There is nothing illegal with this securitization as clearly the transferring bank is in no obligation to deliver exactly the same physical funds received; in fact, he will normally be delivering local currency to the beneficiary. Also the bank is never released from its obligation to transfer the worker’s money to the family back home and all the bank’s general funds, including those received from the loans, should back up its commitment.
Nonetheless perhaps we should ask ourselves whether the fiduciary duty of the transfer agent is being fulfilled when this securitization occurs, especially since the foreign worker trying to send money home is in blissful ignorance of the arrangements.
Also when you walk into a bank and order a transfer of money to someone, you presume that the bank will execute the transfer as expeditiously as possible, and never would you imagine that it could be delayed by having to go through a collateral account or, God forbid, that the final beneficiary never receives your funds, because the collateral was seized and sold to satisfy the claims on the local bank.
Any problem that would occur with a securitized remittance, besides dramatically increasing the cost of that particular transfer, could lead to a worldwide scramble back to more “trustworthy” informal channels … and we do not need that.
Also, if one of these collaterals was executed, in what jurisdiction should a foreign worker and his beneficiary complain … are they also released from country risk?
Credit rating agencies and the securitization of remittances
It is to be expected that when the country or the bank through which the remittances are sent enters into problems, these will stop. Emigrants are far from stupid. As we also know that the collaterals built around these remittances cover basically only the current service of the loan, a minor part, some doubts remain as to why then the ratings by the credit-rating agencies improve so much. Are we not here facing exactly the type of systemic risk that I frequently observe could be present by using few opinions of credit-risk agencies as proxies for the real market?
The first time I heard about the securitization of remittances I thought “How creative, I have heard about securitizing accounts receivable but this is the first time I see it done with accounts payable”.
Keeping them stupid?
Based on the argument that workers do not have as much information and do not react as fast in a crisis, we can frequently hear the opinion that the securitization of worker remittances is better and more stable than that of general company remittances. This might very well be true for the time being, but it sure feels sad to get involved in programs that are based on keeping the workers in the dark.