Priscilla Murphy, Mexico City
Ten years ago, remittances made home by immigrants abroad already were a major economic factor in Latin America and the Caribbean. However, these flows were largely unnoticed, literally hidden in plain sight.
In the year 2000, the Inter-American Development Bank’s Multilateral Investment Fund (MIF) began to intensively analyze the volume, transaction costs and development potential of international remittances to this region.
The MIF’s initial findings were astonishing. Remittances to Latin American and Caribbean dwarfed the combined total of net direct foreign investment and official external assistance to the region. In at least six countries, remittances represented more than 10 percent of gross domestic product.
At a household level, remittances are crucial to the families that receive them. Funds are used to cover basic needs, including food, clothing, housing, health and education. Though the proportion varies from case to case, families typically manage to keep a portion of the money as savings, or to invest in a small business or make home improvements. And some migrant associations have succeeded in funding community projects in their hometowns using group remittances.
Despite much progress, the potential of remittances for development is still greater than their current impact. International money transfers are only partially integrated with financial services, and a majority of remittance senders and recipients lack bank accounts.
Following its initial research on remittances in 2000, the MIF established an action plan to improve the development impact of remittances. The action plan included strategies to fund research, projects, events and publications. Over the past ten years, the MIF has commissioned over 50 studies or surveys in both remittance-sending and receiving countries, and organized over 45 conferences and roundtables in Latin American and Caribbean countries, the United States, Canada, Asia, Africa and Europe.
In total, by August 2009, the MIF approved 45 projects in the area of remittances, totaling more than $45 million in technical assistance and approximately $22 million in loans and equity investments.
Along with its research and knowledge dissemination activities, the MIF created a remittance project cluster with the goals of reducing the cost of remittance transfers; decreasing transaction costs to remittance recipients and improve access to transfers; directing part of remittances into savings in financial institutions; and directing another part of remittances into productive investments for migrants’ families.
The first goal of the MIF program action plan was to reduce remittance costs to the region by 50 percent. This has been surpassed before the 2010 target date, according to MIF surveys and other sources. Before 2000, the average cost of sending remittances to Latin American and Caribbean countries from the United States was about 15 percent of the value of the transaction. Average money transfer prices to this region are now among the lowest in the world, averaging approximately 5.6 percent.
Over the years, other entities started to replicate the MIF’s activities. Multilateral and bilateral funding agencies have their own remittance projects and engage in remittance research. These flows are now being measured in Asia, Africa, and Eastern Europe. Governments are developing policies to make remittance markets more competitive. Information on remittance-transfer costs is more transparent. Governments and financial institutions are paying greater attention to remitters’ and recipients’ needs.
While some of the MIF’s remittances-related projects exceeded their goals, others fell short of their expected results. In some cases, governments were slow in implementing projects or changed their priorities during execution. Some banks acting as executing agencies were acquired during the process and their new owners showed less interest in remittances. Some financial products turned out to be unprofitable when not cross-sold with other products aimed at remittance senders. And the global financial crisis made funding an important challenge for several partners. But taken as a whole, this portfolio has yielded valuable experiences for international financial institutions, donors and investors on what works and what needs adjustment.
In general, executing agencies benefited from the various activities sponsored by the MIF. Cooperativa Salcajá, in Guatemala, for example, obtained a new broadened vision about what it can accomplish in the communities. Asociación Mexicana de Uniones de Crédito del Sector Social (AMUCSS) improved its liquidity position, which has given rise to new structures to manage remittances and new programs to utilize them for credit. Federación de Cooperativas de Ahorro y Crédito de El Salvador (FEDECACES) is an example of project in which new clients have been brought into the banking system. Mutualista Pinchincha, a mortgage finance company in Ecuador, expanded its loan portfolios. Small rural entities in Mexico are now linked to international markets through Banco del Ahorro Nacional y Servicios Financieros (BANSEFI). And information technology has improved efficiencies of transfer services in the Asociación de Instituciones Rurales de Ahorro y Crédito (AIRAC) project in the Dominican Republic.
For the actual senders and recipients of remittances, the benefits of the MIF’s projects are clear. These families now have greater access to more affordable transfer services. Some of these are now automatic, through the use of debit cards as in the El Comercio project in Paraguay. Remittance senders and beneficiaries also have gained increased access to other financial services, such as insurance in the case of BancoSol in Bolivia. There is less risk of robbery to recipients when transfers are done over the Internet or deposited directly into bank accounts, as shown in the Banco Hipotecario Dominicano (BHD) project.
The lessons learned in these 10 years are countless, and have paved the way for more and better initiatives that will have positive impact on migrants, their families and their communities.
- Peter Bate