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Higher hurdles. Many governments in the region would like to persuade their migrants to plough some of their savings into long-term development projects in their homelands. To achieve this in a meaningful way, officials will have to overcome quite a few obstacles. Other developing countries have pursued similar goals in the past, and their record of achievements is checkered. In the second half of the 20^th century, remittances helped build Spain’s now thriving credit union industry. Portugal offered its expatriates an array of incentives to invest in real estate in their home country, bolstering both its banking and construction sectors. Others effectively killed the goose that laid golden eggs by hounding their migrants with taxes and squandering the revenue on ill-conceived projects.

Mistrust of government makes this task even more daunting. Many migrants abandoned their homelands to escape economic hardship. Others had to flee from political persecution. Corruption —whether proven or simply perceived— can cause the strongest goodwill to vanish. Plus, most remittances are modest sums earmarked for food, shelter and healthcare.

Despite these hurdles, Latin American governments are courting their migrants, especially those organized in civic groups that remain in touch with their communities of origin. Over the past couple of decades these hometown associations have funneled millions of dollars in collective remittances to support small projects: building new classrooms for a school, buying a new ambulance or fixing the church roof. In a village where the annual municipal budget is under $20,000, such remittances can make a huge difference.

Quite a few migrant communities can boast about their own success stories. Raúl Hinojosa, a professor at the University of California in Los Angeles, cites the case of the migrants from the Mexican state of Oaxaca who moved to the San Diego area in California to work for flower growers. Their remittances and acquired know-how helped start a flower-growing industry in Oaxaca that now employs many of their wives, sisters and daughters. The bigger question, Hinojosa points out, is whether these hometown associations can become partners with other institutions to achieve an even larger development impact.

Juan Hernández, President Fox’s director for migrant affairs, crisscrosses the United States and Mexico to build ties with hometown associations. The Texas-born Hernández says he is trying to do at a national level what some Mexican governors are already doing for their individual states by lobbying their paisanos in the United States. One of his goals is to promote Fox’s three-for-one deal: for every peso migrants contribute to local community development funds, the federal and state governments will chip in two pesos.

In a bid to expand this initiative, the MIF is teaming up with Mexico’s national development bank, Nacional Financiera, to launch a pilot program of local investment funds in the states of Guanajuato, Puebla and Zacatecas. These funds would match the resources invested by migrants in small and medium-size businesses and in community development projects, seeking to involve local governments and the private sector in those states.

The MIF is also pioneering a project that will promote migrant remittances and financial products for the almost 200,000 Ecuadorians working in Spain. In the project, Banco Solidario of Ecuador, a leading regulated microfinance institution is teaming up with Caja Madrid of Spain to jointly build a system to directly channel Ecuadorian migrants' remittances to their homeland. Banco Solidario itself has entered into a partnership agreement with the network of credit cooperatives in Ecuador to distribute these remittances throughout the country. The new system will reduce substantially the total cost of sending remittances.

Earlier this year the MIF teamed up with Brazil’s small business agency and the private Banco América do Sul to establish a $10 million investment fund that will assist enterprises started by migrants who return to their homeland. In Brazil, a typical returning migrant is a person of Japanese ancestry who has spent between three and five years working in Japan. Nearly one-quarter of a million Brazilians live in Japan and remit more than $1.5 billion a year back home. They also accumulate savings for their return to Brazil. The fund will seek to capitalize on both the experience gained by the returning migrants and the networks built by these overseas communities.

If it succeeds, this project could serve as a model for other Latin American and Caribbean countries bent on tapping their migrants to foster development and create economic opportunities in areas where emigration has long been the quickest—if not the only—route out of poverty.

Date posted: October 2001

Conference: Remittances as a development tool

Publication: Remitance Flows and Impact, by Susan F. Martin (PDF document)