MIAMI, Fla. – Remittances to Central America will grow by approximately 10% to about US$12.1 billion in 2007, according to a survey presented today by the Inter-American Development Bank’s Multilateral Investment Fund (MIF).

The survey focused on adults who receive remittances in Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.

MIF Manager Donald F. Terry, who presented the results of the survey at a news conference held during the annual meeting of the Federation of Latin American Banks (FELABAN), said that while these flows have continued to rise, too many Central Americans who send or receive international money transfers remain excluded from the formal financial system.

"We have to give these families more options to manage their own money by banking the unbanked. This is critical for economic development," said Terry, whose fund has been studying remittances to  Latin America and the Caribbean since the year 2000.

Remittances will represent at least 10% of four countries’ gross domestic product: Honduras (27%), El Salvador (17%), Nicaragua (17%) and Guatemala (12%). They will amount to the equivalent of about half of Nicaragua’s exports, approximately 60% of Guatemala’s, about 75% of Honduras and almost all of El Salvador’s exports.

El Salvador leads Central America in remittances per capita, reaching approximately 1 million adults (averaging US$ 300, 12 times a year). In Honduras, the fastest growing remittance market in Central America, about 950,000 adults regularly receive remittances (averaging US$ 225, 12 times a year).

In Guatemala some 1.4 million adults receive remittances (averaging US$ 240, 12 times a year) while in Nicaragua 500,000 adults receive them (averaging US$ 205, 10 times a year). Remittances to Costa Rica and Panama are less prevalent, but still reach important numbers of people: 300,000 adults in Costa Rica (averaging US$ 250, eight times a year), and about 100,000 adults in Panama (averaging US$ 320, 10 times a year).

For Terry, the real impact of remittances is measured by the number of families that receive these transfers. In Central America some four million households receive money on a regular basis from relatives living and working abroad. Approximately 75% of these remittances are used to cover critical necessities such as food, housing, clothing, healthcare and utility bills.

Remittances are, in fact, Central America’s most important poverty alleviation program. However, if remittance senders and receivers were offered more options to manage, save and invest their money, these transfers could become a much more effective tool for local economic development.

About US$3 billion of the money sent by Central American expatriates is not used for immediate consumption but their potential economic impact is limited by the fact that more than 90% of remittances remain outside the formal financial system.

According to the survey, about 56% of the Central American households that receive remittances pick up their transfers at a financial institution. Typically these persons are rarely offered bank accounts. In contrast, survey respondents showed significant interest in financial products and services such as savings accounts (53% said they were “very interested”), life or health insurance (44%), small business loans (38%), mortgage loans or home construction loans (31%) or education loans (25%).

The survey also pointed up an emerging trend: significant numbers of Central Americans are now migrating to Europe and Canada in search of work. In the past, migrants from this region went almost exclusively to the United States. It now appears that measurable numbers of Central Americans are migrating to Europe, particularly Spain, and to Canada.

“We had already seen this same trend in South America. Now we are starting to find it in Central America,” said Sergio Bendixen, whose Miami-based polling firm conducted the surveys for the MIF.

The MIF, an autonomous fund administered by the IDB, finances projects designed to help reduce the costs of remittances to Latin America and the Caribbean and promote alternatives to increase their development impact.