banking, although remittances are not a core business for them (loans to customers – non‐banks – are their core business).

Practical solutions are: lowering remittances commissions to Greek Postal Office for low amount remittances; raising awareness of migrants on benefits of access to formal banking system; implementing bilateral initiatives between Greece and Albania; facilitating development of transfer mechanisms for remittances; promoting economic activities; increasing transparency and offering insurance for remittances; and make it compulsory for employers to pay legal and documented Albanian workers through migrant bank accounts. Also, Albania could support the growth of ATMs networks, to increase access of people to more areas even to rural areas, where remittance‐recipient households receive most of remittances. On the other hand, Albania, could find alternative sources to finance current account deficits, due to a possible future reduction of remittances inflows.

The paper presents an explanation about low access of Albanian migrants in Greece to remittances services offered by the banking system and suggests the implementation of specific policies to banks and alternative formal money remittance service providers.