Remittances and development: Its impact on U.S.Latin American bankingfinancial institutions

1
Remittances and development Its impact on
U.S./Latin American banking/financial
institutions
International Payments Systems,
October 7th, 2004 Federal Reserve Bank of Atlanta

Atlanta, Georgia

• Manuel Orozco, Senior Fellow Project
  coordinator MIF-IFAD
  
• Remittances and Development Program
• Washington, DC

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 SC 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
  countrys 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 TRAN
SFERS
-ODA-? BILATERAL MULTILATERAL
-PRIVATE DONATIONS ?FOUNDATIONS, PPOs, HTAs -WO
RKER REMITTANCES
4
Immigrant economic practices (annual expenses)
Capital investment
Consumption
Donations
Family remittances
Trade and services retail (US3,000)
Community (US10,000 year)
Household economy (US270)
Property and other I (US5,000)
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
11
(No Transcript)
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 Janua
ry 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 mi
nutos 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 doesnt 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
MTCs bank
MTCs Agent POS
Money Transfer Company
Data Transfer Report (customers sending Inf
ormation)
Remittance sender
Wire Transfer (cash transfer Amount)
Regulatory Environment Compliance Monitoring
ADs bank
MTC Money transfer company POS Point of sale A
D Agent distributor (on receiving side)
MTCs Agent POS
MTCs rec. country Agent Distributor
Players MTO, agents at POS, distributing agents,
banks Type of MTO player -Transfer WT, MO, ha
nd delivery -Scope National, Regional/country F
inancial CU, unlicensed
Remittance recipient
27
Cost comparison between principal amount sent and
sending 200
28
Changes over time in costs to send principal
amount
29
(No Transcript)
30
(No Transcript)
31
Cost of Remittances to Mexico, May 17-28(cost to
send US300)
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 Mexicos Matricula Consular as a valid
  form of identification to open a bank account.
  
• Financial services offered
• Marketing tools
• Expected results