recipient countries as well as the individual recipients. the word'effectively'refers to the use of foreign exchange inflows by the countries for its development activities, while'prudently'refers to the use of remittances by the recipient in a meaningful manner. from the institutional point of view, ‘ prudently ’ also means risk - mitigating mechanisms placed by the formal financial sector in remittance transfers. all remittance flows are cross - border transfers and they take the form of large value transfers or individual low value transfers. in the past, the formal institutional mechanisms concentrated heavily on disbursing funds to the recipients. given the heightened importance of remittances in national economies and the promotion of smooth remittance flows between countries by the international organizations, the formal financial sector has now begun to pay greater attention to the initial point of remittance collection ( capturing ). this means that the institutional mechanisms are focusing on both capturing as well as disbursing of remittances. the international cooperation and coordination is very important at the point of capturing because the banks and formal financial institutions in the country of origin should facilitate cross - border transfers of remittances without placing prohibitive rules and regulations and pricing on the remitter. payment system and technological advances as you are aware, technological advances, partnerships and improvements in the payments infrastructure have significantly contributed to enhance remittances on a worldwide basis. in that sense, the payment system improvement is a key to the enhancement of remittance transfers. the technology advances are intended to facilitate automation, reduce costs, provide additional delivery channels and mitigate risks involved in cross border transfers. however, the reduction of costs and the introduction of additional delivery channels are yet to be developed to a satisfactory level by the formal institutional network, not only by introducing enhancements to the payment infrastructure, but also by making a concerted effort to reduce cost on remittance transfers. several international banks and money transfer systems such as eurogiro, western union have taken the initiative to target both blue and white collar workers at reduced transfer prices. despite the facilities offered by these money transfer systems, there still remains a significant portion of remittances of un - skilled workers that are not captured by the formal money transfer systems. enabling regulatory environment an enabling regulatory environment is necessary to enhance cross - border remittance transfers. while recognizing the need to deter money laundering and terrorist financing through cross - border transfers,

laws relating to this type of activities should not discourage genuine remittance flows through the banking system. nor should they be discriminatory or prohibitive to remitters or receivers. most countries with fully open current and capital accounts have facilitated cross - border transfers than the countries with capital controls. the situation is expected to be improved with the relaxation of exchange controls in both the remittance originating country and the recipient country. there is also a need to monitor and regulate the agencies and other service providers which recruit migrant workers. it is reported that, in some instances, the agencies tend to persuade migrant workers to go for lower wages and salaries or employ them under harsh working conditions. there have also been instances where the agencies or agents take money upfront from workers and have left them in the lurch. remittances through informal channels according to estimates, still 30 – 40 percent of remittances are transferred through the informal institutional networks and private channels. in some instances, informal systems do not transfer foreign currency from the origin / host country to the recipient / home country. arrangements are made to provide funds in local currency at the recipient's end. for example, if a migrant worker in the us wishes to transfer usd 500 to his family in sri lanka, he prefers to go to informal systems like hawala and undial because of the high charges and commissions in the formal banking sector. under the informal money transfer systems, the dollars may stay in the us or get to sri lanka at a later time. the hawala agent's representatives in sri lanka provide sri lankan rupees to the migrant's family speedily and at a relatively low cost. if dollars are retained with the hawala agent in the us, sri lanka's banking sector lose the opportunity of using foreign currency and, therefore, the country does not gain any benefit from the worker remittance. if the hawala agent sends dollars at a very later date to replenish the equivalent of sri lankan rupees, again there is an opportunity cost to the country as foreign currency is not available when needed. there is also a possibility of the hawala agent sending dollars to sri lanka through an un - known courier service, but such dollars may not get to the banking sector at all. it is difficult to institutionalize remittances of illegal immigrants as such immigrants do not wish to identify themselves to the formal banking and financial institutions in the host country. hawala and undial systems are