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

1. 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

2. 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

3. 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

4. Immigrant economic practices (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)

5. Benefit to families

6. Average amount sent and length of time living in U.S.

7. Average amount sent and length of time living in U.S. (by country)

8. Remittances and income distribution

9. Anti-cyclical nature: Quarterly flows to selected Latin American countries

10. Guatemala and the coffee crisis

12. Minutes in phone calls from the U.S. to Central America and the D.R. (1996-2002)

13. Globalization: Percent of people who send remittances and buy home country goods, call regularly home, donate, travel and spend money in their home country

14. Crisis bancaria en RD Crisis ec. en Ecuador Crisis del café en Guatemala Source: Central Bank of each country. Estimates for Cuba, Haiti and Nicaragua

15. 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..

16. Tourism: one of the 5Ts. . .

17. Remittance senders: frequency of calls to relatives (%) 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..

18. Phone calls to selected Latin American countries 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.)

19. Remittance senders who buy home country goods (%) 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..

20. Purchase of nostalgic goods by Nicaraguan remittance senders 125,000 personas que gastan $100 anuales en queso: $12.5 millones. Exportación Nicaraguense de queso es aprox. $30 millones.

21. Goods bought by Guyanese diaspora

22. Immigrants and bank accounts 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.

23. Why doesn’t have a bank account?

24. Do you have debit, credit card, or both

25. Do you have financial obligations (loans)?

26. International money transfer operation 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

27. Cost comparison between principal amount sent and sending $200

28. Changes over time in costs to send principal amount

31. Cost of Remittances to Mexico, May 17-28(cost to send US$300)

32. Cost of remittances and volume

33. Banks, Remittances and immigrants Identified 100 banks accepting consular ID Building of pricing dataset of 60 banks Qualitative Interviews to 22 banks and credit unions RESULTS-

34. Banks and offers of remittance transfers

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

36. Observed Results

37. Banking the unbanked: 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