Remittances and development: Its impact on U.S./Latin American banking/financial institutions Manuel Orozco, Senior Fellow & Project coordinator MIF-IFAD.
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Remittances and development: Its impact on U.S./Latin American banking/financial institutions
Manuel Orozco, Senior Fellow & Project coordinator MIF-IFAD Remittances and Development
ProgramWashington, DC
International Payments Systems, October 7th, 2004Federal Reserve Bank of AtlantaAtlanta, Georgia
Policy dimensions of remittancesDynamics of remittances1. Benefit to households2. Distributive nature
1. Rural Sector2. Country
3. Macro-economico Impact1. FC source2. Counter-cyclical role3. Multiplying effect
4. Tied to finance5. Part of a broader process:The 5Ts
Problems• Transaction Costs• Limited competition• Limited participation of
S&C institutions• Security• No economic policy
United States1. Expand the acceptable forms of identity used by banks:2. Expand financial services that banks and CUs offer to immigrants 3. Partnerships with community based organizations to create social bridges.4. Enhance the role of the Community Reinvestment Act (CRA) 5. Link financial literacy to the value of remittances. 6. Promote strategic alliances among U.S. and
Latin American banks and money transfer businesses.7. Disclosure
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.
Opciones o soluciones
GDP: (X-M) + I + G + C
-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
-Maquila, Tourism, Non-traditional exports-Transportation, Telecommunication, Nostalgic Trade
The national income equation in Latin America: a rent seeking and courtesan state?
Immigrant economic practices (annual expenses)
ConsumptionDonationsFamily remittancesCapital investment
Household economy (US$270)
Community(US$10,000 year)
Trade and services retail(US$3,000) Property
and other I(US$5,000)
Benefit to familiesAverage amount sent and number of remittance dependents
166.73
189.02
235.48
150
160
170
180
190
200
210
220
230
240
One to two Three to four Five or more
Average amount sent and length of time living in U.S.
170
190
210
230
250
270
290
Less than one year One to three Four to six Seven to nine Over ten
Years living in U.S. Years sending money
Average amount sent and length of time living in U.S. (by country)
100
150
200
250
300
350
400
450
500
Menos de un año Entre uno y tresaños
Entre cuatro y seisaños
Entre siete ynueve años
Entre diez y doceaños
Entre trece yquince años
Más de quinceaños
Colombia Cuba Ecuador El Salvador Guatemala Guyana Honduras
Mexico Nicaragua Dom. Rep. Bolivia
Remittances and income distribution
Linear Regression
0.0200 0.0400 0.0600 0.0800 0.1000
Lowest 20%
0.00
100.00
200.00
300.00
RE
MIT
(PC
)
Belize
BoliviaBrazil
Colombia CR
DR
Ecuador
ELS
GUA
Guyana
Haiti
Honduras
Jamaica
MEX
NICAR
Parag Peru
T&T
Venez
REMIT(PC) = -8.11 + 2961.76 * low20R-Square = 0.25
Anti-cyclical nature: Quarterly flows to selected Latin American countries
20
70
120
170
220
Jan-
99
Mar
-99
May
-99
Jul-9
9
Sep-9
9
Nov-99
Jan-
00
Mar
-00
May
-00
Jul-0
0
Sep-0
0
Nov-00
1-Ja
n
1-Mar
1-May
1-Ju
l
1-Sep
1-Nov
2-Ja
n
2-Mar
2-May
Jul.
2002
Sept.
2002
Nov. 200
2
3-Ja
n
3-Mar
3-May
3-Ju
l
3-Sep
11/1/
2003
5
5.5
6
6.5
7
7.5
8
8.5
9
Jamaica
Guatemala
El Salvador
Dominican Republic
Latino Unemployment
Guatemala and the coffee crisis
0
50
100
150
200
250
-
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
Remesas
Café valor millon
Dominican Republic: Remittances, prices, interest and exchange rates
90
110
130
150
170
190
210
230
1/1/
1999
3/1/
1999
5/1/
1999
7/1/
1999
9/1/
1999
11/1/
1999
1/1/
2000
3/1/
2000
5/1/
2000
7/1/
2000
9/1/
2000
11/1/
2000
1/1/
2001
3/1/
2001
5/1/
2001
7/1/
2001
9/1/
2001
11/1/
2001
1/1/
2002
3/1/
2002
5/1/
2002
Jul. 2
002
Sept.
2002
Nov. 200
2
1/1/
2003
3/1/
2003
5/1/
2003
7/1/
2003
9/1/
2003
11/1/
2003
1/1/
2004
3/1/
2004
15
20
25
30
35
Remittances (left axis)
Consumer Prices (left axis)
FX (right axis)
Lending Rate (right axis)
Minutes in phone calls from the U.S. to Central America and the D.R. (1996-2002)
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1996 1997 1998 1999 2000 2001 2002
Cuba Dom. Rep. El Salvador Guatemala Honduras Nicaragua
Globalization: Percent of people who send remittances and buy home country goods, call regularly home,
donate, travel and spend money in their home country
Tourism
Transp Transfer
Trade
Telecomm
5Ts
Spends up to US$1,000Cuba 79Colombia 46Ecuador 7El Salvador 34Guatemala 50Guyana 33Honduras 55Mexico 22Nicaragua 66Dominican Rep. 32
Purchase home country goodsCuba 81Colombia 29Ecuador 95El Salvador 56Guatemala 50Guyana 82Honduras 74Mexico 76Nicaragua 83Dominican Rep. 65
Calls over 30 minutes a weekCuba 40Colombia 10Ecuador 13El Salvador 59Guatemala 64Guyana 38Honduras 29Mexico 56Nicaragua 26Dominican Rep. 44
Remittances
Visits home countryCuba 22Colombia 13Ecuador 38El Salvador 26Guatemala 9Guyana 39Honduras 12Mexico 23Nicaragua 19Dominican Rep. 68
DonationsCuba 5ColombiaEcuador 10El Salvador 3Guatemala 3Guyana 27Honduras 7Mexico 4Nicaragua 4Dominican Republic 3
Annual Remittance Transfers to Latin America
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
U.S. Billions
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$14.00
$16.00Mexico, US Billions
Colombia
Dominican Rep.
Ecuador
El Salvador
Guatemala
Honduras
Jamaica
Nicaragua
Cuba
Haiti
Mexico (right axis)
Source: Central Bank of each country. Estimates for Cuba, Haiti and Nicaragua
Crisis bancaria en RD
Crisis ec. en Ecuador
Crisis del café en Guatemala
Percent of remittance senders who say they visit home country (%)
0
5
10
15
20
25
30
35
Tres o más vecesal año
Dos veces al año Una vez al año Una vez cada dosaños
Una vez cada tresaños
Viajo poco
Mexico
El Salvador
Dominican Rep.
Ecuador
Guyana
Colombia
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..
Tourism: one of the 5Ts. . .
Dominicans living abroad who visit the Dominican Republic
300,000
350,000
400,000
450,000
500,000
550,000
1996 1997 1998 1999 2000 2001 2002 2003
14.00%
14.50%
15.00%
15.50%
16.00%
16.50%
17.00%
Dominican tourists (#)
Dominican tourists (%)
Remittance senders: frequency of calls to relatives (%)
0
10
20
30
40
50
60
70
Dos o mas vecespor semana
Una ves a lasemana
Una vez cada dossemanas
Una vez al mes Llamo poco
Mexico
El Salvador
Dominican Rep.
Ecuador
Guyana
Colombia
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
539,316,583
350,246,482
1,212,642,419
791,181,750
$226,917,184$179,004,765
$221,321,077
$211,337,615
$96,976,445$86,694,102$120,278,239$124,506,131
492,510,153
305,441,973
660,806,085634,940,097
0
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
Total minutos(2000)
Ganancia en USA Pago a país Minutos de hogara hogar (2003)
El Salvador
Guatemala
Dominican Rep.
Colombia
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 (%)
95.00% 93.00%
77.70%
65.30%
53.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
100.00%
Ecuador Mexico Guyana DominicanRep.
El Salvador
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
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
Queso
Pan
Tamales
Te
Comida
Ron
Ropa
Cigarros
Café
Dulces
Artesanías
125,000 personas que gastan $100 anuales en queso: $12.5 millones. Exportación Nicaraguense de queso es aprox. $30 millones.
Goods bought by Guyanese diaspora
62%
58%
51%
49%
47%
46%
42%
38%
36%
32%
32%
29%
27%
25%
22%
21%
0% 10% 20% 30% 40% 50% 60% 70%
Spices (curry, )
Fresh Fish
Peppers
Salted Fish
Noodles
Fresh Fruits and vegetables
Rum
Peas
Processed fruit
Sugar
Other
Cook utensils
Pickles
Craft Items
Cigarettes
Confectioneries
Immigrants and bank accounts
3842
35
47
69
21
71 71
49
38
19
48
0
10
20
30
40
50
60
70
80
No Bank Account (%)
Colombia Cuba Ecuador El Salvador
Guatemala Guyana Honduras Mexico
Nicaragua Dom. Rep. Bolivia Latinos
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.
Why doesn’t have a bank account?
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
Do not trust banks Doesn't have papers Doesn't need bank acc.
Colombia Cuba Ecuador El Salvador Guatemala Guyana Honduras Mexico Nicaragua Dominican Republic
Do you have debit, credit card, or both
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
90.00%
I have both Credit Debit I have none
Colombia Cuba Ecuador El Salvador Guatemala Guyana Honduras Mexico Nicaragua Dominican Republic
Do you have financial obligations (loans)?
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
Colombia Cuba Ecuador El Salvador Guatemala Guyana Honduras Mexico Nicaragua Dominican Republic
Money TransferCompany
MTC’s bank
MTC’s rec. country Agent Distributor
AD’s bank
Data Transfer Report(customer’s sendingInformation)
Wire Transfer (cash transferAmount)
MTC’s AgentPOS
MTC’s AgentPOS
Remittance sender
Remittance
recip
ient
Regulatory EnvironmentComplianceMonitoring
International money transfer operation
MTC: Money transfer companyPOS: Point of saleAD: Agent distributor (on receiving side)
TWO DATASTREAMS
Players: MTO, agents at POS, distributing agents, banksType of MTO player: -Transfer: WT, MO, hand delivery-Scope: National, Regional/country; Financial; CU, unlicensed
Cost comparison between principal amount sent and sending $200
12.11%
11.32%
10.63%10.33%
8.88%
8.56%8.17%
7.57%
7.90%7.48%
6.93%
7.30%6.70%
7.26%6.69%
6.37%
5.56%5.56%
5.75%4.74%
5.36%4.53%
7.32%4.40%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%
Cuba
Dominican Rep.
Jamaica
Haiti
Venezuela
Bolivia
Latin America
Nicaragua
Honduras
Guatemala
Colombia
Peru
El Salvador
Ecuador
Mexico
PrincipalUS200
Changes over time in costs to send principal amount
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
Mexico(380)
Ecuador(300)
El Salvador(290)
Bolivia(280)
Guatemala(270)
J amaica(260)
Honduras(260)
Colombia(260)
Venezuela(230)
Dom. Rep.(200)
Peru (200) Haiti (160) Nicaragua(150)
Cuba (150) Guyana(200)
LatinAmerica
(250)
2001 2002 2003 2004 banks
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Dominican Republi Guatemala Mexico Colombia
Standard deviation among companies' foreign exchange differential
2001 2002 2003 2004
39.80%
32.70%
28.30%
28.30%
21.90%
20.80%
16.20%
15.50%
14.30%
13.20%
10.80%
7.80%
7.30%
7.30%
3.60%
1.70%
1.60%
0.40%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00%
Venezuela
Brazil
Dominican Republic
Honduras
Jamaica
Mexico
Guatemala
Argentina
Trinidad and Tobago
Colombia
Nicaragua
Barbados
Guyana
Chile
Peru
Belize
Costa Rica
Uruguay
Comission in the exchange rate as percent of total costs
Cost of Remittances to Mexico, May 17-28(cost to send US$300)
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
17 18 19 20 21 24 25 26 27 28
FX Tarifa Costo total
0.050 0.075 0.100 0.125 0.150
percent
0.00
1000000000.00
2000000000.00
3000000000.00
volu
me
Cuba
Venezuel
NicaraguHaiti
Bolivia
Dom. Rep
JamaicaPeru
Colombia
Guatemal
Honduras
Mexico
El Salva
Ecuador
Cost of remittances and volume
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-
Banks and offers of remittance transfers
0
5
10
15
20
25
30
35
40
45
50
Type of r emit t ance ser vice by inst it ut ions
Bank as MTO Bank as BankCr edit Union Bank off er ing ATMs
0
10
20
30
40
50
60
70
80
Char acter ist ics of banks off er ing r emit tance r el ated ser vices
Remit t ance t r ansfer off er ed onl y t o inst itut ion’s member s
Issue an ATM car d for r el at ive in Mexico
Al l ow bank to bank deposit s
Charges made by banks and credit unions to transfer remittances to Mexico (by method used)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
2003 2004
Debit Car d withdr awal at ATM (Community banks)US Bank as MT, pick up at Mexican Bank/AgencyCr edit UnionsTr adit ional wir e t r ansfer (SWIFT)
Observed ResultsInstitution Remittance Transfers Accounts among
remittance senders
• Commercial Banks
– Banco UNO, Central América <10,000 20%
– Banco Salvadoreño, El Salvador 12% market share 17,000
– Banco Industrial, Guatemala 20% market share 30%
– Citibank, Wells Fargo, Bank of America
<30,000 10,000-200,000
– U.S. Community/local banks [see next page]
• Government
– Red de la Gente, Mexico 25,000 month 5% (1200)
• Non-profit: MFIs and Credit Unions
– Fedecaces (Credit Union), El Salvador
15,000 (US$60M), 3% market share
>10%
– Santa Cruz, Mixtepec, Mexico US$250,000 >50%
– Banco Solidario, Ecuador 16,000 >30%
–Cajas Populares Mexicanas 21,000 >50%
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
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