Inter-American Development BankMultilateral Investment Fund

Remittances, Diasporas and Remittances, Diasporas and Economic DevelopmentEconomic Development

The Multilateral Investment FundThe Multilateral Investment FundThe Multilateral Investment FundThe Multilateral Investment Fund Promotes private sector development in Latin

America and the Caribbean (LAC) Funds small technical assistance and

demonstration projects Tests new ways to develop micro and small

enterprise, improve the business environment and engage the private sector in the process of development

Is primarily a grant mechanism, but can also use a full range of instruments such as equity, quasi-equity and loans

1 2

Lower transaction

costs by promoting

competition, and encouraging innovative

technologies;

3

Leverage the development

impact of remittances,

through bankingand productive

investment

Document the increasing

importance of remittances to

the Region

Four years ago the MIF of the IDB began to commission studies, sponsor conferences, and finance projects in order to help:

Remittances and MIF StrategyRemittances and MIF StrategyRemittances and MIF StrategyRemittances and MIF Strategy

Remittances Remittances Dramatic growth of remittances has attracted

attention Now subject of public discussion and policy

considerations Wide range of stakeholders – financial

institutions and money transfer companies, public authorities, civil societies, international organizations

But it’s about transnational families – it’s their money – a result of their hard work

Remittances are the traditional financial support for families back in their home countries This phenomenon is generated by movement of labor across borders:

Fueled by Global EconomyFueled by Global Economy

people move

north by the MILLIONS

and money moves

south by the BILLIONS.

Volumes are HugeVolumes are HugeVolumes are HugeVolumes are Huge Foreign workers sent at least $174 billion to their

countries of origin in 2004

$120 billion through official channels – but unofficial channels account for significant volumes. World Savings Banks Institute estimates flows are $200 billion

Major implications for national economies but little really known - it has been hidden in plain view

Key FindingsKey Findings Key FindingsKey Findings Latin America and the Caribbean (LAC)

receives the most remittances transfer costs are lowest when remittances are

sent through regulated financial institutions, such as banks, credit cooperatives, and credit unions

the average cost of remitting to countries outside LAC is cheaper than remitting to LAC

LAC migrants North AmericaLAC migrants North America

For the last two decades the preferred destination for the over-whelming majority of Latin American and Caribbean migrants has been North America – principally the US

According to the 2000 U.S. census, approx. 5% or 14.47 million people emigrated from LAC countries

Remittances are GrowingRemittances are Growing Latin America and the Caribbean is both the

fastest growing and highest volume remittance market in the world

In 2004 over $45 billion of remittances flowed into the region

At current growth rates, the projected cumulative remittances to Latin America and the Caribbean for the decade (2001-2010) will approach

US$ 500 billion

Major Economic ImpactMajor Economic Impact substantially exceed of Official

Development Assistance (ODA) inflows to each country

account for over 10% of GDP in: Haiti, Nicaragua, El Salvador, Jamaica, the Dominican Republic, and Guyana

equal more than 150% of the interest paid on the total LAC external debt during the past five years

Central America, the Caribbean, and Andean countries all report consistent increases in remittances, which reflect the growing integration of labour markets between LAC and the rest of the world

Remittances growth for 2003 over 2002 (US$ Billions)

5.415.42 5.37

6.076.35

5.80

4.50

5.00

5.50

6.00

6.50

Central America Andean countries CaribbeanRegions

and Growth

US

$ b

illio

n

2002 2003

18.3%11.9% 7.5%

( ES / GU / HO / NI ) ( BO / CO / EC / PE ) ( CU / DR / HT / JA )

Integrating Labour MarketsIntegrating Labour Markets

Remittances by Selected LAC Remittances by Selected LAC CountriesCountries

20032003 (US$ millions) (US$ millions)

Jamaica

1,425

Honduras

862

Guatemala

2,106

Mexico

13,266

Dominican Republic

2,217Haiti

977

Brazil

5,200

Ecuador

1,656

Colombia

3,067

Cuba

1,194

Bolivia

340

Nicaragua

788

El Salvador

2,316

Argentina

225

Guyana

137

Venezuela

247Costa Rica

306

Trinidad & Tobago

88

Belize

73

Panama

220

Uruguay

42

Peru

1,295

Remittance SendersRemittance SendersRemittance SendersRemittance Senders A 2004 MIF study found that over 60 percent of

adult, foreign-born Latino people living in the U.S. send remittances regularly and about another 10% send remittances occasionally

Two-thirds of remittance senders dispatch money at least once a month, and the most recently arrived (those in the United States less than five years) are the most frequent remitters with three-quarters sending money at least once a month

Most send $200 to $300 at a time

Transfer Mechanisms10%

7%

2%

11%70%

By Hand

Mail

CreditUnionBanks

Wire

Transfer Mechanisms From U.S.Transfer Mechanisms From U.S.

70% of senders use transfer companies such as Western Union or Money Gram

Cost of TransferCost of TransferCost of TransferCost of Transfer Until recently the remittances market in LAC

countries was only composed by only a small amount of major institutions and several small players

Before 2000, the average cost of sending remittances to LAC was about 15% of the value of the transaction

In an era of electronic transfer of resources, this suggested a lack of transparency / maturity / and competition in the remittance transfer market

12.11%

11.32%

10.63%

8.88%

8.56%

8.17%

7.90%

7.32%

7.30%

7.26%

6.93%

6.37%

5.56%

5.75%

5.36%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Cuba

Dominican Rep.

Jamaica

Haiti

Venezuela

Bolivia

Latin America

Mexico

Honduras

Guatemala

Nicaragua

Colombia

Peru

El Salvador

Ecuador

Cost to send remittances to Latin America, February 2004

US$200

Cost of TransferCost of Transfer

Costs are reducingCosts are reducing In recent years, the remittance industry has

become more transparent and competitive

By February 2004, the average cost had nearly halved to reach 7.9 percent or $16 for sending $200

This reduced average, when compared with fees five years ago, is mostly due to the fact that charges have decreased with greater competition and use of technology.

Costs Vary Costs Vary Remitters to Mexico, El Salvador, and

Guatemala charge lower fees than companies sending money to Jamaica and the Dominican Republic where competition is less robust or ‘controlled’

For other countries, like Cuba or Haiti, where market restrictions are even tighter, charges are generally the highest

Remittances and DevelopmentRemittances and DevelopmentRemittances and DevelopmentRemittances and Development

First - Clear up misconceptions Remittances are not:

a substitute for International Development Aid a substitute for Economic Development or Social

Welfare Public Policies a preferred development model for a nation

Growth in Remittances is no cause for celebration

Remittances are not a development model – but rather a sign of the failure of development

Maximize the PositivesMaximize the PositivesMaximize the PositivesMaximize the Positives

Key Goals:

Maximize the contribution of the transnational family as an agent for economic and social development in the communities of origin

Maximize the economic, financial and social inclusion of the migrants and their families in their countries of origin and residence

In order to help organize and focus priorities for this collective effort, in March 2004 MIF issued a set of

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

Core Principles

promoting best practices within the LAC remittance market.

Public Authorities

Civil Society

Remittances Institutions

These Core Principles These Core Principles are aimed at:are aimed at:

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

Core Principles

IMPROVE TRANSPARENCY

PROMOTE FAIR COMPETITION AND PRICING

SEEK PARTNERSHIPS AND ALLIANCES

IMPROVE DATA

ENCOURAGE FINANCIAL INTERMEDIATION

PROMOTE FINANCIAL LITERACY

APPLY APPROPRIATE TECHNOLOGY

LEVERAGE DEVELOPMENT IMPACT

SUPPORT SOCIAL AND FINANCIAL INCLUSION

DO NO HARM

EXPAND FINANCIAL SERVICES

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

GovernmentsIMPROVE DATA

ENCOURAGE FINANCIAL INTERMEDIATION

PROMOTE FINANCIAL LITERACY

DO NO HARM

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

Remittance Institutions

IMPROVE TRANSPARENCY

PROMOTE FAIR COMPETITION AND PRICING

SEEK PARTNERSHIPS AND ALLIANCES

APPLY APPROPRIATE TECHNOLOGY

EXPAND FINANCIAL SERVICES

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

Civil Society

LEVERAGE DEVELOPMENT IMPACT

SUPPORT SOCIAL AND FINANCIAL INCLUSION

Core PrinciplesCore PrinciplesCore PrinciplesCore Principles

World Bank/BISWorld Bank/BISWorld Bank/BISWorld Bank/BIS

Have convened an international group of Central Banks, international and other development organizations to develop General Principles for International Remittances

Will create service standards and principles for consumer protection, transparency and market behavior

European UnionEuropean UnionEuropean UnionEuropean Union

Has developed new approach to regulating remittance transfers

This creates a category of payment institutions to whom would be issued a single EU “passport” to operate in the internal market - therefore increasing competition

Also regulates information to be provided with credit transfers

Increase to 50% the

number of families

receiving remittances through the

financial system.

Reduce by 50% the average cost

of LAC remittance

market transactions by

promoting increased

competition

Goals

MIF StrategyMIF StrategyMIF StrategyMIF Strategy

Working with a network of participating stakeholders to help reach two goals by 2010:

Key ObjectivesKey ObjectivesKey ObjectivesKey Objectives

Promote financial inclusion In LAC, less than 10% of remittance recipients

have bank accounts, access to loans or other financial products

Develop opportunities to invest in local economic development

Increase competition to lower transaction costs

Improve regulatory and institutional frameworks

Areas of growing focus Areas of growing focus Technology - opening new possibilities to lower

costs and offer a wider range of financial services

Housing - mobilize savings and turn earnings into equity

Securitize remittance flows to create new source of lower cost and longer term capital

Research impact of gender - women make up half of remittance senders worldwide and most heads of remittance-receiving households

Looking AheadLooking Ahead Looking AheadLooking Ahead All stakeholders can help - financial institutions

and money transfer companies, public authorities, civil society and diaspora groups, international organizations

However one central principle should be in mind: “It’s their money”

Successful efforts will result in transnational families with more money available for their own purposes, and more options in using those resources

Inter-American Development BankMultilateral Investment Fund

www.iadb.org/mif

1300 New York Av. NWWashington D.C. 20577

(1) 202 942-8211

Inter-American Development BankInter-American Development Bank