Development opportunities and private sector lessons for Africa

Saul WolfRemittances Manager

Madison, WI, [email protected]

www.woccu.org

Development opportunities and private sector lessons for Africa

10/23/2009

Development opportunities and private sector lessons for Africa

10/23/2009

What is WOCCU?

The World Council of Credit Unions (“WOCCU”) is the global trade association and development agency for credit unions worldwide.

Credit Unions are: democratic, member-owned financial cooperatives.

Worldwide: 53,000+ credit unions in 96 countries.

Balance business sense with a social mission.

Our credit union networks in 8 countries pay out approximately $500 million USD annually in international remittances.

WOCCU Development Priorities-Remittances

Micro Savings

Improve Access/Reduce Opportunity Costs

Reduce Transaction Cost

Micro Credit

Why Savings

“Voluntary savings…are the most frequent source of funding for microenterprise startup and expansion…enable households to smooth consumption…to accumulate assets…to invest in education, and to better prepare for emergencies.”

- Brian Branch and Janette Klaehn, Striking the Balance in Microfinance: A Practical Guide to Mobilizing Savings, ch. 1. Available online at: http://www.woccu.org/publications/savings

Topic

“Private-sector competition can significantly decrease the cost of remittances to the African continent, but that does not have to translate into an effective tool for development.”

Development Matrix-Remittances

Implementation Time Needed

Short Medium Long

Low Lower Transaction Cost

Medium Improve Access / Micro Credit

High Micro Savings

Dev

elop

men

t Im

pact

Development Matrix-Remittances

Implementation Time Needed

Short Medium Long

Low Micro Credit

Micro Savings

Medium Lower Transaction Cost

Improve Access

HighPriv

ate

Firm

Prio

ritie

s

Private Firm Characteristics

Profit-driven– Latin America’s transaction costs are lower

than Africa’s because its larger regional volumes represent more opportunity.

Opportunistic– Its easier and faster to reduce prices than

to change consumption habits.

Will achieve some development goals without incentive, while ignoring others

Recommendation #1

#1. Incentivize or fund development organizations to tackle (the more difficult) consumption-related goals; allow the market to do the rest.

Why Not to Engage the Private Sector

The remittances market has a well-defined business model and market.

The private sector will take care of improving access and reducing transfer costs on its own.

The private sector is not interested in micro savings or micro credit (within the context of remittances)

WOCCU Development Ideal

“I leave my money in the credit union because I can trust the credit union. I picked up my remittances in a bank for 18 years, but never opened an account. The service in the credit union is quick and easy and I feel at home.”

- Irma de Léon, credit union member, Guatemala

WOCCU Development

“Remittance recipients usually withdraw all of their money when they pick up remittances…We constantly remind them to save, and eventually they do. But, it takes time to create a culture of savings.”

-Erin Gonzalez, Customer Service Representative, ECOSABA Credit Union

Recommendation #1a.

#1a. Encourage organizations (private or otherwise) which have demonstrated success in changing consumption habits to offer remittances.

WOCCU Services Group Model

Invest with local credit unions, to form for-profit financial services corporations.

Products: international remittances, national remittances, prepaid debit cards, ATM networks, POS and PDA banking, cloud computing services, and mobile banking (2010).

Offering multiple payment transaction technologies diversifies revenue streams, thereby creating a more sustainable business model while providing increased access.

Permanent offices in Mexico, Nicaragua, Ecuador, Bolivia, Columbia, Peru, and Kenya.

Recommendation 2

#2. Improve regulatory atmosphere by:

Reducing the use of exclusive contracts through better regulation, increased transparency, or outright prohibition of exclusive clauses.

Clarifying and standardizing AML requirements for non-bank payers.

Clarifying and standardizing cell-phone remittance payment.

Exclusivity

Contract Example:– Exclusive contract.– 5 year initial term, automatic 1-year renewal.– Signed in 2004.– 180 days notification to terminate.– Notification must be given 180 days or more before

end of current term.– Non-compete for 180 days after termination.– Lost-earnings clause for early termination of first term.

Exclusivity - Potential Partnerships

Draft a model contract and post it online

Encourage regulators to consider banning or otherwise regulating exclusivity

Saul WolfRemittances ManagerMadison, WI, [email protected]

Development opportunities and private sector lessons for Africa

10/23/09

Development opportunities and private sector lessons for Africa

10/23/09