Remittances, Diasporas and Economic
Development
Inter-American Development Bank
Multilateral Investment Fund
The 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, quasiequity and loans
Remittances and MIF Strategy
Four years ago the MIF of the IDB began to commission
studies, sponsor conferences, and finance projects in
order to help:
1
2
3
Document the
increasing
importance of
remittances to
the Region
Lower
transaction
costs by
promoting
competition, and
encouraging
innovative
technologies;
Leverage the
development
impact of
remittances,
through banking
and productive
investment
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
Fueled by Global Economy
 Remittances
are the traditional financial
support for families back in their home countries
 This phenomenon is generated by movement
of labor across borders:
people move
north by the MILLIONS
and money moves
south by the BILLIONS.
Volumes 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 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 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 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 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
Integrating Labour Markets
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)
2002
2003
US$ billion
6.50
6.35
6.00
6.07
5.80
5.50
5.00
5.42
5.41
5.37
4.50
Regions
and
Growth
Central America
Andean countries
Caribbean
11.9%
18.3%
7.5%
( ES / GU / HO / NI )
( BO / CO / EC / PE )
( CU / DR / HT / JA )
Mexico
Belize
13,266
73
Honduras
Cuba
862
1,194
Dominican Republic
Jamaica
Guatemala
Nicaragua
977
Trinidad & Tobago
788
2,106
El Salvador Costa Rica
2,316
1,425
2,217
Haiti
306
88
Panama
Venezuela
220
247
Guyana
137
Colombia
3,067
Ecuador
1,656
Brazil
5,200
Peru
1,295
Bolivia
Remittances by Selected LAC Countries
340
2003 (US$ millions)
Uruguay
Argentina
225
42
Remittance 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 Mechanisms From U.S.
 70% of senders use transfer companies
such as Western Union or Money Gram
Transfer Mechanisms
10%
By Hand
7%
2%
70%
Mail
Credit
Union
Banks
11%
Wire
Cost 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
Cost of Transfer
Cost to send rem ittances to Latin Am erica, February 2004
Ecuador
5.36%
El Salvador
5.75%
Peru
US$200
5.56%
6.37%
Colom bia
Nicaragua
6.93%
Guatem ala
7.26%
Honduras
7.30%
Mexico
7.32%
Latin Am erica
7.90%
Bolivia
8.17%
Venezuela
8.56%
Haiti
8.88%
Jam aica
10.63%
Dom inican Rep.
11.32%
Cuba
0.00%
12.11%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Costs 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
 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 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 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
Core Principles
In order to help organize and focus
priorities for this collective effort, in
March 2004 MIF issued a set of
Core Principles
promoting best practices within the LAC
remittance market.
Core Principles
Remittances Institutions
These Core Principles
are aimed at:
Public Authorities
Civil Society
Core Principles
IMPROVE
TRANSPARENCY
PROMOTE FAIR
COMPETITION AND PRICING
APPLY APPROPRIATE
TECHNOLOGY
DO NO HARM
IMPROVE DATA
Core
Principles
SEEK PARTNERSHIPS
AND ALLIANCES
ENCOURAGE FINANCIAL
INTERMEDIATION
PROMOTE FINANCIAL
LITERACY
EXPAND FINANCIAL
SERVICES
LEVERAGE
DEVELOPMENT IMPACT
SUPPORT SOCIAL AND
FINANCIAL INCLUSION
Core Principles
DO NO HARM
IMPROVE DATA
Governments
ENCOURAGE FINANCIAL
INTERMEDIATION
PROMOTE FINANCIAL
LITERACY
Core Principles
IMPROVE
TRANSPARENCY
PROMOTE FAIR
COMPETITION AND PRICING
APPLY APPROPRIATE
TECHNOLOGY
SEEK PARTNERSHIPS
AND ALLIANCES
EXPAND FINANCIAL
SERVICES
Remittance
Institutions
Core Principles
Civil
Society
LEVERAGE
DEVELOPMENT IMPACT
SUPPORT SOCIAL AND
FINANCIAL INCLUSION
World 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 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
MIF Strategy
Working with a network of participating stakeholders to
help reach two goals by 2010:
Goals
Reduce by 50% the
average cost of LAC
remittance market
transactions by
promoting
increased
competition
Increase to 50%
the number of
families
receiving
remittances
through the
financial system.
Key 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
 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 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 Bank
1300 New York Av. NW
Washington D.C. 20577
(1) 202 942-8211
www.iadb.org/mif
Inter-American Development Bank
Multilateral Investment Fund