Raul HernandezCoss

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Bilateral Remittance Corridor Analysis (BRCA)
The Earth Institute / Migrant Remittances and
Economic Development Columbia University, April
4, 2006
Raul Hernandez-Coss Financial Market Integrity
(FSEFI) The World Bank
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Contents

• Importance of Remittance Flows
• World Banks objectives
• Bilateral Remittance Corridor Analysis (BRCA)
• General Principles for International Remittances
• Policy Recommendations
• General Principles for International Remittance
  Services (World Bank / CPSS)
• Policy Recommendations

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Importance of Remittance Flows
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Remittances as an Important and
Stable Source of Financial Inflows to
Developing Countries

• Help to alleviate poverty
• Finance education and health expenditures
• Help finance SMEs
• Improve creditworthiness of economy
• Is as important as FDI and 50 higher than
  official development aid

Source World Development Indicators 2006 (World
Bank)
Amounts in USD billions
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Remittances as Means for Poverty
Alleviation in Low Income and Lower Middle
Income countries

• Remittances to developing countries increased by
  73 from 2001 to 2005
• Remittances to Europe and Central Asia increased
  by 53 from 2001 to 2005
• Lower Middle Income countries experience the
  highest volume and growth of remittances (US 88
  billion, 86) followed by Low Income countries
  (US 45 billion, 68)

Source Global Economic Prospect 2006 (World Bank)
Amounts in USD billions
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Banks Objectives on Promoting Formal Fund
Transfer Systems
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Banks Objectives
1.
Promote the use of formal funds transfer Systems
to increase transparency and protect integrity
2.
Encourage the use of remittance transfers as a
tool to increase access to financial services for
both senders and recipients
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Benefits from Remittances Transferred through
Financial Systems
Workers Remittances

• Financial Systems
• Banks, MTOs, postal service, micro finance
  institutions
• Larger pool of deposits
• Increased lending and investment
• Multiplier effect
• Larger GDP growth

• Informal Channels
• Cash couriers, hand-delivery, travel agencies,
  hawala-type systems
• Use mainly for consumption
• Limited access to finance
• No multiplier effect

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Access to Finance for Remittance Beneficiaries

• Financial Services
• Savings and deposit accounts
• Consumer credit
• Mortgages
• Life and non-life insurance
• Pension products
• Other

Remittance Beneficiary
Financial Institution
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Bilateral Remittances Corridor Analysis (BRCA)
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Remittance Transfers
a) Individuals (cash-based transactions)
b) Services from specialized global MTO
c) Bank-to-bank

• All of them need a network (access points)

• Also, procedures to link access points
• to enable
• messaging
• (transfer of information about the remittance),
• and settlement (transfer of funds themselves)

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Bilateral Remittance Corridor Analysis (BRCA)
Major Source Areas of Remittances
More Formalized Less Formalized Under review
Over 13 of global remittance flows have been
captured by BRCAs
8 recipient countries that receive 20 of
remittance flows to developing countries
6 source countries that send 36 of remittance
flows to developing countries
Source World Bank estimates
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Different Regions and Remittances Impact under
BRCAs
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Tailored Policy Measures for Different
Corridors
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Study on Improving the Efficiency of Workers
Remittances in Mediterranean Countries (EIB)
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Issues for Analysis at The First Mile

• Approximate number of remitting migrants, both
  overall and nationals of corridor partner
• Current level of remittance outflows, both
  overall and through specific corridor
• Average size and (where available) size
  distribution of individual remittances to
  corridor partner
• Types of remittance service providers, organized
  by formal informal
• Approximate numbers of each active in overall
  market, and in specific corridor
• Approximate of business in overall market, and
  in specific corridor
• Estimated of remitters with savings and/or
  checking accounts in commercial banks

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Issues for Analysis at The Last Mile

• Number of receiving country nationals sending
  remittances from abroad, both overall and from
  corridor partner
• Current level of remittance inflows, both overall
  and from corridor partner
• Location of recipients of remittances from
  corridor partner (urban/rural)
• Average size and (where available) size
  distribution of remittances received
• Incentives for deciding on a particular transfer
  mechanism

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Issues for Analysis at The Last Mile (II)

• Types of remittance deliverers (formal
  informal) serving urban and rural recipients
• Numbers of each active in the overall market, and
  in specific corridor
• of business in overall market and in specific
  corridor
• Delivery options offered by each (e.g., direct
  cash delivery to home, pick-up at place of
  business, deposit to bank account, ATM)
• of recipients with savings and/or checking
  accounts (including credit unions and MFIs)

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BRCA Initial Lessons
Finding

• No clear institutional responsibility exists for
  remittance data collection, consolidation and
  analysis.

Possible Action

• Clarification of responsibility, improved
  interagency collaboration with those responsible
  for balance of payments data, labor market data,
  etc. upgrading of hardware and software systems
  etc.

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BRCA Initial Lessons
Finding

• Set out most serious data gaps e.g., major RSPs
  are not required to report remittance
  transactions.

Possible Action

• E.g., extend reporting requirements to MTOs
  (and/or other major RSPs).

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BRCA Initial Lessons
Finding

• Little is known about financial service needs,
  incentives, access of migrant worker groups

Possible Action

• Promotion of surveys (or additional of questions
  to existing surveys), cooperation with community
  groups, etc.

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BRCA Initial Lessons
Finding

• Formal financial institutions appear unaware of
  the potential profitability of providing
  remittance and other financial services to
  migrants

Possible Action

• Dissemination of information on size and growth
  of market, lessons from experience elsewhere, etc

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Banks are Minor Players in The First Mile
30
RSPs
60
Source Italy-Albania Remittance Corridor, WB,
2006.
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Growth of bank remittances intermediation is more
complex than domestic intermediation

• It depends on coordinated private and public
  actions in both countries, resulting into a
  compatible financial infrastructure
• How do banks look at this market opportunity?
• How long does it take to develop a good product
  platform in the last mile?
• How can the first mile banks support the last
  mile banks?
• How critical is coordination among authorities?

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General Principles for International Remittance
Services
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Principles Aimed to Achieve Safe and Efficient
Remittance Services
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World Bank as a Partner in Development

• Conducts policy dialogue on remittances
• Shares knowledge on international experience in
  remittances
• Develops data systems on remittance flows for
  correct diagnosis
• Provides technical assistance to design and
  implement policy measures and
• Ensures integrity of remittance flows
• Facilitates remittances as a catalyst for further
  growth

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Policy Recommendations
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Policy Considerations on Remittances
Policy to maximize development impact and ensure
integrity of remittances

• Disseminate information to senders and
  beneficiaries

Consumers needs

• Education on remittance services to maximize
  impact on beneficiary

• Incentives to shift to formal channels

• Risk-based regulation that facilitate access at
  reasonable costs

Integrity regulation

• Proportionate AML/CFT reporting and monitoring

• Common standards of regulation but implementation
  based on domestic conditions

• Leverage on payment system technology

Increase access reduce cost

• Policies on competition new services providers
  vs. banks

• Facilitate alliances, domestic and cross-border
  cooperation on infrastructure for remittances

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Thank you for your attention
Raul Hernandez-Coss rhernandez-coss_at_worldbank.org