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R emittances and development : Its impact on U.S./Latin American banking/financial institutions Manuel Orozco, Senior Fellow & Project coordinator MIF-IFAD Remittances and Development Program Washington, DC International Payments Systems, October 7 th , 2004

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R emittances and development its impact on u s latin american banking financial institutions l.jpg

Remittances and development: Its impact on U.S./Latin American banking/financial institutions

Manuel Orozco, Senior Fellow & Project coordinator MIF-IFAD

Remittances and Development Program

Washington, DC

International Payments Systems,

October 7th, 2004

Federal Reserve Bank of Atlanta

Atlanta, Georgia


Policy dimensions of remittances l.jpg
Policy dimensions of remittances

  • Dynamics of remittances

  • Benefit to households

  • Distributive nature

    • Rural Sector

    • Country

  • Macro-economico Impact

    • FC source

    • Counter-cyclical role

    • Multiplying effect

  • Tied to finance

  • Part of a broader process:

  • The 5Ts

  • Problems

  • Transaction Costs

  • Limited competition

  • Limited participation of S&C institutions

  • Security

  • No economic policy

Opciones o soluciones

  • Latin America

  • Monitor money transfers, particularly the exchange rate

  • Motivate banks through tax and other rewards to reach out to remittance senders and recipients.

  • Open low-maintenance banking facilities in areas near remittance receiving households

  • Offer first time deposit accounts with varying financial incentives;

  • Attract remittance senders into the home country’s banking system;

  • Allow and enable credit unions, micro-finance institutions, and popular banks as remittance agents and deposit holders.

  • Promote the adoption of new technologies for the poor.

  • United States

  • Expand the acceptable forms of identity used by banks:

  • Expand financial services that banks and CUs offer to immigrants

  • Partnerships with community based organizations to create social bridges.

  • Enhance the role of the Community Reinvestment Act (CRA)

  • Link financial literacy to the value of remittances.

  • Promote strategic alliances among U.S. and Latin American banks and money transfer businesses.

  • Disclosure


  • The national income equation in latin america a rent seeking and courtesan state l.jpg
    The national income equation in Latin America: a rent seeking and courtesan state?

    GDP: (X-M) + I + G + C

    -Maquila, Tourism, Non-traditional exports

    -Transportation, Telecommunication, Nostalgic Trade

    -DOMESTIC SAVINGS - INVESTMENT

    -FOREIGN SAVINGS - INVESTMENT

    -FDI: Transnational capital, migrant capital investment

    -TECHNOLOGY TRANSFER

    -UNILATERAL TRANSFERS

    -ODA- BILATERAL & MULTILATERAL

    -PRIVATE DONATIONS

    FOUNDATIONS, PPOs, HTAs

    -WORKER REMITTANCES


    Slide4 l.jpg

    Immigrant economic practices seeking and courtesan state?

    (annual expenses)

    Capital

    investment

    Consumption

    Family remittances

    Donations

    Trade and

    services retail

    (US$3,000)

    Community

    (US$10,000 year)

    Household economy

    (US$270)

    Property

    and other I

    (US$5,000)


    Benefit to families l.jpg
    Benefit to families seeking and courtesan state?





    Anti cyclical nature quarterly flows to selected latin american countries l.jpg
    Anti-cyclical nature: country)Quarterly flows to selected Latin American countries




    Slide13 l.jpg

    Globalization the D.R. (1996-2002): Percent of people who send remittances and buy home country goods, call regularly home, donate, travel and spend money in their home country


    Slide14 l.jpg

    Crisis bancaria en RD the D.R. (1996-2002)

    Crisis ec. en Ecuador

    Crisis del café

    en Guatemala

    Source: Central Bank of each country. Estimates for Cuba, Haiti and Nicaragua


    Percent of remittance senders who say they visit home country l.jpg
    Percent of remittance senders who say they visit home country (%)

    Datos recogidos de la encuesta e inmigrantes enNew York conducida por el autor, administrada por Emmanuel Sylvestre & Assoc. Resultados presentados en Orozco, Manuel (2004), Distant but close: Guyanese transnational communities and their remittances from the United States Inter-American Dialogue, Informe encargado por la U.S. Agency for International Development. Washington, DC. Enero..



    Remittance senders frequency of calls to relatives l.jpg
    Remittance senders: frequency of calls to relatives (%) country (%)

    Datos recogidos de la encuesta e inmigrantes enNew York conducida por el autor, administrada por Emmanuel Sylvestre & Assoc. Resultados presentados en Orozco, Manuel (2004), Distant but close: Guyanese transnational communities and their remittances from the United States Inter-American Dialogue, Informe encargado por la U.S. Agency for International Development. Washington, DC. Enero..


    Phone calls to selected latin american countries l.jpg
    Phone calls to selected Latin American countries country (%)

    Source: Encuesta de inmigrantes en New York; US Census Bureau; 2000 and 2001 International Telecommunications Data, Linda Blake and Jim Lande.

    Washington, FCC, December 2001, and January 2003. * calculo basedo en un promedio de 4 llamadas al mes por 5, 8, 15, 25 y 30 minutos por llamada

    Formula utilizada es ∑ de llamadas = minutos anuales * Porciento que llama * Porcentaje inmigrantes que remiten (Censo 2000 de pobl.)


    Remittance senders who buy home country goods l.jpg
    Remittance senders who buy home country goods (%) country (%)

    Data reported from survey of immigrants in New York conducted out by the author, administered by Emmanuel Sylvestre and Assoc. Results reported in Orozco, Manuel (2004), Distant but close: Guyanese transnational communities and their remittances from the United States Inter-American Dialogue, Report commissioned by the U.S. Agency for International Development. Washington, DC. January..


    Purchase of nostalgic goods by nicaraguan remittance senders l.jpg
    Purchase of nostalgic goods by Nicaraguan remittance senders country (%)

    125,000 personas que gastan $100 anuales en queso: $12.5 millones. Exportación Nicaraguense de queso es aprox. $30 millones.



    Immigrants and bank accounts l.jpg
    Immigrants and bank accounts country (%)

    Source: Data reported from survey of immigrants in Chicago, DC, New York, Los Angeles and Miami commissioned by the author, administered by Emmanuel Sylvestre, Protectora Inc. August 2003.





    Slide26 l.jpg

    International money transfer operation country (%)

    TWO DATA

    STREAMS

    MTC’s bank

    MTC’s

    Agent

    POS

    Money

    Transfer

    Company

    Data Transfer

    Report

    (customer’s

    sending

    Information)

    Remittance

    sender

    Wire Transfer

    (cash transfer

    Amount)

    Regulatory

    Environment

    Compliance

    Monitoring

    AD’s bank

    MTC: Money transfer company

    POS: Point of sale

    AD: Agent distributor (on receiving side)

    MTC’s

    Agent

    POS

    MTC’s rec. country

    Agent Distributor

    Players: MTO, agents at POS, distributing agents, banks

    Type of MTO player:

    -Transfer: WT, MO, hand delivery

    -Scope: National, Regional/country; Financial; CU, unlicensed

    Remittance

    recipient




    Cost of remittances to mexico may 17 28 cost to send us 300 l.jpg
    Cost of Remittances to Mexico, May 17-28 $200(cost to send US$300)



    Banks remittances and immigrants l.jpg

    Banks, Remittances and immigrants $200

    Identified 100 banks accepting consular ID

    Building of pricing dataset of 60 banks

    Qualitative Interviews to 22 banks and credit unions

    RESULTS-



    Charges made by banks and credit unions to transfer remittances to mexico by method used l.jpg
    Charges made by banks and credit unions to transfer remittances to Mexico (by method used)


    Observed results l.jpg
    Observed Results remittances to Mexico (by method used)


    Banking the unbanked mainstreaming latinos as financial agents l.jpg
    Banking the unbanked: remittances to Mexico (by method used) mainstreaming Latinos as financial agents

    • The interest of financial institutions is not on the transfers, but on making a long term relationship with the sender.

    • Two approaches:

      • Focusing on specific strategies to the Hispanic market

      • Use of the same marketing tools to bring Hispanics.

      • Result: mainstreaming Latinos as financial agents.

    • Two premises:

      • Realistic approach about what to offer and how.

      • Accept Mexico’s Matricula Consular as a valid form of identification to open a bank account.

    • Financial services offered

    • Marketing tools

    • Expected results


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