inter-american development bank multilateral investment fund remittances, diasporas and economic...
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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
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