Leveraging Remittances for Economic Development

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Leveraging Remittances for Economic Development

• CMEx
• October 2006

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The Second Oldest Profession
Moving money for other people has a long history
in every region of the world

• 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 from one end of town to another and
from one end of the world to the other
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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
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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 senders requirements differ from
  receiver's needs?
• Senders may be looking to invest some of their
  remittances in their home countries for when they
  return home

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The Challenge to Leveraging Remittances - Time
Mortgage Duration 5 -15 years
Remittances Monthly, Quarterly, Annually

• 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?

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Remittances as Cash flows

Monthly
Annually
Quarterly
Bank Loans
Traditional Securities

• 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?

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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