Leveraging Remittances for Economic Development

CMEx

October 2006

The Second Oldest Profession

Transferring money for people who live in other places

Changing money from one currency to another Making small loans to trusted and known friends

and neighbors

Societies learn how to efficiently and profitably move money Societies learn how to efficiently and profitably move money from one end of town to another and from one end of the from one end of town to another and from one end of the world to the otherworld to the other

Moving money for other people has a long history in every region of the worldMoving money for other people has a long history in every region of the world

Remittances are Privately Held Assets Remittances are like a “salary” for the

receiver Remittances cannot be used alone for

development because they are at the discretion of the receiver

Remittance Flows are NOT the same as Foreign Aid or Economic Development Funding and cannot replace it

Remittances can create leverage for Economic Development Aid and Vice Versa

Remittances as Economic Development Lever – Why Now? Why are we only now noticing that these transfers

can be used as economic development tools? Shift in use of some remittances

What do people spend their remittances on now? Many remittances are used for subsistence, short term

one-off How do sender’s requirements differ from receiver's

needs? Sender’s may be looking to invest some of their

remittances in their home countries for when they return home

The Challenge to Leveraging Remittances - Time

Duration: Turn a short term asset into a long term asset that can be leveraged further

How do we get entities that finance long term transactions to be able to communicate with customers who have repeated short term assets?

Mortgage Duration – 5 -15 years

Remittances – Monthly, Quarterly, Annually

Remittances as Cash flows

Treat remittances as cash flows Lend against cash flow – information based lending and not

collateralized lending History and Projections of future flows Cash flow lending is not generally considered investment grade –

how does that effect ability to create a secondary market?

$$Traditional Securities

Bank Loans

$$$Monthly

$$$Quarterly

$$$Annually

Roles for the International Development Community

Donors role is to mitigate risk for the domestic financial community

Potentially provide financial strength behind remittance leveraged financing

Work with domestic organizations like savings banks and government housing finance plans to also put some matching capital into loans