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With so many new opportunities, financial service providers must position and organise themselves in a very different way, urge Adjiedj Bakas and Roger Peverelli in The Future of Finance ( www.landmarkonthenet.com ). “At the moment, they have the reputation of being a cumbersome, reactive, not very transparent administrative bureaucracy. Instead, they must become pioneers, turning an old bureaucracy into a creative industry, close to the market.”
The authors exhort financial service providers to listen to what is going on in the market, show entrepreneurship, humility, come up with real solutions, and be transparent, flexible, open, and socially responsible.
The book foresees a greater role for the financial industry in solving the great challenges we face as a human race – in care and education, in quality of life and food supply. Predicting, therefore, that from the unreal economy – that is artificial, remote from users, non-transparent, and shadowy – the industry is moving towards its original role as an active participant in a real economy that is transparent, authentic, and simple, the authors suggest that by seriously taking up that gauntlet, the financial service providers will regain some integrity in the eyes of their customers.
Catalyst's role
Bakas and Peverelli recount how, originally, the financial service providers arose as a catalyst to bring the world more wealth and prosperity. “The essence, the raison d'être, the real deeper meaning of banks, insurance companies, and pension funds, lies in their great social usefulness. By organising and facilitating money currents, they brought safety, or at least a reduction of insecurity, mutual support in times of need, a carefree attitude and peace of mind.”
In the authors' view, those are the roots of financial services, and that is how the industry brought about an enormous acceleration of wealth and prosperity for the human race, for centuries. They fret that this essence has been completely lost track of over the past twenty years. A section titled ‘What should your skill set be five years from now?' speaks of competencies that must be developed by financial service providers.
Basis for innovation
As for innovation, the authors clarify that we are not aiming at the development of yet another car insurance policy or mortgage. For, the most important point of departure is the customer, and the best basis for innovation is the deep consumer insights that reveal customers' true desires. Whereas the traditional focus of financial companies lies in product innovation, the focus must shift to innovation in services, the authors insist.
“Mass communication may be particularly easy and cheap, but it is no longer very effective in the present climate. The question is how to dominate each step on the paths of purchase.”
The book makes a case for simplicity as one of the most important consumer trends. As the world becomes ever more complex, consumers are looking for calm, the authors aver. “They are looking for things they can have an overall sense of, the workings of which they immediately and intuitively understand; things that allow them to easily find their way – and don't take up too much of their time.”
Recommended addition to the reading list of financial professionals who aim to stay relevant for their future roles.
Remittance issues and migration costs
One of the chapters in Migration, Remittances and Development in South Asia , edited by Saman Kelegama ( www.sagepublications.com ), is on Afghanistan, written by Tilani Jayawardhana and Roshini Jayaweera. The authors note that, after a long period of conflict in the country, the formal financial sector is nearly non-performing; and that, in the absence of an effective banking system in the country, the Afghan migrants use two main ways to remit money back home, viz. use of money changers or businessmen, and physical carriage by relatives, friends or other personal contacts.
The essay cites Munzele Maimbo (2003) for the data that there are more than 300 registered money exchange dealers in Kabul while there are 500 to 2,000 unregistered money exchange dealers. It may come as a surprise to know that most international aid institutions operating in Afghanistan use hawalas to move funds into and around the country.
“It has been estimated that more than $200 million has been channelled through hawala in the form of humanitarian relief, emergency aid, and development financing for the Afghan people.”
Constraints in monitoring
The authors mention the many constraints in monitoring the remittance channels in Afghanistan. For instance, what they find lacking are effective monitoring of cross-border currency movements, reporting requirements for large cash transactions, guidelines to identify suspicious transactions, and the ability to share financial information with law enforcement authorities.
Another instructive essay in the book is by Piyasiri Wickramasekara, with a discussion on the high migration costs experienced by migrant workers. These costs include open and hidden costs – visa fees, recruitment charges (much above officially sanctioned amounts), interviews (practical tests), medical test, insurance, emigration clearance, and air fare – the author explains.
He traces how, in the early days of Gulf migration, most of these costs were borne by employers. Even state channels require migrants to pay fees which have been found to be quite high as in the case of Indonesia, Wickramasekara observes.
Cost of migration
The essay makes a reference to a study by the World Bank which found that in Bangladesh the average cost of migration was $2,300 – almost five times of the country's per capita income. A study by Irudaya Rajan et al. (2008) finds mention for the data that the cost of migration in Kerala ranged from $1,200 through friends and relatives, to $2,000 for those emigrating through recruitment agencies.
“This may be contrasted with wages in the Gulf where three out of five receive wages equal to $200 or less and one out of ten above $500. Therefore, the migration cost may average from two to ten months' wages for those migrating through recruitment agencies.”
The foreword by Philip Martin cautions that the effects of out-migration are mixed. Families receiving remittances can invest more in housing, education, and health care, but there are also social costs including child abuse, school dropouts and family break-ups as a result of family separation, he writes. A book that highlights issues meriting wider discussion.
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