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Maximising the developmental impact of remittances – Private Sector Services
Vincent E. OKELE,President, African Axis (Belgium)
Global Forum on Remittances
Tunis, 22 – 23 October 2009
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Agenda
Definitions
Rationale
The challenge
Addressing the challenge
Private sector services
Example: The DiasporaLink Initiative
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Definitions
DIASPORA INFLOW: Monetary transfers made by the diaspora into their country of origin. As private transfers or as funds invested, deposited or donated.
REMITTANCES: Monies sent from individuals or households to other individuals or households residing in their country of origin.
DIASPORA INVESTMENTS: in a start-up, in an existing enterprise or in a business being privatised (Community Sector and Private sector investments)
FORMAL: bank transfers or money transfers via intermediaries (Western Union)
INFORMAL : carrying money (self-friends-relatives) or informal services (retail shop, currency dealer). No documentation.
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Remittances
Financial Development
Economic developme
nt& Growth
Investments
Rationale:Diaspora inflow and development
Economic Gowth
&Developmen
t
PovertyReduction
Entrepreneur-ship
Diaspora Investments
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Rationale:Diaspora inflow and development
REMITTANCES Help reduce the level of poverty and have a greater
influence on its severity (in rural areas) Are associated with improved schooling outcomes for
children (by helping to relax household constraints) and better access to health services for recipients
Promote entrepreneurship as the extra source of income could be put in new income generating activities
Help promote economic growth in less financially developed countries by positively impacting financial development
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Diaspora inflow into the region:The Challenge
1. The SSA region attracts relatively low volume of remittances through the formal channels
1. The SSA region attracts relatively low volume of remittances through the formal channels
Recorded remittances in developing countries: comparative review
0.00
50.00
100.00
150.00
200.00
250.00
1990 2000 2006
Developing countries
Latin America and the Carribean
East Asia nd the Pacif ic
Middle East and North Africa
Sub-saharan Africa
Source: World Bank
At approx. US$ 3.2 billion this represented less than 5% of total remittances to developing countries (US$240 billion)
Top 3: China, India, Mexico
Only Nigeria in the top 25 - Bengladesh, India & Pakistan
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Diaspora inflow into the region:The Challenge
The SSA region channels a limited proportion of remittance inflow into private sector investment
The SSA region channels a limited proportion of remittance inflow into private sector investment
The SSA region attracts less diaspora private sector investment The SSA region attracts less diaspora private sector investment
Less than 10% of received remittances are channeled to income and employment generating activities
CELTEL (Sudan), Databank (Ghana), Teylium (Senegal), Geometric Power Limited (Nigeria) etc..
Compared to the large number of technology firms by the Indian and Chinese diaspora
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Diaspora inflow into the region:The Challenge
Increase % of R channelled to
Savings & income generating activities
IncreaseVolume of Diaspora
Investment (Community & Private)
IncreaseVolume of R through
formal channels
DiasporaInflow
11 22
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Addressing the Challenge
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Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community
Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community
Diaspora inflow to the region:Addressing the Challenge
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Addressing the challenge: Origin country level
Increase volume of official inflow of remittances & channelling into productive sector
Framework allowing for introduction of innovative financial instruments by domestic financial institutions to capture remittances
Address the underlying structural weaknesses of the financial system. Ex: Establishment of Deposit insurance (guarantee) scheme
Repatriable foreign exchange accounts with premium interest rates (and maybe premium FX rates)
Diaspora bonds (debt instrument issued to raise financing from the diaspora - long term in nature)
Provide banks and MFIs with refinancing credit lines enabling them to open a lending window to specially target the diaspora
Establish programs to improve recipient financial literacy Information on financial instruments – financial services documentation
distributed at the same time
Encourage competition by allowing market entry of non-bank financial institutions into the market (MFIs, Credit Unions, savings & loan)
Remittances securitization Borrow on international capital market against future remittaces (can
potentially raise US$ 17 billion)
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Addressing the challenge: Origin country level
Facilitate diaspora-led investments Establishing specific tax/sectoral/export/tariff incentives
Preferential tax rates (5yr corporate tax amnesty for startups) Concessional rates of duty on imported capital goods Creation of a one-window clearance system for diaspora investments. Preferential access to capital goods and raw materials import
Provide business advisory services information on available investment opportunities, saving schemes,
financial support, business start-up procedures
Use MFIs to directly support diaspora-led investments Grant MFIs the license to take deposits and grant loans
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Addressing the challenge: Host country level
Engage with diaspora groups (HTAs) Informal relationships and social capital should be preserved and
supported Co-development initiatives encouraged Strengthen formally constituted institutions
Work with origin countries on technical, regulatory and oversight matters to ensure transparency in the remittances market.
Facilitate increased access to the financial system by migrants Establish technical and financial assistance programs providing
support to diaspora entrepreneurs (Ex: Co-development initiatives in France)
Involve the diaspora in economic missions to home countries
Make provisions for short term work placements
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Addressing the challenge : Multilateral institutions – Policy issues
Role played by migrants should be recognised and reinforced
ADI should become an integral part of global, regional and national strategies for poverty reduction
Measures to encourage the transfer and investment of remittances should be combined with strategic policies that are conducive to good governance and economic growth
Work with origin/host country public authorities to address diaspora investment with more consistent strategies, policies and legislations including:
nationality, commercial and financial law, tax law, international family and family property relations, international legal cooperation and litigation
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Addressing the challenge : Multilateral institutions – Initiatives/Mechanisms
Community sector investments Linking up with and supporting diaspora group initiatives Encourage diaspora groups to become involved in international-
funded local development projects
Private Sector Investments Initiate and support schemes designed to support diaspora-led private
sector investments - DMADE (world bank), ADM (USAID) Facilitate the involvement of diasporas in existing initiatives and
financing program Support origin countries’ investment climate improvement efforts Support initiatives designed to leveraging remittances for contribution
to the origin countries’ economies Support initiatives that foster competition on the Remittances market
Ex: Provide complete data related to international money transfer, including points of service, partners, fees, foreign exchange information and delivery time (DFID, AFD, etc..)
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Addressing the challenge : Diaspora Community
Origin country level Engage with the authorities at local, national and regional
levels Contribute to promoting good governance and in improving
the enabling environment for private sector development
Host country level Actively engage with host country business promotion
institutions Foster trading links with origin countries. Make contributions that will foster a positive image of Africa
in host country.
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Private Sector Services
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Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community + Private Sector
Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community + Private Sector
Private Sector Services:Addressing the Challenge
PrivateSector
PrivateSector
(RSPs, MTOs, MNOsBanks, NB financialInstitutions)
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Private Sector Services: Required actions
Analyze client base to gain better understanding of socioeconomic profiles of remittance senders and recipients
Offer value-added financial services to existing and potential clients
Deploy appropriate technologies and methodologies to bring unbanked recipients into the financial mainstream
Build partnerships to increase visibility and marketing of remittances
Improve financial literacy of existing clients, communicating actively to determine appropriate financial services
Expand on role of intermediation and consolidation of remittance flows
Private Sector Services: Instruments for leveraging remittances
Remittances Services Providers (MTOs + MNOs) Internet-based remittance platforms Mobile Money transfer : Zap, MPESA, WIZZIT, Mobile Money,
Celpay (outreach to local community)
Financial services providers (Banks, MFIs, Credit Unions, Savings & Loans)
Senders: savings, pension, investment, education financing, insurance, mortgage
certificates of deposit, equity and debt funds, mortgage bonds
Receivers: health insurance, education benefits, small business loans or consumer finance, bill payment
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Private Sector Services: Instruments for leveraging remittances - Examples
Zenith Bank
Nigeria Zenith Diaspora Account
combination of current and savings and loan accounts
Connected foreign currency accounts in USD, Euro and GBP
Negotiable interest rate balances accounts
Nigeria Diaspora-focused Accounts & other services
Diaspora Target account (savings accts – can be used as a collateral for loans)
Diaspora Investment Account (savings and fixed deposit)
PHB Easy Remit (remit funds from UK, Canada and USA)
Ghana Homecoming Account
hybrid account which invests in various mutual funds and financial instruments in Ghana and other regulated markets in Africa.
Sankofa account (1yr), Gye Nyame account (2yrs) and EpacK (3yrs)
Credit Foncier du Cameroon
Cameroon Diaspora-focused Housing loans
Programme to attract Cameroon diaspora investment in real estate
Uganda, Kenya & Tanzania
Zap (Mobile Money transfer)
Customers can receive funds from any bank account in the world into their mobile handset as well as send funds directly to their accounts
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The DiasporaLink Initiative
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The DiasporaLink Initiative:Objectives
Provide a low-cost, secure and regulatory compliant remittances transfer service
Involve the diaspora community & MFIs as key players in the remittances transfer market
Provide an integrated set of services to encourage and support diaspora-led investments
Information and documentation (investment opportunities, sources of finance, national regulations & incentives, etc..)
Technical assistance - development of bankable project proposals, facilitating of access to finance
Make available financing facility that would benefit the diaspora entrepreneur (Fund)
Provide financing support to existing and green-field diaspora-initiated businesses
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The DiasporaLink Initiative:Services
Diaspora Investment
Facility
Diaspora Investment
Fund
Remittances-Linked
Financial Products
Seed capital for DIF
• Internet-based P2P remittance
service• Operating on
the VISA platform
R-linked savings account
• Information: Investment opportunities sources of finance
• TA to project owners
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The DiasporaLink Initiative:Partnerships
Diaspora Investment
Facility
Diaspora Investment
Fund
Remittances-Linked
Financial Products
DiasporaOrganisations(UK, Germany,
Sweden, Belgium)
Private Sector
(Banks, MFIs, Credit Unions,
MNOs)
Multilateral finance
institution
Private Sector
Remit. Services Provider
(DiasporaLink AB)
The DiasporaLink Initiative:Benefits
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Economic Development
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Contacts
116, Avenue du Prince Héritier
1200, Brussels, Belgium
Tel: +3222533008
www.africanaxis.org
www.diasporalink.euwww.diasporalink.net