Migrant Remittances and Development in the Global Economy 9781626370340

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Migrant Remittances and Development in the Global Economy

Diasporas in World Politics Series Editor, Jennifer M. Brinkerhoff

Migrant Remittances and Development in the Global Economy Manuel Orozco

b o u l d e r l o n d o n

Published in the United States of America in 2013 by Lynne Rienner Publishers, Inc. 1800 30th Street, Boulder, Colorado 80301 www.rienner.com and in the United Kingdom by Lynne Rienner Publishers, Inc. 3 Henrietta Street, Covent Garden, London WC2E 8LU © 2013 by Lynne Rienner Publishers, Inc. All rights reserved

Library of Congress Cataloging-in-Publication Data Orozco, Manuel. Migrant remittances and development in the global economy / Manuel Orozco. pages cm Includes bibliographical references and index. ISBN 978-1-58826-871-6 (alk. paper) 1. Emigrant remittances—Developing countries. 2. Economic development—Developing countries. 3. Developing countries—Emigration and immigration—Economic aspects. I. Title. HG5993.O76 2012 332’.04246—dc23 2012041550

British Cataloguing in Publication Data A Cataloguing in Publication record for this book is available from the British Library.

Printed and bound in the United States of America The paper used in this publication meets the requirements of the American National Standard for Permanence of Paper for Printed Library Materials Z39.48-1992. 5

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Contents

vii ix

List of Tables and Figures Preface 1

The Political Economy of Remittances

2

Sending Money Home

11

3

When the South Meets the South

43

4

Regulation and the Market for Global Remittances

57

5

Remittances for Asset Building

101

6

Financial Access and the Role of Microfinance Institutions

125

7

The 5 Ts of Transnationalism

175

8

Deterritorializing Development Policy: Toward a Conclusion

203

List of Acronyms A Note on Research and Data Sources Bibliography Index About the Book

v

1

213 217 219 229 249

Tables and Figures

Tables 1.1

Distribution of the World’s Migrants by Region of Origin and Destination 2.1 Geographic Distribution of Remittances 2.2 Comparison of Length of Time Remitting and Amounts of Remittances in Latin America 2.3 Migrant Remittances as a Percentage of Income 2.4 Length of Time Receiving Remittances in Latin America 2.5 Demographic Characteristics of Remittance Recipients, Selected Countries, 2007 2.6 Income Dependence on Remittances Among Recipients in Capital Cities and Other Locations 2.7 Demographic Characteristics of Ghanaian Migrants 2.8 Education Levels of Ghanaian Migrants 2.9 Macroeconomic Impacts of Remittances on Nigeria and Ghana 2.10 Length of Time Migrants Have Lived Abroad 2.11 Greatest Reported Hardship of the Economic Downturn on Latino Immigrant Remitters 2.12 Remittances by Migrants in Europe After the Economic Downturn

vii

2 12 14 14 18 24 25 28 29 31 34 37 38

viii

3.1 3.2 3.3 3.4 3.5 3.6 4.1 5.1 5.2 5.3 5.4 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7.1 7.2

Tables and Figures

Amount Sent per Remittance, Haitians in the Dominican Republic, 2006 Length of Time Remitting, Haitians in the Dominican Republic, 2006 Amount Remitted by Range, Nicaraguans in Costa Rica, 2005 Length of Time Remitting, Nicaraguans in Costa Rica, 2005 Remittance-Sending Among Migrants in West Africa, 2006 Country of Origin for Migrants in Ghana, 2005 Preferred Remittance Method Among Immigrants in Japan Savings and Account Ownership by Remittance Recipients Asset-Building Methods Among Migrants and Their Families, Selected Latin American Countries Remittance Recipients’ Top Economic Activities, Selected Countries Average Amount in Personal Savings by Country Surveyed Median Size and Characteristics of MFIs That Pay and Do Not Pay Remittances Characteristics of MFIs in the Latin American Remittances Market MFIs’ Awareness of International Compliance Rules Methods of Saving in Moldova Financial Intermediation Among MFIs in the Latin American Remittances Market Selected Latin American MFIs and Institutional Investment MFI Clients and Remittances Level of Engagement and HTA Participation Development Potential of an HTA

46 46 48 49 53 54 72 105 106 109 119 137 147 148 150 156 162 163 189 192

Figures 4.1 4.2 4.3

Structure of an International Money Transfer Operation The Cost of Sending Remittances in Southeast Asia The Remittance Marketplace and Regulation in Nigeria

64 73 93

Preface

This book is strongly empirical and strongly theoretical. The empirical foundation is based on extensive worldwide research about remittance flows, transnational links, their impact, and their consequences. Data sources range from central bank figures to expertgenerated data to multiple surveys of immigrants about remittances in several countries. Specifically, the book is based on comparative analyses of financial flows between countries in four regions: the United States and countries in Latin America and the Caribbean; Japan and countries in Southeast Asia; Russia and countries in Central Asia and the South Caucasus; and countries in Europe and West Africa. It is the product of years of research carried out with the support of the Inter-American Dialogue, Georgetown University, the Pew Hispanic Center, the Inter-American Development Bank, the World Bank, the European Bank for Reconstruction and Development, and the Asian Development Bank, among others. See “A Note on Research and Data Sources” (p. 217) for more information. Until the 1990s, family remittances—the money that migrants send to their families for day-to-day upkeep—was little understood in the academic and policy mainstream. Few scholarly studies and almost no policy approaches had appeared in the development community. My work in this field started in 1992, when I began conducting research on migrants from Central America and the ways that they reconnected to their countries of origin. I later elaborated on that ix

x

Preface

research with another study under the auspices of the Tomas Rivera Policy Institute (TRPI) about Latinos and US foreign policy. In 1997, a report I released on family remittances to Latin America opened a discussion among funding agencies, particularly the Ford Foundation. The foundation provided funding to TRPI and the Inter-American Dialogue to further study Latinos and remittances. That project produced two reports, released in 2000: Remittances and Markets: New Players and Practices and Latino Hometown Associations as Agents of Development in Latin America. These two studies generated a substantive discussion about the intersection between migrants and development. Policymakers could now see how the inflow of money influenced the economies of many developing countries with high or medium emigration rates. From that point on, the Inter-American Development Bank and the Inter-American Foundation became pioneering institutions in implementing projects that linked remittance transfers to development efforts. Other institutions—the US Agency for International Development, the World Bank, and the International Organization for Migration, among others—initiated their own research and funding, and by 2004, many bilateral and multilateral institutions were substantially committed to work on what they perceived were leveraging tools for development in connection with remittance transfers. My own work on remittances has gone through various stages, from raising empirical awareness, introducing a conceptual definition to the practice of sending money, and advancing preliminary policy agendas to seeking to build a theory about the intersection between remittance transfers and development. The results, as reflected in this book, are by no means exhaustive, but they demonstrate the practical reality that occurs under many circumstances and across the world. The book integrates research, policy, concepts, and facts on an issue that has grown in importance. It places remittances in the context of development policy. * * * This work on remittances has been a personal and professional commitment, an expression of solidarity with and gratitude to the millions of people who move across borders—largely underestimated and often stigmatized as a problem. My own experience as someone escaping repression brought me to the issue of remittances when my parents and aunts would remit money for me to study in Costa Rica. Thanking and acknowledging others have been integral to my profes-

Preface

xi

sional development not just as a formality for a favor given. Rather, I humbly appreciate the opportunity I have had to learn from those who have commented on, criticized, edited, reviewed, funded, and sometimes rejected my work. I have built a modest body of knowledge with the constant reminder that there remains much work to do, and, mortals that we are, we can’t do it alone, nor can we pretend to think we have all the answers. In that spirit I thank my beautiful twins, Gabriela and Sarah, and my son, Daniel. The twins learned about remittances at a very young age and, through their travels with me, saw firsthand the sad realities of poverty and separation. Daniel—who, as a newborn, joined my wife, Beatriz, and me in our work across three continents, six countries, and ten metropolises—adds light and happiness to my life as motivation to continue my work. Thank you, darlings. My nights without you were lonely and hard, but my heart was always with you. I appreciate the critical support that many colleagues have given me, as well as their belief in the importance this effort has for development. Donald Terry, as head of the Multilateral Fund for International Development, played a key role in adopting the many research and policy initiatives that emanated from my work; his efforts continue to give me faith that serious research can yield positive results. Similarly, Pedro de Vasconcelos is a friend and colleague whose support throughout these years has been invaluable; his help in incorporating my ideas into operational activities has been a valuable lesson on how the interplay between research and policy is so important. I also thank my dear colleague Jennifer Brinkerhoff, without whose help publication of this book would not have been possible. Beyond that, Jennifer’s own values and beliefs about migrants as agents of development have served me as a model to pursue. I thank Nancy Castillo, Elisabeth Burgess, and Mariellen Jewers, who devoted time and energy to editing my work; Nancy diligently reviewed and strengthened many parts of this book. Finally, I thank all colleagues and friends who directly or indirectly participated in reviewing my work or provided technical or financial support: they include Eugenio Nigro, Kai Smichtz, Leon Isaacs, Leila Rispen-Noell, Natasha Bajuk, Greg Watson, Carlo Corazza, Dilip Ratha, Robert Meins, Fran Buntman, and Barbara Span, among many others. —Manuel Orozco

1 The Political Economy of Remittances

In this book I analyze the ways that migrant remittances operate worldwide and the implications of these inflows for developing countries. Interest in migration and development in policymaking and academic circles is growing, with institutions increasingly recognizing the impact of migrants and migration flows on development. I focus on the main trends and characteristics of remittance senders and recipients, the context in which migrants send money, and the relationship of these transfers to development—in particular to asset building, transnationalism, and migrant philanthropy. International migration, particularly foreign labor mobility, is a two-pronged dynamic. It responds to specific determinants of international migration patterns (push-pull dynamics, industry demands for foreign labor, underdevelopment, and opportunity costs), as well as to migrants’ personal obligations to their families. This latter factor is the subject of this book, and the text explores the trends and patterns involved in sending and receiving money. International labor mobility continues to increase in scope and intensity. Castells and Miller refer to it as “part of a transnational revaluation that is reshaping societies and politics around the world” (2003: 77). Official estimates put the number of migrants at around 190 million and growing. The increases come from traditional migrant sending countries as well as other, less traditional places. In fact, 62 percent of the world’s migrants are in the five destination 1

2

Migrant Remittances and Development

regions noted in Table 1.1, with the rest scattered across many developing countries. This trend points to one of the key features of globalization: global market integration is primarily regional, and labor market integration follows that pattern. With the growing integration of foreign labor into global markets, migrants have become substantively and more directly involved in economic and social activities in their countries of origin. One reason is the dynamics of globalization and the new opportunities that appear as the political and economic environment open up in their home societies. Such involvement can be viewed as it relates to at least four spending or investment practices of migrants: various forms of capital transfers (such as remittances); demand for services

Table 1.1

Distribution of the World’s Migrants by Region of Origin and Destination (in percentage) Destination

Region of Origin

Western Europe/ Southeast North European Asia America Union

East Asia and Pacific Europe and Central Asia Latin America and Caribbean Middle East and North Africa North America South Asia Sub-Saharan Africa Percentage of migrants worldwide by region of destination

Percentage of Migrants Arab OilRussia Worldwide Exporting and by Region Countries Kazakhstan of Origin

59

18

7

9

1

12

27

19

53

7

97

36

4

48

10

2

1

16

3

3

14

27

0

8

2 4 2

3 5 4

2 5 9

1 48 6

0 0 0

2 14 12

5

24

20

5

8

100

Source: Migrants—Development Research Centre on Migration, Globalization and Poverty, “Global Migrant Origin Database,” version 4, March 2007, http://www.migrationdrc.org/. Note: The last column refers to the percentage of migrants originating from those world regions. The last row refers to the percentage of migrants moving to those world regions.

The Political Economy of Remittances

3

such as telecommunication, consumer goods, or travel; capital investment; and charitable donations to philanthropic organizations raising funds for the migrant’s home community. I refer to these practices as the 5 Ts of transnationalism (Orozco 2005d). The 5 Ts are 1. Transfers of money and capital—remittances, community donations, investments 2. Transportation—migrants traveling home 3. Tourism—migrants spending at home as tourists 4. Telecommunication—migrants spending money for phone calls back home 5. Trade—migrants consuming nostalgic commodities, such as local beer, tortillas, pupusas, and so on Immigrant home country economic engagement is driven by the material and symbolic circumstances of being a migrant. These circumstances include meeting family obligations, like remitting; validating one’s identity of belonging to the homeland using symbolic and material resources (such as buying nostalgic goods or belonging to a hometown association); or building and strengthening an emotional shelter in the transnational family through regular calls, or visits to the homeland.

Family Remittances as Part of the 5 Ts Remittances represent the most widespread and important migrant economic activity. Family remittances are earnings that migrants transfer to families in the home country to cover the regular upkeep of their households. These money transfers can be viewed according to the characteristics, trends, and features of those who send and receive remittances; the marketplace and rules shaping the sending of money; and the dynamics in the home country that result from the transfers and related transnationalism. The interactions that occur between these three aspects of the remittance environment have direct effects on international development. In this book, I devote chapters to each of these aspects, which are briefly introduced below. Remittances are a key component of the migrant lifestyle and reality. However, the percentage of migrants who remit varies by

4

Migrant Remittances and Development

region. In most Western industrialized nations, less than 70 percent of migrants remit, compared to as high as 90 percent of migrants working in Southeast Asia, Russia, or the Gulf countries. In Chapter 2, I show that migrant income and family needs dictate how much migrants send home, and these amounts vary greatly. In Canada, the United States, Western Europe, and Japan, migrants remit an average of US$5,000 a year to their relatives. Migrants in Russia and the Gulf countries remit half that amount (US$2,500 per year), and migrants moving to regions such as West Africa, South America, and Central Asia remit less than US$1,000, which goes mainly to rural areas in the home countries. The average length of time that migrants remit varies as well, ranging from one to seven years, depending on the nation from which they are sending. Most migrants have low incomes and are financially disenfranchised, with little access to the banking system (bank account ownership varies from 10 to 50 percent, with African migrants in Africa least likely to have a bank account). This condition curtails their ability to improve their material circumstances, as I show in Chapter 2. I also discuss intraregional remittances and highlight remittance flows between developing nations (Chapter 3). These flows have similarities as well as differences from interregional flows and those from developed to developing countries. It is important to examine both types of flows so that governments of countries that either send or host migrants can create informed policies to leverage the development impact of migrants’ transnational activities.

Regulation and the Marketplace Remittance trends do not emerge from a vacuum but are shaped by rules and an existing marketplace. Money transfer rules and demand and supply in the remittance marketplace significantly shape the transfer process. I explain in Chapter 4 the processes for regulating international money transfers, as well as review worldwide legislation. I specifically look into domestic rules on authorized entities, and regulations on competition and consumer protection in select countries in Asia, Europe, the Americas, and Africa. I then analyze in depth how money transfers operate within the context of a larger cross-border payment industry. I describe global payments players as well as industry trends in Asia (Southeast Asia, Central Asia, and the

The Political Economy of Remittances

5

Caucasus), Europe (Moldova and Spain), Latin America, and Africa (Nigeria, Rwanda, Uganda, and West Africa).

Remittances and Development Money transfers affect the development and well-being of those receiving remittances. Development relates to the context and factors that transform the human condition among the poor. Definitions of development often encompass a better standard of living that includes education, asset building, and health. According to the United Nations Development Programme (UNDP), development is “about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests” (UNDP 2001: 9). I have previously defined development as a condition that enables individuals and society to enjoy a healthy quality of life, be free, have opportunities for upward mobility, and improve their material circumstances (Orozco 2007f). Historically, the link between migration and development, and the relationship between remittances and development, has not been sufficiently explored, either theoretically or empirically. Lately, however, the literature has begun to explore the links between these factors (see, for example, Phillips 2009), and they are becoming a topic of significant discussion and interpretation. To some, the intersection between migration and development is causal, whereby migration is a by-product of development; that is, people migrate because they can. To others, causality is the inverse: people migrate because they must. Still others argue that the intersection is functional, whereby the effects are mutual and interactive. Empirical work shows that the relationship of migration and development is an organic one, in which the determinants of labor mobility and migrant economic engagement intersect with the factors that lead to development. Hein de Haas argues that “migration is not an independent variable explaining change, but is an endogenous variable, an integral part of change itself in the same degree as it may enable further change” (2008: 43). Migration and development are constitutive of each other; they evolve and influence each other in every process associated with human mobility and social change.1 I have studied five aspects of the remittance-development relationship: (1) whether and how remittances reduce poverty, (2) gender perspec-

6

Migrant Remittances and Development

tives on remittances, (3) remittances and asset building, (4) remittances and transnational dynamics, and (5) remittances and macroeconomic trends (growth and foreign exchange in particular). These studies show how migrants’ economic activities transform the material base of their relatives, their societies, and the migrants themselves (Orozco 2005d). Remittance flows affect countries’ economic and financial systems in many ways. Some studies have shown that remittances tend to reduce poverty. Adams and Page’s (2005) analysis showed that a 10 percent increase in international remittances leads to a 3.5 percent decline in the share of people living in poverty. Adams (2004) examined remittances and poverty in Guatemala. Based on household survey data, he found that remittances reduced poverty by 1.6 percent and the depth of poverty by 12.6 percent. Moreover, Orbe’s (2006) study of the effect of remittances on distribution of wealth in Ecuador found that the Gini coefficient dropped from 0.54 to 0.52 as a result of incorporating remittances into the income equation, indicating that remittances reduce income inequality. In general, remittances make recipients wealthier across all income groups (Orbe 2006). These positive effects of remittances cannot be taken lightly; the impact of these flows depends on the productive base of the local economy and its ability to absorb these flows. In some countries, the inflow of remittances can artificially appreciate the value of real state property and foment inflation. A study by the World Bank found mixed results on the impact of remittances. In some cases, remittances tend to increase financial access, and in other cases, remittances tend to have an effect on the real exchange rate of a country (Fajnzylber and López 2007). When looking to leverage remittances for development, policymakers must consider that remittances both inform and are informed by gender. The concept of gender is associated with the socially defined ways in which males and females relate: the interplay between power, authority, and sex. This phenomenon is true for labor migration and remittances as well. Until the 1970s, most migration was perceived to comprise mostly male players. However, with globalization leading to increases in light manufacturing and the demand for labor-intensive activities, the feminization of labor has also increased. This shift has provoked greater female migration, particularly responding to job opportunities as domestic workers, entertainers, farm workers, and hospitality service providers (Ehrenreich and

The Political Economy of Remittances

7

Hochschild 2002). These opportunities allow women to send money home to provide for their families. Women senders make up between 30 and 80 percent of all remitters, and the distribution of migrants by gender differs from region to region. In Africa and Central Asia the majority of remitters are men, in Southeast Asia they are women, and in the industrialized world it is split. However, two-thirds of recipients are women, with flows representing at least 70 percent of all recipient household earnings (Orozco and Fedewa 2005). While few studies explicitly focus on gender differences in remitting, some studies include gender in their analysis. The basic questions explored in these studies are whether men and women act differently in terms of their motives, whether they remit in different amounts, or both. Research often finds that women are less likely to remit or tend to remit less than men when they do remit. However, this finding is not uniform. Instead, some of the available research finds that women remit more overall and as a percentage of income than do men, and that women tend to have stronger networks with their families, which are often associated with greater remitting behaviors. Another important question about remittances and development that international financial institutions often consider focuses on whether remittances enable receivers to build assets. In analyzing this particular approach, I find that remittances allow receiving household members to stay out of poverty and contribute significantly to building their assets. In Chapter 5, I study the connections between remittances and asset building among remittance recipients. In most countries, recipient families exhibit a positive relationship between receiving remittances and financial activities: transfers increase disposable income and in turn increase savings within the household. Moreover, the greater the transfers received, the higher the number of families with savings and bank accounts, and engaging in other financial activities (Orozco 2005c; Orozco 2007b). Moreover, when the supply of financial services meets demand, the local economy can better absorb these flows. The trend of remittances and finance also connects to microfinance institutions (MFIs). As I discuss in Chapter 5, the participation of microfinance institutions in money transfers can boost financial access. Microfinance institutions can provide the missing link to development, given their strong presence in rural areas, where many remittance recipients live. Several MFI case studies from Latin

8

Migrant Remittances and Development

America, Europe, and Africa appear in Chapter 5; I draw some conclusions about how MFIs could provide the link between financial access and development in rural areas.

The 5 Ts: Tourism, Trade, Transportation, Telecommunication, Transfers of Donations Accompanying remittances are other forms of transnational economic engagement. For example, migrants maintain links with their home countries by calling home and visiting. They buy foodstuffs from their home country, such as tortillas, beef jerky, cheese, rum, and coffee, often from minority-owned businesses that import and supply these goods. Migrants also spend money on phone cards; some 80 percent of immigrants buy phone cards and call their relatives for an average of two hours a month. These transnational activities reinforce the emotional bond between migrants and families at home. Other transnational practices involve investments and donations, the subjects of Chapter 7. Migrants often want to invest in property or a small business in their home country, devoting between US$5,000 and US$10,000 to that activity. This practice, and its significance and impact on the economies of the home and host countries, is discussed. Migrants also raise substantial funds to help their hometowns through organized civil society groups such as hometown associations (HTA). I consider hometown associations and explore not only the activities of migrant HTAs but also their role as development players in the international arena. I look at the philanthropic and development activities of HTAs and present a set of criteria to evaluate their role as development players. Finally, in the conclusion I examine the role of migrants in international development and the implications for development policy. Transnational activities by migrants can and do affect social change and growth in developing countries, as evinced through migrants’ and their families’ quest for economic and financial citizenship, as well as through their collective effort to support and develop their communities of origin. Thus, this final chapter presents a deterritorialized approach to looking at and practicing international development, which takes into account the fact that the very nature and understanding of family, community, and nation are in flux due to

The Political Economy of Remittances

9

migration and remittances. I conclude with a list of recommendations to help academics and development practitioners leverage the development impact of migrant activities in the contemporary global setting. No single study can address remittance flows in all countries and all regions. That said, this book is the most comprehensive to date in its combination of breadth—including one or more country-level examinations in each region—and depth, by looking at the various angles at which remittances connect or intersect with development. The book relies on empirical work carried out in various regions and countries of the world and seeks to build a body of knowledge that informs the reader about the features shaping remittances worldwide.

Note 1. Labor mobility and economic engagement among migrants both generate a series of relationships that raise policy options to further advance development policy. These relationships are endogenous or leveraging. In the first case, some aspects of the relationship are intrinsic to the process of migration and development itself (the act of sending money alone has a positive effect on households). In the second case, aspects of the relationship inform the features that, from a policymaker’s perspective, can be leveraged to advance the public good (making policy to increase asset-building opportunities to remittance recipients). The public good refers to the benefits to labor migrants, their families, and the community at large. When looking at the economic exchange those migrants carry out with the home country, features that development can leverage include those typical of individual economic choices: fulfilling family obligations through remittances, investing at home, consuming home-country commodities, and performing philanthropic activities. Each activity has degrees of effects depending on asset-building possibilities for the broader public good.

2 Sending Money Home

A conservative estimate of the volume of remittances worldwide is around US$400 billion.1 Over 66 percent of all flows come from two world regions: 35 percent and 31 percent originating in North America and Western Europe, respectively. Most of Latin America receives remittances from North America, particularly the United States, whereas Africans mostly receive from Western Europe; 37 percent of remittances from Southeast Asia and Oceania go to East Asia and the Pacific (see Table 2.1). In this chapter, I discuss three significant regional remittance corridors: the corridor from the United States to Latin America, money transfers from Russia to Central Asia and the Caucasus, and remittance flows from Europe and the United States to select African countries. For each corridor, I offer a profile of the migrants, a comparison of remittances to key macroeconomic indicators, and an overview of the characteristics of remittance recipients in the country of origin. By examining each of these corridors, one can draw conclusions about the similarities and differences between them. Studying the demographic traits of remittance recipients in different countries can also provide insights for enhancing the development impact of remittances in developing countries.2

11

12 Table 2.1

Migrant Remittances and Development Geographic Distribution of Remittances (as percentage of total flows received) Origin

Destination

Southeast Arab OilAsia/ North Western Russia and Exporting Oceania America Europe Kazakhstan Countries Africa

East Asia 37 and Pacific Europe and 5 Central Asia Latin America 2 and Caribbean Middle East and 2 North Africa North America 4 South Asia 4 Sub-Saharan 3 Africa Distributiona 10

Other

41

12

0

1

0

9

18

46

11

1

0

19

77

15

0

0

0

6

14

44

0

8

0

32

38 30 19

51 18 45

0 0 0

0 11 3

0 0 5

7 37 25

35

31

5

3

0

16

Sources: Orozco 2007b; International Fund for Agricultural Development 2007. Note: a. Distribution refers to the percentage of remittances received per region in relationship to total world remittances. Officially reported statistics on remittances seriously underestimate total flows; these data estimate global remittance flows (both formal and informal). Any attempt to produce a global estimate of remittances relies on extrapolations where data are nonexistent, insufficient, or unreliable. The method used here combined use of primary and secondary sources of data on patterns of remitting, with the data on global migration that were derived from the Global Migrant Origin Database (GMOD). The GMOD project informs on the number of migrants as well as their origin and destination. The formula for calculating remittance flows uses three parameters: migrants (the total number of migrants living in country i originating from country j); percentage of migrants remitting (the percentage of the migrants living in country i and originating from country j that send money home); and annual amount (how much they send home on average, each year).

From the United States to Latin America The United States is a major host to migrants arriving from all over the world, particularly from Latin America and the Caribbean. Although exact figures are relatively unknown, the US Census Bureau estimates that the number of migrants is nearly 40 million (US Census Bureau 2010). Individuals from Latin America are believed to represent just over half of that number. People from Mexico constitute the main migrant population of Latin American origin in the United States.

Sending Money Home

13

According to a study by the Inter-American Development Bank (2007), around two-thirds of Latin American migrants send remittances to their families, totaling US$55 billion in transfers. In 1980, only seventeen countries reported on remittance flows; by 2004 the number was thirty. The increase is due to a number of factors, including reactions to economic downturns in Latin America and the Caribbean, strengthened ties between the United States and Latin America, improved competition in money transfers, increases in the contact among members in a transnational family, and improved accounting of the money received. Migrant Profile Migrants from Latin America and the Caribbean are relatively equally distributed along gender lines. Men and women both assume responsibilities for financially supporting a transnational household (Ramirez, Dominguez, and Miguez 2005). I surveyed people from eight Latin American nationalities residing in five different US cities in order to gather information on migrants who send remittances.3 Findings from this study indicate, first, that 44 percent of remitters are female, a number that represents a significant change from previous generations, when a much higher percentage of remitters were men. Second, most migrants do not hold more than a high school diploma and predominantly work in the service economy. Haitian remitters are the exception, with nearly 80 percent holding either a college degree or having completed some college. An educational disparity exists along gender lines: male remittance senders tend to have a higher level of education than female remitters. Third, migrant remitters are predominantly young individuals in their thirties, who on average have been in the United States for seven years (as of 2007). The majority of remittance senders have been sending money for between one and six years. Those who have been sending the longest also tend on average to send more; the quantities are not proportional to the time over which they have been sending (see Table 2.2). This pattern indicates that remittance transfers are relatively inelastic. According to the data, only 20 percent of migrant remitters are naturalized citizens. The longer they are in the host country, the higher the percentage of migrants who are naturalized. Half of Haitian migrants are US citizens, a higher naturalization rate compared

14

Migrant Remittances and Development

Table 2.2

Comparison of Length of Time Remitting and Amounts of Remittances in Latin America

Years Sending

Percentage of Migrants Remitting by Number of Years Sending

Amount per Transfer (US$)

7 27 30 16 4 4 6

211 233 267 276 252 282 334

Less than a year 1–3 4–6 7–9 10–12 13–15 15+ Source: Orozco and Castillo 2008.

to migrants from other nationalities. Migrants send an average of US$257 in remittances each time. They send money home at an average frequency of fifteen times per year. Each year, they send an average of US$3,855. The precise frequency and sending amounts vary by nationality: Dominicans and Haitians send less than the average, and Mexicans send different amounts depending on their location in the United States. Migrants are generally low-income earners, a condition associated with their occupations and levels of education, as well as with their legal status. Only 14 percent of migrant remitters are earning more than US$30,000 a year. Table 2.3 illustrates that these migrants send back to their country of origin between 12 and 21 percent of

Table 2.3

Migrant Remittances as a Percentage of Income

Income (US$)

Remittances as Percentage of Income (%)

Average Remitted (US$)

21 20 18 18 14 12 15

2,060 2,637 3,256 4,066 4,030 3,999 6,173

Less than 10,000 10,001–15,000 15,001–20,000 20,001–25,000 25,001–30,000 30,001–35,000 35,000+ Source: Orozco and Castillo 2008.

Sending Money Home

15

their income. The average amount sent increases as income increases, though not proportionally. While lower-income earners remit a smaller amount of money, they actually remit a higher proportion of their income, indicating that migrants remit a minimum threshold that is felt more among those in the lower income brackets. Looking at gender differences, based on data from rural Mexico, De La Cruz (1995) finds that women remit to assist their family and siblings, while men remit to invest. A 2008 survey4 indicates that women remit smaller amounts on average each time compared to their male counterparts: US$234.65 compared to US$273.87. The fact that fewer women remit compared to men is a function of income; the data show that men typically have higher earnings and thus can afford to send more money in remittances. Another explanation for women’s smaller remittance amounts is the significantly higher percentage of women compared to men with children in their new host countries, almost six percentage points higher, as well as a higher percentage of women who have children in the country of origin. Women may have more family obligations overall compared to their male counterparts. Moreover, women have, in general, more family in their host countries, which may explain why they are able to send less money back home, as they experience more immediate family obligations in the new country. These gender differences are also apparent in financial access among remittance senders. A higher percentage of men have a bank account compared to women: while 51 percent of women have a bank account, almost 64 percent of men do so. This trend also applies to remittance recipients, as discussed in the sections that follow.

Remittances in Reference to Macroeconomic Indicators In the broader Latin American and Caribbean context, remittances increasingly represent an important share of the national income. Although they only represent 2 percent of regional gross domestic product (GDP), the impact of remittances varies across countries and regions and is greater in smaller economies. First, large volumes of remittances have become an important source of foreign savings that help sustain foreign currency reserves. For example, in many Caribbean and Central American countries, remittances are the most

16

Migrant Remittances and Development

important source of income, and they exhibit stable flows. Second, remittances respond to macroeconomic shifts, particularly to inflation, thus manifesting countercyclical tendencies. Third, in some countries, particularly smaller ones, these savings have an effect on the country’s growth rate. Fourth, they represent an economic engine attached to an intermediating industry that includes other kinds of services and transactions. Fifth, migrant remittances have helped to mitigate socioeconomic issues, such as poverty. In macroeconomic terms, these transfers ease government pressures on employment generation and raise revenue in the form of sales tax from increased consumption. For example, Haiti, Honduras, Nicaragua, El Salvador, and Jamaica are countries where received remittances represent more than 10 percent of total GDP. However, not all of these countries are relevant when remittances are measured in per capita terms. Ten countries receive more than US$100 per capita, among them Mexico, Guatemala, Ecuador, Barbados, and Grenada. These differences are also noted in the average amounts sent. Although the average amount sent is around US$270 per month, when that figure is compared to per capita GDP, again the results vary. Recipients in Haiti, Honduras, and Bolivia, for example, receive amounts that are nearly three times per capita GDP. Data suggest that the cost of sending money may be related to volume. Specifically, the lower the volume entering a country, the more expensive the transfer is likely to be. The differences in remittance trends are a function of specific country conditions as well as historical patterns of migration. Although Central America, the Caribbean, and Mexico have a historical relationship of migration to the United States, each migratory pattern and its subsequent remittance flows respond to the realities of these countries. Thus, while Salvadorans and Dominicans may receive relatively similar volumes, their migrant populations are of different size, and the timing of flows responds to varying dynamics. Remittance Recipients Across the region, remittances are received from relatives abroad and, to a lesser extent, friends. Most often, children, siblings, spouses, and parents are the senders.5 Overall, 22 percent of respondents report receiving remittances from their children. This percentage is higher in Ecuador, Cuba, and El Salvador. Sibling-to-sibling

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17

transfers are also significant, representing 22 percent of all transfers. This practice is slightly more prevalent in the Dominican Republic, El Salvador, and Ecuador, at 26 percent, 25 percent, and 23 percent, respectively. Meanwhile, married couples often depend on one member of the pair to travel abroad to support the family unit. Slightly more than 20 percent of remittance recipients depend on their spouses to send money. This practice is more prevalent in Guatemala, El Salvador, and Guyana, at 28 percent, 23 percent, and 22.5 percent, respectively. Finally, parents’ supporting children left behind is also a common practice, with approximately 16 percent of receivers’ reporting that their parents transfer money to them. This practice is prevalent particularly in Haiti, but also in Nicaragua and Guyana, where 22 and 21 percent of remittances, respectively, are from parents. Other family members such as aunts, uncles, and cousins send 14 percent of the remittances to the region, while grandparents and friends account for approximately 6 percent. While age does not appear to be a driving factor (there is no significant variation in age distributions among recipients in the countries surveyed), there are differences by gender; these are, perhaps not surprisingly, the reverse of those of the sending population. Three-quarters of remittance recipients in Latin America are women (Orozco 2005d). Guatemala registers the highest percentage of female recipients, at just over 80 percent. Haiti has the lowest percentage of female recipients (50 percent), but in most countries women still represent the majority of recipients (Orozco 2005d). Remittance-receiving households in Latin America are mostly composed of four members or fewer, but this finding varies by country. Roughly one-third of receiving households have five to six members in Guatemala, El Salvador, Nicaragua, and the Dominican Republic, compared with Cuba, where less than 7 percent of the receiving households have more than four members. Guatemalan and Nicaraguan recipient households appear to be the largest, with approximately 20 percent comprising at least seven members. Over 2 percent of Nicaraguan and 3 percent of Guatemalan recipient households consist of more than twelve family members. In all of the countries included in this study, the greatest number of recipients received remittances for a period of between one and three years. Meanwhile, as Table 2.4 shows, only 9 percent of respondents have been receiving remittances between seven and nine years, 13 percent for more than nine years. Only a relatively small

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Migrant Remittances and Development

Table 2.4

Length of Time Receiving Remittances in Latin America (in percentage of migrants remitting)

Guatemala El Salvador Nicaragua Dominican Republic Cuba Ecuador Guyana Colombia Total

Less Than 1 Year

1–3 Years

4–6 Years

7–9 Years

9+ Years

18 14 17 18 10 13 12 19 15

38 59 38 36 39 46 37 46 42

13 14 20 18 23 27 20 25 20

9 6 10 8 15 8 16 4 9

20 7 16 20 13 6 15 6 13

Source: Orozco 2005d.

percentage of households have been receiving remittances for a period beyond six years. Over time, migrants become more inwardly focused, spending more time, energy, and resources on their lives in their host countries. This again points to the idea that remittance transfers are relatively inelastic; migrants do not send larger amounts commensurate to their higher incomes or to the time they have been sending. Furthermore, migrant families may reunite, either in the source country or the host country, thereby eliminating the need to transfer remittances.

From Russia to Central Asia and the South Caucasus Central Asia and the South Caucasus have grown in importance within the global context, largely due to recent exposure of their important natural resources, such as gas and oil. One effect of this repositioning in the global economy is an increasing demand for foreign labor to satisfy certain needs in key sectors of production in countries such as Russia and Kazakhstan. Labor mobility has, in turn, led to greater integration of migrant workers’ home countries into the global economy, particularly in the regional context of Russia and Western European economic markets. A key factor in integration has been the transfer of remittances. They have contributed to the economies of these countries by spurring economic growth, increasing savings in the economy, and

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19

reducing poverty. This section reviews recent migration patterns in Central Asia and the South Caucasus and the relationship of remittances to macroeconomic indicators. Migrant Profile Prior to the collapse of the Soviet Union, Central Asia and the South Caucasus received migrants from Russia as part of an effort to strengthen the Soviet Union as an integrated political and economic system. However, since the early to mid-1990s, migration among the CIS (Commonwealth of Independent States) member states has shifted and is now characterized by an opposite flow, with migrants moving primarily to Russia. Economic migration and labor mobility were most notable in the early 1990s, and have been associated with differences in socioeconomic development among these countries. Currently, Russia is the major destination country; more than 90 percent of migrants have come from CIS countries. Similarly in the international sphere, Russia, with 13 million foreign-born residents, is the second-largest recipient of migrants worldwide, as well as a top sending country of migrants. Among the largest groups going to Russia are Azeris, Georgians, Armenians, Kyrgyz, and Tajiks. One result of this international migration is a significant flow of remittances to the home countries. In 2007, remittances to Armenia and Tajikistan reached nearly US$1 billion, and Kyrgyzstan received over half a billion dollars. The increase of these flows is particularly observable since early 2000, and accelerates among most countries in 2004. Since then, these countries have experienced relatively steady flows. A large portion of Armenians abroad send money nearly every month; most Tajiks send two to five times a year. Remittances from Kyrgyzstan have greater fluctuations. However, data discrepancies are common. Remittances in Relation to Macroeconomic Indicators Russia has done comparatively better at transitioning into a market economy than other CIS countries, and has a growing need for labor, given its large number of aging citizens and population decline. Further facilitated by poorly developed and enforced regional migration systems in the transition period, people from countries such as Armenia, Azerbaijan, Georgia, Kyrgyzstan, Moldova, Tajikistan, and

20

Migrant Remittances and Development

Uzbekistan have emigrated in search of jobs. Between 2000 and 2002, Russia had a per capita GDP of US$7,730. Tajikistan’s per capita GDP, the lowest in the CIS, amounted to only 11.6 percent of Russia’s GDP (World Bank 2013). According to a World Bank report, the Russian Federation is characterized by a natural population decrease (the number of deaths exceeds the number of births) combined with positive net migration. From migration gains, the population increased by 4 percent since 1990, whereas in the other CIS countries, large population decreases can be seen from seasonal migration. Such countries are, conversely, characterized by a natural population increase and negative net migration (Mansoor et al. 2006). Russia has been impacted by brain drain, the outflow of highly skilled professionals. Although transient, temporary, refugee, and displaced person migrations are also important in this region during both periods mentioned, I focus on labor migration’s impact in the area. A large percentage of labor migration in this region is illegal movement. The World Bank reported that the influx of undocumented migration since the late 1990s may be tied to labor migration policies in the CIS region. Migration and Remittances in Armenia The economic situation in Armenia was the worst of all of the former Soviet members, and migration helped the economy because it financed external deficits. After the breakup of the Soviet Union, nearly 1 million Armenians, many of them skilled and educated workers, left the country to find work and support their families. Armenia is among the CIS countries that suffer most from brain drain (Minoian and Freinkman 2006). Migrants from Armenia have also sought asylum. According to Tishkov et al. (2005), between 1998 and 2001, 27,219 Armenians went to Europe, the second highest number of asylum seekers from a single nation in the region. Today, there are an estimated 5.5 million members of the Armenian diaspora in the world, surpassing even the population of Armenia itself at 3 million (Mansoor et al. 2006). The Economist Intelligence Unit (EIU) notes that 1.5 million Armenians live in other countries of the former Soviet Union and an estimated 2.5 million live in the United States, France, and the Middle East. Of the Armenians abroad, 72 percent are in Russia and 14 percent are in the United States.

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21

Despite outmigration from Armenia in 2005, there was an increase in jobs that year, producing a population inflow rise from 2,100 in 2004 to 12,500 in 2005 (Armenia 2006). However, Armenia is predominantly a migrant-sending country, partly because of geographical barriers and economic dependence. In fact, since 1993, immigration to Armenia has been nearly nonexistent (Tishkov et al. 2005). Closed borders with Azerbaijan and Turkey cut Armenia out of the travel equation on many routes, including the Silk Road and energy pipelines. The International Organization for Migration (IOM) states that migrants traveling to Europe often pass through Armenia but rarely stay, due to the location and few air connections. Like other CIS countries, Armenia is home to a large number of refugees or displaced people. Armenia’s economy has experienced high growth rates since its transition, and remittances have been one of several factors contributing to this economic growth. Growth since the mid-1990s has been above 5 percent, reaching 12 percent in 2006. Stable economic growth was mainly driven by the construction industry and service and retail trade sectors. The flow of remittances after the transition grew rapidly from US$166 million in 1998 to US$960 million in 2006. In turn, the share of remittances to GDP almost doubled from 9 percent to 15 percent in 2006. These flows are an important source of foreign currency, providing 10 percent of foreign exchange in the late 1990s and up to 15 percent in 2005. During this period, trade balance fell as a share of GDP, indicating dynamism in the growth of exports of natural resources and the inflow of remittances from abroad. Improvement in external balances caused appreciation of the national currency. Migration and Remittances in Kyrgyzstan Recent migratory flows from Kyrgyzstan began around 1991 with the breakup of the Soviet Union. Initially, moving in or out of the country was difficult because of the absence of a regulatory framework. Moreover, the lack of hard currency and an overall unstable economy made it difficult to emigrate. The economic crisis that occurred during Kyrgyzstan’s transition increased poverty. Kyrgyzstan is believed to export high numbers of labor migrants, due to a low level of GDP per capita, high unemployment rate, and rapid increase in population.

22

Migrant Remittances and Development

Every year at least 300,000 migrants work outside of the country seasonally, mainly in Russia and Kazakhstan. In Russia, Kyrgyz work in three main jobs: as shuttle traders, as market entrepreneurs, or in the construction business. The presence of Kyrgyz in Russia increases in the summer months, and people stay anywhere from several weeks to a year. In Kazakhstan, migrants often work in the tobacco industry at plantations along the border. According to Tishkov et al. (2005), between 1998 and 2000, 31 percent of Kyrgyz emigrants went to Russia, while 7 percent went to Kazakhstan. The majority of emigrants to date have been undocumented, although this figure may change significantly due to recent changes in Russian immigration law that allow many migrants from CIS countries to obtain work permits. Most migrants come from the impoverished southern regions of Kyrgyzstan (Osh, Jalalabad, and Balkan regions) and move north to Kazakhstan or Russia in search of work. Kyrgyzstan has also experienced high population growth, which is especially problematic for young people entering the workforce, as not enough jobs are available. This situation creates the perfect conditions for migration to a country with a stronger economy that offers more jobs. Immigration to Kyrgyzstan decreased by 90 percent since 2003 (Economist Intelligence Unit 2006). Kyrgyzstan experienced stable GDP growth during this period, though it was disrupted in 2002 and 2005 partly because of the loss of gold production and political instability. Remittances increased steadily, rising to 18 percent of GDP in 2006. Parallel with the rise in remittances, a deteriorating trade deficit affected the external sector, partly associated with increases in oil prices and decreases in exports of gold. This deficit reached more than US$400 million by the end of 2006. When compared to other sources of foreign savings, remittances increased from less than 1 percent to 20 percent in 2005. This increase has also paralleled a slight national currency appreciation. Migration and Remittances in Tajikistan Tajikistan suffered the effects of a civil war from 1992 to 1997. Up to 1 million people left their homes, many becoming refugees in other countries. Approximately 70,000 of those who left went to Afghanistan and have subsequently returned (Economist Intelligence Unit 2006). Refugees in other CIS countries are not as likely to

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23

return, as they have found work and stability outside of Tajikistan. An additional source of recent emigration is the country’s underperforming cotton industry, which provides a major source of rural employment (Economist Intelligence Unit 2007). An EIU report estimates that 800,000 Tajiks work abroad, the majority in Russia. Many of these (50 percent) are seasonal workers who return to Tajikistan in the winter. Another 20 percent work on contract with businesses in the host country. The remaining 30 percent are known as shuttle traders because they go back and forth between two countries. Many of these people are well-educated and send remittances to support their families. Russia’s tightening of migration has affected Tajik immigrants in that country. The government imposed a 40 percent quota for foreigners working in retail markets or street kiosks, important avenues for employment among Tajiks in the country. The EIU stated that by April 2007, only Russian citizens would be allowed to work or operate in these sectors. During 2007 alone over 50,000 Tajik laborers were deported for breaking residency and work permit laws (EIU 2007). Remittance transfers have accompanied Tajikistan’s economic recovery. The inflow of remittances to the country increased significantly, from US$19 million in 2001, to US$1 billion in 2006. Remittances as a share of GDP grew from 2 percent of GDP in 2001, to over 20 percent in 2006. The inflow of worker remittances partly explains GDP growth, which occurred despite a decrease in production and deterioration of terms of trade. In the 2000–2004 period, characterized by a rapid increase of remittances in Tajikistan, the trade deficit did not decrease considerably and the exchange rate remained relatively stable. Moreover, after 2000, remittances became a major source of foreign currency: they increased from less than 1 percent of total foreign earnings to 32 percent by 2006. Remittance Recipients Table 2.5 shows the demographic characteristics of remittance recipient households as they vary from country to country. On average, Tajiks are younger and have the most children in the household. The gender composition is almost evenly split, with just over 40 percent of recipients being males, and almost 60 percent women. The opposite proves true for Armenians. More than one-quarter of Armenians

24 Table 2.5

Migrant Remittances and Development Demographic Characteristics of Remittance Recipients, Selected Countries, 2007 Tajikistan

Relation to migrant (percentages) Spouse Parent Child Sibling Grandparent Other relative Friend Not reporting “Myself” Number of children (average) Highest level of education of recipient (percentages) Primary High school Some college College degree Age of recipient (average) Gender of recipient (percentages) Male Female

Kyrgyzstan

Armenia

18.2 12.8 17.5 29.3 6.1 14.5 1.7 4.7 0.0 3.32

18.0 9.7 17.3 47.7 0.3 12.3 10.3 1.3 0.0 1.3

17.3 20.7 20.3 23.0 0.7 15.3 3.7 0.0 0.3 2.32

0.0 47.7 11.3 41.0 35

1.3 29.2 15.3 54.2 36

1.0 27.3 18.0 53.7 41

41.3 58.7

42.8 57.2

33.7 66.3

Source: Survey conducted by the author, 2007, of recipients withdrawing at bank account locations. Note: Some responses do not add to 100 percent because they are based on multiple selections.

have less than secondary education, as do Tajiks. Kyrgyz have the highest percentage of people with tertiary education or more. Migrants’ families are receiving more than US$1,500 per year without large variations across countries. Armenians and Tajiks received nearly US$1,800 and US$1,500, respectively, in 2007, while Kyrgyz received US$2,700. Moreover, recipients in Kyrgyzstan and Tajikistan, which have the largest recipient populations in rural areas, do not receive as much as those who live in urban areas. This difference may reflect issues about the cost of living in more urban places. However, the size of households in rural areas is

25

Sending Money Home

larger. Armenians also exhibit a counterintuitive finding: though most of the money goes to urban areas, 40 percent of those receiving in the capital receive less than US$500, which is an amount onethird of the average received. Overall, males receive more remittances than females. Armenians and Tajiks in rural areas receive more than those in other regions, but they also have more children than those in the capital. In Kyrgyzstan, those living in the capital receive the highest amount in remittance transfers from their migrant relatives. As illustrated in Table 2.6, the relationship between remittances and income shows that Armenian households are as dependent on remittances as are Tajiks. Remittances represent over 80 percent of income for half of the households in each of these two countries. Dependence is higher in areas outside the capital, which, combined with other urban areas, receive a larger share of the flows.

Table 2.6

Country Tajikistan

Kyrgyzstan

Armenia

Income Dependence on Remittances Among Recipients in Capital Cities and Other Locations (in percentages), 2007 Percentage of Income Supplied by Remittance

Capital City

Noncapital City

Under 20 20–40 41–60 61–80 Over 80 Under 20 20–40 41–60 61–80 Over 80 Under 20 20–40 41–60 61–80 Over 80

10.1 16.3 19.4 8.5 45.7 9.9 12.9 6.9 8.9 61.4 18.0 14.4 7.9 10.8 48.9

7.1 13.4 7.1 17.0 55.4 12.4 20.6 12.4 8.2 46.4 4.7 15.6 9.4 9.4 60.9

Source: Survey conducted by the author, 2007, of recipients withdrawing at bank account locations.

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Migrant Remittances and Development

Ghanaians and Nigerians in Europe: Patterns and Corridors Early African migration to Europe followed colonial ties, explaining the fact that 27 percent of African migrants are in Europe. Two distinctive yet characteristic groups among Africans are Nigerians and Ghanaians. Nigerians are the third-largest migrant population after Algerian and Moroccan migrants, followed by people from Tunis and Senegal. Ghanaians, though smaller in numbers, exhibit characteristics of most African diasporas in that they are dispersed throughout Europe—particularly in the United Kingdom, the Netherlands, Germany, France, and Spain. Moreover, Ghanaians tend to be more transnational and are more engaged, investing in the homeland in larger numbers, for example. Official statistics on Nigerian and Ghanaian emigration are inaccurate and incomplete, but my estimates suggest that 5.2 million Nigerians and almost 1 million Ghanaians live abroad. These numbers translate into significant remittance flows of US$4.2 billion to US$5.4 billion to Nigeria (2006) and US$1.2 billion to Ghana (2004).6 This section, which relies on several surveys I conducted between 2004 and 2007, focuses on Ghanaian migrants in the United Kingdom and the Netherlands and on Nigerian communities in the United States, Germany, and the United Kingdom.7 First, I address the effects of the economic recession on the Europe-Africa remittance corridor. Ghanaian Communities The Ghanaian diaspora is a critical model and case study demonstrating the impact that migrant economic relationships—in particular those that concern remittances—have on the home country. As remittance senders, Ghanaians remit in large amounts and on a regular basis. Their commitment is solidly associated with immediate relatives who benefit from these funds over an extended period of time. Unlike other diasporas, whose remittances tend to decline over time, Ghanaians tend to remit more the longer they remain abroad. Two key traits characterize the Ghanaian diaspora. First, Ghanaians are deeply transnational agents in the sense that their ties and obligations occur in both Ghana and their country of residence. Second, their attachment to the homeland is overtly manifested not only in remittance sending but also through concrete material activities:

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27

investment, the purchase of homes, and giving. For example, half of Ghanaians living in the diaspora have a real estate obligation in Ghana, which itself is informed by factors such as family, community, and financial ties. The level of engagement and commitment to such relationships offer clues as to opportunities for leveraging these economic interactions, and call attention to the need for concrete strategies that can leverage remittance transfers for development activities. Official and reliable statistics are lacking for the Ghanaian diaspora. As noted above, there are probably at least 1 million Ghanaians living abroad, with unofficial estimates of 300,000 in the United States alone. The Ghanaian community in the United Kingdom is considered to approximate or be larger than the UK Census’s officially reported number of 60,000 in 2000. Estimates of the Ghanaian population in Germany and the Netherlands are approximately 20,327 and 20,000, respectively.8 As of 2007 the typical amount of money sent by Ghanaians in Europe or the United States varied. In the US case, Ghanaians sent on average US$380 and did so regularly—thirteen times a year. They sent US$225 from Germany, US$340 from the Netherlands, and US$510 from the United Kingdom. These differences are substantive when compared to the frequency of sending in each nation, which ranged between nine and thirteen times per year. In terms of the aggregate amount, Ghanaians in the United Kingdom were the largest senders, but fewer than one-third of Ghanaians in the United Kingdom were sending more than $200. This amount is dwarfed in comparison to Ghanaians in the United States who were regularly sending more than $200. Other demographic characteristics of Ghanaian remittance senders differ within this diaspora, depending on location. Sixty percent of Ghanaians in the United States were under forty years of age, as opposed to 37 percent in Germany. Table 2.7 shows that migrants in the Netherlands were, on average, older than their counterparts in Germany and the United Kingdom; more than 50 percent of the population was between forty and forty-nine years of age. Remittance senders were predominantly male: without major variation, between 57 percent and 67 percent of Ghanaian remittance senders in the examined countries were male. While age and educational status were variable, all communities I examined exhibited a high degree of transnationalism.

28

Table 2.7

Demographic Characteristics of Ghanaian Migrants Migrant Age (percentage of all respondents)

Host Country Germany United Kingdom Netherlands United States

20–29

30–39

40–49

50–59

2007 Estimated Percentage Male

8 22 6 11

30 36 37 52

37 22 52 30

25 19 5 8

62 67 60 57

Sources: Orozco 2005a, 2007b, 2007c; International Fund for Agricultural Development 2007.

2007 Estimated Remittance Volume (US$)

Number of Migrants

54,830,160 144,073,440 28,226,520 176,387,400

21,758 57,172 11,201 69,995

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Sending Money Home

As shown in Table 2.8, there are also differences in education among Ghanaian remitters, depending on the country where they are living. Ghanaians living in Germany tend to have lower educational attainment than those in the United Kingdom, the United States, and the Netherlands. This tendency is most striking when compared with Ghanaians in the United Kingdom, where half of remittance senders have a college degree. This education level significantly sets Ghanaians in the United Kingdom apart from their counterparts elsewhere. Migrant traits in the Netherlands show a pronounced relationship between gender and education. Men are disproportionately represented in the 30 percent of migrants with college degrees; of the 4 percent of the population that did not finish primary school, 76.9 percent are women. Income also varies across countries: Ghanaians in Europe are less likely to earn as much as their counterparts in the United States. Those in Germany earn less than their compatriots in the United Kingdom and are among the lowest income earners: 30 percent earn less than US$13,700 (€10,000). This figure is comparable to the 13 percent of Ghanaians in the United States who earn an average of US$12,500. In the Netherlands, the majority of migrants interviewed have personal annual incomes of US$27,400 (€20,000) or under, and nearly half (46 percent) are in the US$13,700–US$21,235 (€10,000– €15,500) income bracket.

Table 2.8

Education Levels of Ghanaian Migrants (in percentages) Host Country

Highest Education Completed College degree Some college High school Primary Did not finish primary

Germany 8 18 62 12 0

Sources: Orozco 2005a, 2007c.

United Kingdom Netherlands United States 57 28 14 20 0

30 28 26 12 4

15 38 35 10 20

30

Migrant Remittances and Development

Nigerian Communities Nigeria represents one of the more mobile societies in Africa. Populations moving to the east, west, and south of Africa, as well as Europe and North America, constitute a vibrant diaspora with strong ties across continents. Unlike Latino migrants in the United States, Nigerians send a larger amount of money as their permanence in the host country increases over time. This particular feature might signify that West African diasporas, and the Nigerian diaspora in particular, maintain a truly transnational commitment to a life in two homes. Estimates of the size of the Nigerian migrant population vary widely depending on the source. According to the United Nations (Adepoju 2007), approximately 1.1 million Nigerians are living outside their home country; however, in Ghana alone there are at least half a million Nigerians, signaling that the UN estimate is significantly understated. A 2007 World Bank report estimates that 5 million Nigerians live in the United States, and another report argues there are a half million Nigerians in England (Orozco and Casanova 2006; Hernandez-Coss and Egwuagu Bun 2007; Black et al. 2004). Using estimates derived from the Global Migrant Origin Database, a conservative estimate is closer to 5.7 million, representing almost 4 percent of Nigeria’s total population. This figure thus puts 444,887 Nigerians living in England, and 710,459 in the United States. Nigerians in the United States send on average US$189.26 per transfer thirteen times per year. On average, Nigerian senders have lived in the United States for seven years, and 70 percent indicated that they were not US citizens. Nigerian remittance senders share characteristics with their Ghanaian counterparts. The average age of Nigerian senders is thirtysix in the United States, and just under two-thirds are male. Similarly, Nigerian migrants tend to be well-educated, with more than 40 percent of senders having completed high school and 50 percent having at least some college education. Personal income of Nigerian senders averaged US$16,000 per year, with close to 50 percent of respondents indicating that they made between US$10,001 and US$15,000 annually. Thirty-nine percent of Nigerians send money to a spouse, and 40 percent stated that their parents were the principal beneficiaries of remittances. Surprisingly, although the majority of Nigerian senders are male, a large percentage (70 percent) of the

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Sending Money Home

recipients are also male. This runs counter to the trends reported in other regions. Remittances in Relationship to Macroeconomic Indicators Remittances now outpace foreign direct investment (FDI) in Ghana and impact the economy in four distinct ways. First, the volume represents a major source of foreign savings and a significant share of national income. Second, the money received is redistributive in nature in two key aspects. Remittances are frequently sent to rural communities, thus increasing access to much-needed currency, and women represent the majority of receivers. Third, remittances affect gross savings and assist in long-term economic security as a result of their countercyclical nature. Finally, remittances represent part of a broader context of global economic integration that fuels investing and trade activities between the home country and migrants abroad. This concept is explored in later chapters. Overall, Ghanaian migrants send 15 percent of their income to relatives. According to the Central Bank of Ghana, remittances in 2004 were US$1.2 billion, but this figure likely captures only half of all Ghanaians’ money sent from abroad (Addison 2004). Table 2.9

Table 2.9

Macroeconomic Impacts of Remittances on Nigeria and Ghana Ghana

Gross remittance received (US$ millions) 2004 2005 2006 GDP 2006 (millions) Remittance as a percentage of GDP, using author’s remittance estimate (2006) Foreign direct investment as a percentage of GDP (2006) Population (2006) Estimated number of migrants working abroad

Nigeria

6.00 6.00 6.00 12,906 6.6

20.90 18.32 18.32 115,338 4.7

3.37

4.72

23,008,443 957,883

144,719,953 5,171,405

Source: Compiled from author’s estimates and data from World Bank Group 2008.

32

Migrant Remittances and Development

shows that the volume of remittances impacts Ghana’s economy as they represent, after exports, over 6 percent of GDP. Furthermore, remittances represent an amount far greater (ten times) than the country’s per capita GDP, and reach communities outside the capital city, Accra, which received about 60 percent of the total amount of remittance flows. In Nigeria, the inflows of officially reported remittances only partially reflect the migrant population residing abroad. Officials of the Central Bank of Nigeria are uncertain of the actual flow and have yet to implement improved methods of measuring informal payment networks or tracking individuals hand-carrying cash. Despite these limitations, remittances records have improved somewhat since 2006. Commercial bank executives reported in 2006 recorded flows estimated at US$4.2 billion, representing 700,000 transactions and a 30 percent increase from 2005. After statistical recording improved in 2007, the Central Bank statistics showed different figures, reporting US$10 billion in 2010. This estimate of remittance accounts for 5.5 percent of Nigeria’s GDP in 2010.9 Remittance Recipients Like their counterparts in other corridors, the majority of Ghanaian and Nigerian beneficiaries are immediate relatives, predominantly the parents of the immigrant. In all cases, over 40 percent of Ghanaians send primarily to a parent, and secondarily—for Ghanaians in the United States, the Netherlands, and Germany—to children. Moreover, nearly one-fifth of the beneficiaries are spouses, while other relatives, such as siblings or grandparents, are less frequently the primary recipients. In some cases, some migrants couldn’t say who exactly received the money, as it was distributed to various family members in Ghana. Forty-six percent of Nigerians send primarily to a parent, followed by a child (25 percent) and then a spouse (22 percent). The majority of recipients in Nigeria and Ghana are slightly younger than the senders, ranging from twenty-five to thirty-four years old. One attribute that distinguishes the sender-receiver relationship among Nigerians from that of Ghanaians is gender. Unsurprisingly, 57 percent of Ghanaian recipients are female. While the majority of senders within both groups are male, the expected inverse recipient

Sending Money Home

33

relationship does not hold for Nigerians remitting from the United States: over 70 percent of Nigerian recipients are male. Several possible reasons exist for the high incidence of male recipients in Nigeria. One explanation is possibly a higher rate of male migrants from rural to urban locations who pick up remittances and then send them on to rural relatives. Another theory is that males may be chosen to go to the remittance pickup locations for security reasons, even though they may not be the final recipient. However, these observations are anecdotal, and more research is needed to fully explain this phenomenon. Among Nigerian recipients, about 20 percent have received remittances for less than one year, 45 percent for one to three years, and 20 percent for three to five years. The majority receive money from relatives in the United States (41 percent) and the United Kingdom (23 percent). Similarly, 12 percent of Ghanaian recipients have received remittances for less than one year, 43 percent for one to three years, and 26 percent for three to five years. Most Ghanaian remittance recipients also receive money from family members in the United States (48 percent) and the United Kingdom (48 percent). Education levels of Nigerian recipients are surprisingly high, with 43 percent of all recipients indicating they have a college degree. The mean annual income of the Nigerian remittance recipients was US$1,583—66 percent higher than the World Bank estimate of Nigerian GDP per capita in 2006 (US$1,050).10 Data for the income of Ghanaian remittance recipients were inconclusive. The length of time a migrant has been abroad differs among locations, particularly when data of Ghanaian migrants are compared. Ghanaians in Germany have lived in their host country longer than their counterparts in the United Kingdom and the United States. For the most part, Ghanaians in Germany, the United Kingdom, and the Netherlands have been in these countries for more than ten years, whereas over 80 percent of Ghanaians in the United States have been there less than ten years. These differences in length of stay might be explained by the movement of two different generations and is likely attributable to the political transition of the 1990s and the end of the Rawlings regime in Ghana. Nigerians in the United States share characteristics with Ghanaians in the United Kingdom. Table 2.10 shows that 58 percent of Nigerian migrants have been in the United States between four and

34

Migrant Remittances and Development

Table 2.10

Length of Time Migrants Have Lived Abroad (selected Ghanaians, Nigerians; in percentages) Ghanaians in

Migrant Time in Host Country (years) Less than 1 1–3 4–6 7–9 10–12 13–15 15+

Germany

United Kingdom

1 5 8 16 21 17 32

4 21 20 12 7 10 26

Netherlands

United States

Nigerians in United States

1 10 19 14 25 12 19

2 8 30 37 16 4 3

2 27 30 28 9 2 2

Sources: Orozco 2005a; 2007d.

nine years, with a smaller contingent living in the United States for only one to three years. Data from recipients differ somewhat with the length of time migrants have been abroad; about 20 percent have received remittances for less than one year, 45 percent for one to three years, and 20 percent for three to five years. As with other diasporas, the main reason that Ghanaians and Nigerians remit is to help the family take care of basic needs such as food, clothing, and schooling. This commitment does not change significantly over time. People consistently send money to cover basic needs regardless of how long they have been doing so, indicating a realistic consideration that basic needs are a timeless priority. Housing represents the primary form of investment for remittance recipients and also drives decisions to remit money home. During interviews with Ghanaians, migrants expressed a strong desire to own their own home. Interviews also indicated that migrants viewed investment in housing as less risky than other forms of investment, and believed that housing could lead to less dependence on remittance incomes. These remittance-sending patterns for Ghana and Nigeria are telling of a long-standing commitment and focus on basic needs. More importantly, amounts sent increase over time, while the frequency of sending continues apace—in contrast to patterns in other remittance corridors.

Sending Money Home

35

The Effects of the Economic Recession on the Remittance Corridors Undoubtedly the 2009 recession had a major effect on immigrants. According to my fieldwork research and my 2009 nationwide survey of Latin American and Caribbean migrants in the United States—and of migrants in Rome, Italy; Madrid and Barcelona, Spain; and Paris, France—the global economic crisis has and continues to have tangible impacts on migrants’ economic situation and their ability to send remittances.11 About Immigrants in the United States In countries that are more dependent upon remittances, including Haiti, Nicaragua, and the Dominican Republic, as many as 50,000 to 100,000 remittance-receiving households have been affected by the economic downturn. In total, approximately 4 million people across Latin America and the Caribbean received less money in 2009 from their family members abroad. The data suggest that migrants are coping with the crisis by using their savings, as well as economizing on other expenditures and looking for additional sources of income. The findings also indicate that migrants have suffered disproportionately compared to other groups across several economic indicators. Unemployment rates among foreign-born Latinos in the United States rose more sharply than any subset of the population between the fourth quarter of 2007 and the fourth quarter of 2008, increasing from 5.1 percent to 8.0 percent (Kochhar 2009). The national unemployment rate rose from 4.6 percent to 6.6 percent between the same periods. Census data showed that 9.7 percent of migrants, and 12 percent of Latino migrants specifically, were unemployed in 2009 (Camarota and Jensenius 2009). The survey results reflect the trend (see Table 2.11). Approximately 12 percent of surveyed migrants reported the greatest difficulty of the crisis has been losing their job or having had someone in their family lose their job. Of those who remain employed, many (approximately 24 percent) are faced with reduced work schedules; 16 percent report working fewer hours than before, and 8 percent report that, as independent workers, they are finding less work.

36

Migrant Remittances and Development

Beyond those directly affected by job losses, the spike in unemployment has generated a more widespread sense of uncertainty, which is likely to continue to have a dampening effect on migrant savings, consumption, and remittances, as well as on economic behavior in general. In fact, insecurity about employment has proven to be the greatest hardship for migrants in the current environment. Nearly a quarter of migrants stated that the fear of losing one’s job represented the worst part of the current economic crisis (see Table 2.11). In an attempt to adapt to the current economic situation, migrants have had to change their behaviors in a number of ways, including restricting some expenditures or tapping their savings. According to the survey data, lowering their day-to-day expenses has been the main mechanism for coping with the crisis (35 percent). In addition, migrants have looked for alternative solutions, such as taking a second job (21 percent) or seeking an additional job (11 percent). Migrants with higher incomes (US$20,000 and above) were the most likely to have had to limit their expenses, while migrants with lower incomes have been those more focused on looking for a second job to increase their earnings. Meanwhile, one-third of those surveyed expressed that they would like to return to their home country, with the majority planning to do so in the next five years. Surprisingly, among those who would like to return, only 5 percent plan to do so because of a lack of work in the United States. The primary reason given is to reunite with their families. Looking at the effects of the crisis on remittance flows, the survey results showed that 40 percent of migrants were sending less money in 2009 than in 2008. The overall average remittance amount decreased approximately 5 percent, from US$241 in 2008 to US$230 in 2009. For those sending less, the average amount of each remittance decreased by 10.7 percent compared to 2008 levels. Moreover, the frequency of remitting dropped significantly from 15.3 transactions per year in 2008 to about 12 transactions per year in 2009, though the median frequency stands at 12 for both periods.12 Among the unemployed, only 25 percent continue to remit. From a gender perspective, the survey results reflected significant differences in sending patterns: men send 27 percent more overall than women on average. Even among those who have had to reduce the amount sent home, the survey shows that men in this category still send on average 18 percent a year more than women.

Table 2.11

Greatest Reported Hardship of the Economic Downturn on Latino Immigrant Remitters (in percentages)

I lost my job in 2008 I am afraid to lose my job As an independent worker, I don’t find work I can’t pay my mortgage/rent I lost my savings I feel good now, but uncertain about the future I fear the panic that has been created I work fewer hours than before A relative has lost his/her job It hasn’t affected me personally yet

Mexico

Dominican Republic

El Salvador

Guatemala

Bolivia

Ecuador

Brazil

Colombia

Cuba

Total

5

5

3

3

5

1

3

7

8

4

26

17

22

18

34

18

16

19

21

22

7

9

5

12

3

10

6

11

8

8

4

3

5

11

2

2

1

1

7

4

1 8

4 11

7 11

10 13

4 14

1 16

0 15

3 21

3 7

4 12

15

23

13

17

12

25

12

12

6

15

18

9

24

5

16

8

33

12

24

16

7

14

5

5

3

9

6

7

13

8

10

4

5

5

6

10

8

7

4

7

37

Source: Orozco 2009e. Note: Survey available from the author upon request.

38

Migrant Remittances and Development

About Migrants in Europe As in the United States, the recession in Europe affected migrants’ ability to send remittances to their homelands. Overall, the pattern is similar to that corridor: migrant populations experienced a rise in unemployment and related economic hardships, making it harder for them to send remittances to their families and placing them in a more vulnerable economic position. Specifically, when asked how the crisis has affected them, surveyed migrants reported that the main effects have been job loss (19 percent of those surveyed in Paris, 24 percent in Madrid, 28 percent in Barcelona, and 37 percent in Rome); the fear of job loss (6 percent in Barcelona, 16 percent in Paris, 23 percent in Rome, and 50.5 percent in Madrid); and less work (13.5 percent in Paris, 20 percent in Barcelona, 30 percent in Rome, and 34 percent in Madrid). Meanwhile, a number of migrants report a loss of personal savings (as many as 36 percent of those surveyed in Madrid and 11 percent in Rome). Finally, a majority of migrants in Madrid reported that since the crisis began to unfold, they have been sending less money in remittances to their home countries (see Table 2.12). Migrants are coping with the economic hardships in various ways, including getting a second job and reducing their expenses. According to the survey data, lowering their day-to-day expenses is the main mechanism for coping with the crisis (43 percent of respondents in Paris, 72 percent in Barcelona, 82 percent in Rome, and 86 percent in Madrid). Migrants also look for alternative solutions, such as taking a second job (17 percent in Madrid, 21 percent in Barcelona, and 31 percent in Rome) or seeking another job (17.5 percent in Paris, 21 percent in Madrid and Rome, and 24 percent in

Table 2.12

Remittances by Migrants in Europe After the Economic Downturn (percentage of migrants sending, by city)

More money Less money Same amount of money

From Paris

From Madrid

From Barcelona

From Rome

16.0 37.6 43.8

5.8 72.4 21.8

9.5 45.0 45.5

16.3 41.4 42.3

Source: Manuel Orozco, survey data collected in 2010.

Sending Money Home

39

Barcelona). As a result of the crisis and in an effort to cut down expenses, migrants are also calling their relatives abroad less often: 50 percent of respondents in Madrid and 29 percent in Rome reported they are making fewer phone calls to their home countries. Finally, when asked whether they have looked for help during the crisis, and if so where, most respondents indicated they have looked to government programs to help them (73 percent in Paris, 62 percent in Barcelona, 61 percent in Madrid, and 22 percent in Rome). This finding contrasts with other world regions studied, where migrants tend to seek the help of family members in times of economic crises.

Conclusion In this chapter, I looked at three regional remittance corridors from developed to developing countries: from the United States to Latin America, from Russia to Central Asia and the Caucasus, and from Europe and the United States to select African countries. Remittance senders in each of these world regions share some important characteristics. For example, migrant workers are low-income earners—a condition associated with their occupation, low educational attainment, and often, their legal status. In most cases, the amount they remit to their respective homelands over time declines the longer they’ve been in the host country, as exemplified by Latin American migrants in the United States. However, a case challenging this pattern is that of Ghanaians in Europe and the United States, who instead remit more over time. This effect can perhaps be explained by their strong diaspora networks in the host countries and in turn by their exceptional level of involvement with their country of origin in areas that extend beyond remittance flows, such as doing philanthropy in their homelands. Most migrants, regardless of nationality, have been hit hard by the global recession. A notable case is that of Latin American migrants in the United States, where 40 percent of them sent less money home in 2009 compared to 2008. Similarly, both Latin American and African migrants living in Europe have reported sending less money to their homelands as a result of the recession. Meanwhile, even though findings from across all corridors point to the increase in vulnerability from these migrants in light of the crisis, a notable difference is apparent in how they have been dealing with it.

40

Migrant Remittances and Development

Specifically, African migrants in Europe reported seeking help from government programs more so than migrants in other world regions, where they tend to instead reach out to their family members for financial support. Across most regions, remittance flows are faring increasingly well when compared to key macroeconomic indicators. The economies of some developing countries are more dependent on these inflows of money, such as Honduras or El Salvador, where remittances represent a large share of the national GDP. Additionally, the review of the cross-country demographic differences of remittance recipients provides insights into basic trends in money transfers and their participants. In most cases, remittances are used primarily to cover the basic necessities of family life in the home country. Remittance recipients are largely females, heading households of four or fewer people. Also, a significant portion of remittance flows goes to recipients in rural areas outside the capital, and these flows represent a significant portion of their household income. I discuss this finding in later chapters in the context of the link between remittances and finance, specifically in terms of levels of bancarization among senders and recipients and the importance of asset building for long-term economic development.

Notes 1. Using migration statistics applied to survey and money transfer data, I have estimated the global flows on a corridor-by-corridor basis for a total of 50,000 bilateral corridors worldwide producing an estimated amount of US$411 billion transferred. For further details, see Orozco 2007b and International Fund for Agricultural Development 2007. Other sources cite lower volumes but acknowledge that their figures may be about 50 percent of what they should be; see World Bank 2013. See also World Bank revisions to 2007 flows estimated to US$257 billion. 2. The sources of information for this analysis include several surveys produced in various reports by the author, which are listed in the bibliography. The findings presented in this chapter include a 2007 survey of recipients I conducted (Orozco 2007j) on withdrawing remittances at bank account locations in three countries in the Caucusus. 3. This study consisted of a nationwide survey conducted in five major US cities—New York; Los Angeles; Chicago; Washington, DC; and Miami—during July 2007 on 1,250 participants who send remittances. The

Sending Money Home

41

survey was conducted with people from eight nationalities from Latin America and the Caribbean. The survey is also complemented with focus group interviews with a total of fifty-five migrants from Argentina, Ecuador, El Salvador, Guatemala, Honduras, Mexico, and Peru living in New York; Los Angeles; Washington, DC; and Austin. Of these participants, over half (62 percent) are from El Salvador or Mexico. 4. Orozco 2008d. Migrants were from six Latin American and Caribbean countries: Guyana, Mexico, El Salvador, Colombia, the Dominican Republic, and Bolivia. 5. Data from my 2003–2004 survey of remittance recipients in El Salvador, Guatemala, Nicaragua, Colombia, Ecuador, Cuba, the Dominican Republic, and Guyana. Survey administered by Borge y Asociados (El Salvador, Guatemala, Nicaragua), Invamer, S.A. (Colombia), PulsoEcuador (Ecuador), Katryn Hansing (Cuba), Protectora Holdings (Dominican Republic), and Laparkan Ltd. (Guyana). There were a total number of 2,100 respondents. 6. Low figures are from official internal statements from Central Bank of Nigeria (2006) and the Bank of Ghana (2004); high estimates from the author’s World Wide Flows Matrix (IFAD 2007). 7. See studies on Ghanaian diasporas: Orozco 2005a, 2007c. 8. Figures for Germany from IFAD 2007; for the Netherlands, from the Bureau of Statistics (Netherlands). 9. World Bank Group, “WDI Online,” http://data.worldbank.org/ indicator. 10. According to the World Bank’s Atlas method for calculating gross national income (GNI) per capita, Nigeria’s GNI in 2006 was US$640. This estimation reduces the impact of exchange rate fluctuations in comparing national incomes. 11. The survey of 1,350 Latino migrants in the United States who send remittances was conducted by the author between March and June 2009. The questionnaire included a total of thirty-eight questions with a focus on demographics, migration, remittances, and the economic recession in the United States (see Orozco 2009d). 12. The median frequency may be a more accurate statistic because it reflects consistency among the majority of survey respondents. In terms of transaction size, there is very little variation between the average and median figures.

3 When the South Meets the South

In this chapter I review the intraregional remittance corridors (between developing countries) of Latin America, Southeast Asia, and Western Africa. The practice of transfers among developing countries is not exclusively a North-South pattern; migrants’ obligations to their families run across borders worldwide. Roughly 13 percent of global flows occur outside the main regional economic centers (some of which were reviewed in Chapter 2); a much larger share of migration, 38 percent, takes place outside of those regional blocks. Most of this migration is intraregional and predominantly within developing countries. These migrants send less because, living in a developing country, they earn less—usually between US$150 and US$500 a month. Migrants still have the same obligations and, perhaps, an even greater commitment to remitting. As the studies from Latin America and Africa in this chapter show, migrants in developing countries often remit a higher percentage of their earnings than their counterparts in industrialized countries. In the following, I review three South-South remittance corridors from Latin America and discuss intraregional remittance flows in West Africa, with a particular focus on Ghana.

43

44

Migrant Remittances and Development

Intraregional Flows in Latin America Although the United States is the primary source of remittances to Latin America, other markets reflect a pattern of regional economic integration. In Latin America, intraregional remittances account for approximately 10 percent of total flows. The Caribbean has at least three foreign-labor markets: Haitian workers in the Dominican Republic; Dominicans in Puerto Rico; and English speakers from Guyana and Jamaica, among others, in Trinidad and Tobago. Central America has two foreign-labor markets: Guatemalans in Mexico, and Nicaraguans and Colombians in Costa Rica. South America hosts several markets: Colombians in Venezuela and Ecuador; Paraguayans and Bolivians in Argentina; Paraguayans, Peruvians, and other South Americans in Brazil; and Peruvians in Chile. Although intraregional migrant groups share some characteristics with workers’ extraregional markets, there are significant differences: in particular, the amount of money remitted and, in some cases, the seasonality of cross-border flows. Also, migrants worldwide often lack legal status and so accept short-term, poorly paid, and dangerous jobs. In this chapter, I investigate one corridor from each of these regions (Caribbean, Central America, and South America). Unlike larger and more diverse economies, the three middle-income countries presented below—the Dominican Republic, Costa Rica, and Argentina—are more fragile and more prone to greater cyclical shifts, and have less diversified sources of wealth. Moreover, as emerging markets, the demand for migrant labor has increased as income has increased in these economies. These three countries hold at least one-third of all migrants flowing within Latin America and the Caribbean (Brazil, Venezuela, Mexico, and the Caribbean Islands being other major magnets of migrant labor). Migrants at the bottom of the national income scale in these three countries earn far less on average than their compatriots at the bottom of the economic scale in developed countries. Still, their remittances are significant, in terms of absolute income flows and the support they provide to vulnerable people in their countries of origin. The following sections present data from studies and surveys I conducted, leading to several conclusions about the global significance of intraregional, or South-South, remittances.1

When the South Meets the South

45

Haitians in the Dominican Republic Haitians have a long history of migrating to the Dominican Republic. This cross-border flow increased considerably during the past twenty years due to Haitian economic and political crises. An estimated 600,000 Haitians live in the Dominican Republic as of 2010. They live mainly near the border between the two countries, and in the capital, Santo Domingo, working predominantly in the service industry and the informal economy. Migration to the Dominican Republic has created a cohort of Haitian immigrants with their own demand for services, including for sending remittances and other goods, and the provision of related services, such as importing foodstuffs from Haiti (Sillie 2003). Haitians have also created small businesses in the Dominican Republic that provide services to businesses in Haiti. In the aftermath of the devastating earthquake in January 2010, remittances to Haiti have become more important than ever. The presence of Haitians in the Dominican Republic has always been a contentious issue for Dominicans. Racial tensions between the countries, a shared early political history, early Haitian occupation of the Dominican Republic, and the large flow of immigrants escaping poverty, political turmoil, and natural disaster in Haiti have created this difficult relationship. As instability continues in Haiti, remittances from the Dominican Republic are extremely important in cushioning a stagnant economy and a failed state. Remittances from the Dominican Republic are unique in that most are sent through informal systems or carried personally during trips to Haiti. Migrants in the Dominican Republic travel frequently to Haiti due to the countries’ contiguous border and the relatively cheap cost of travel. The mean amount that Haitians send in remittances is about US$96 per month, while the median is US$67 (as reported in 2006). The total volume of the annual remittance flow from the Dominican Republic is over US$100 million. As shown in Table 3.1, nearly three-quarters of all remittances sent are less than US$100. Haitians mainly send money to their parents in Haiti. A significant number, 20 percent, also send to their spouses. There are three male senders for every female, and slightly more than half of all Haitian senders are under thirty years old. Remittances are sent primarily to Port-au-Prince, followed by Cape Haitian. Virtually all the

46

Migrant Remittances and Development

Table 3.1

Amount Sent per Remittance, Haitians in the Dominican Republic, 2006 Amount (US$) 1–50 51–100 101–150 150+

Percentage Sending 34 39 10 16

Source: Orozco 2006d.

Haitian senders surveyed indicated that providing for the basic needs of the family was the primary reason for sending money home: 98 percent of recipients use the money for food, and 70 percent use it for clothing. Nearly 40 percent of Haitian migrants in the Dominican Republic have been sending remittances for between one and three years, as shown in Table 3.2. Haiti’s 2001 population and household census estimated that 21 percent of households were remittance recipients, while 40 percent had relatives abroad (Orozco 2006d). According to the 2001 census data, 60 percent of relatives who are migrants are in the United States and 20 percent are in the Dominican Republic, with the rest residing in Canada, France, and other countries. When asked about their relatives’ motivations for migrating, 88 percent gave work as the primary reason.

Table 3.2

Length of Time Remitting, Haitians in the Dominican Republic, 2006 Time (years) Less than a year 1–3 4–6 7–9 10–12 13–15 More than 15 No answer

Source: Orozco 2006d.

Percentage Sending 9.6 38.4 24.8 10.4 3.6 4.4 6.8 2.0

When the South Meets the South

47

In one respect, Haitian remittance recipients are unlike their Latin American and Caribbean counterparts: half of them have a much lower income because they are unemployed. Like other Latin Americans, however, 20 percent say they receive remittances from more than one relative, and at least half of recipients report receiving additional help other than remittances (such as food from relatives). In addition, nearly half of recipients have at least one child to take care of in the household. Consistent with poverty levels in Haiti— according to Economic Commission for Latin America and the Caribbean (ECLAC) figures, it is the poorest country in Latin America and the Caribbean—55 percent of remittance recipient households have no other income, and 27 percent earn less than US$500 a year. However, among those with no income, 26 percent receive up to US$100 a month in remittances and 20 percent receive between US$100 and US$300. Thus, the amount received not only exceeds the average annual income for Haitians with jobs (US$500) but also keeps people out of poverty as long as money is received. For those with no income, these earnings are a lifeline that enables them access to basic goods and services. Nicaraguans in Costa Rica Nicaragua is historically a poorer country than Costa Rica. The strength of the Costa Rican economy and its demand for foreign labor in the agriculture and service sectors, together with the prevailing economic and political instability in Nicaragua, have led to a significant inflow of migrants. After the 1972 earthquake that destroyed Managua, economic recession followed, and thousands of Nicaraguans left seeking better opportunities. The ensuing political crisis intensified, and Nicaraguans began migrating again in the late 1970s, especially after the triumph of the Sandinista revolution in 1979. During the 1980s, middle-class Nicaraguans moved to Costa Rica in great numbers, particularly as a result of a 1983 law that instituted compulsory military service. A 1994 study estimated that close to 46,000 officially recognized Nicaraguan refugees lived in Costa Rica (plus 23,000 in Honduras), and thousands of Nicaraguans were in Costa Rica with tourist or student visas, or without papers (Dunkerley 1994). The largest migration occurred in the 1990s when the Nicaraguan economy sank further into depression and unemployment rose. According to the Costa Rican census office, there were

48

Migrant Remittances and Development

approximately 236,000 Nicaraguans in Costa Rica in 2000. Many experts agree that the number is far higher, however—approaching 400,000.2 Migration to Costa Rica since the late 1990s differed from that of the 1980s, particularly in social composition. Most migrants who left Nicaragua after 2000 came from rural households and had lower incomes. As of 2000 at least 60 percent of Nicaraguan immigrants live in Costa Rica’s central valley, predominantly in San Jose. Nicaraguan immigrants in Costa Rica remit on a regular basis (see Table 3.3). On average they send US$70 a month, the equivalent of about 20 percent of their monthly income. Migrants’ parents are the primary beneficiaries; 47 percent of Nicaraguan remittance senders who live and work in Costa Rica send money to their parents. Spouses and siblings are the second- and third-largest groups of recipients in Nicaragua, respectively. The vast majority of Nicaraguan remittance senders (95 percent) reported that recipients used the funds to cover basic living expenses. Typically, this income provides food and clothing for those dependent on the sender (57 percent on food, 28 percent on clothing). In addition, 48 percent of senders provide income for dependents in Nicaragua for between one and three years (see Table 3.4). Paraguayans in Argentina While the number of Paraguayans migrating to Spain has increased dramatically in the past decade, intraregional migration to Argentina continues to be an important destination; in many cases, migrants first go to Argentina as a jumping-off point, then go to Spain. There

Table 3.3

Amount Remitted by Range, Nicaraguans in Costa Rica, 2005 Amount (US$)

Percentage Sending

1–50 51–100 101–150 151+ No answer Source: Orozco 2005d. Note: Senders remitted on average eight times a year.

30.4 44.9 11.6 9.7 3.4

When the South Meets the South Table 3.4

49

Length of Time Remitting, Nicaraguans in Costa Rica, 2005 Time (years) Less than a year 1–3 4–6 7–9 10–12 13–15 More than 15 No answer

Percentage Sending 4.3 48.3 23.7 10.1 5.3 2.4 2.9 2.9

Source: Orozco 2005d.

have also been reports of Paraguayan migrants returning from Spain to Argentina, rather than returning to Paraguay. Migration between Argentina and Paraguay also displays circular patterns, with migrants able to return home for visits across the countries’ shared border. Argentina has been an important destination for Paraguayan emigrants since the early twentieth century, and the flow intensified in the 1990s. About 400,000 Paraguayans have immigrated to Argentina since the 1990s, making up another important intraregional flow in the Americas. Few studies have investigated the heavy exchange of labor for remittances between the two countries. The Paraguayan microfinance institution, Financiera El Comercio, in 2008 conducted a study of over 15,000 of its clients, revealing that 32 percent receive remittances from abroad (Orozco 2008a). Remittance recipients using El Comercio mainly receive money from Argentina. Today, roughly half of remittance recipients in Paraguay receive from Argentina, while the rest receive from Spain (37 percent), the United States (4 percent), and other countries. Using the 32 percent figure as a coefficient for remittance recipients in Paraguay, and given that El Comercio’s clients are relatively representative of the Paraguayan population, I estimated that 440,000 of Paraguay’s 3 million households receive remittances. In 2008, Paraguayans received about US$878 million in remittances. Like Nicaraguan migrants in Costa Rica, Paraguayan migrants in Argentina tend to come from poor rural areas. According to El Comercio, which operates in Paraguay as an agent for Western Union, Paraguayan immigrants are typically women from poor, rural areas of Paraguay who do domestic work in

50

Migrant Remittances and Development

the informal sector. Remittances are usually sent monthly to siblings, who are responsible for using the money to cover the needs of a range of family members. Like in most regions, the majority of recipients (nearly two-thirds) are women. On average, Paraguayan recipients receive about US$125 about eleven times per year—higher than the amounts received in Nicaragua and Haiti due to the higher average incomes of Paraguayan migrants. Policy Opportunities South-South migration in Latin America and the Caribbean raises a number of important policy opportunities. For one, the proximity of these countries means that migration is often circular. However, even though these countries often have well-established economic and trade relations, much could be done to better manage migration flows, such as establishing special guest worker programs that respond to the host country’s demands for migrant labor. Many intraregional Latin American and Caribbean migrants are not documented, lack adequate financial access, and use informal money transfer methods to a greater degree than their counterparts who have gone further afield to developed countries. Recipient families, in turn, often lack financial access and come predominantly from rural areas. The rural origin of Latin Americans who immigrate to neighboring countries means that remittance flows are reaching poor areas where this income is greatly needed. However, in order for remittances to have the maximum impact on social and economic development in rural areas, a range of issues must be addressed, including poor financial access and poor financial literacy, as discussed in later chapters.

Intraregional Flows in Western Africa Migration has always taken place within West Africa. Well before the colonial period, the region was a trading center for goods and services. One resilient manifestation of this activity is a tradition of commercial migration, where traders cross borders to participate in commercial activities (Adepoju 2003). West Africa as a whole should be understood as an economic unit (Addo 1974). While migration in precolonial and colonial times was defined by trade routes, modern

When the South Meets the South

51

intraregional migration is determined and shaped by postcolonial national boundaries, the forces of the global economy (cross-border migrant trade, structural adjustment, trafficking in people), civil strife (Liberia, Côte d’Ivoire), territorial definitions of sovereignty, regional integration (the Economic Community of West African States [ECOWAS]), and an ongoing perception of West Africa as a single economic unit. From a geographic standpoint, it is difficult to define clearly which migratory routes people have followed. No rule of thumb, for example, says that French-speaking societies are more integrated among themselves in migratory terms. Looking at places of origin and destination is only partly helpful. The four main destinations in the region have been Nigeria, Ghana, Senegal, and Côte d’Ivoire. In the 1960s Ghana hosted Nigerians, but by the 1970s the tables had turned, with thousands of Ghanaians looking for work in prosperous Nigeria. Today people move back and forth between the countries. People from Burkina Faso, Liberia, Mali, Niger, and Togo have also been on the move to other countries in West Africa. The perception of West Africa as a geopolitical unit is confirmed in interviews with migrants and traders and within the private and public sector. People respond to the notion of “West Africans” rather than “migrants.” In fact, the fifteen ECOWAS countries have tried to ensure that its rules reflect this premise. Article 27 of the ECOWAS charter speaks of common citizenship by nationals of member states, and since 1979 people from member states have been able to move throughout the region without a visa and stay in another member state for up to ninety days (Adepoju 2002). In 1986 and again in 1992, member countries reaffirmed the right of member nationals to reside and work in other ECOWAS countries, stipulating only that they needed to register. This latter move is perceived as a means to keep track of the movements of the foreign-born population. However, because of West Africans’ perception of being free to move about within the region and work in different countries when they choose, few migrants actually register, and migration statistical data are largely unavailable, making it difficult to know with certainty how many West Africans reside in other ECOWAS countries. The main reason that so many migrants don’t register is simply that intraregional migration is not fully recognized as existing and people don’t see much value in registering. Instead, registering is seen as a cost. Adepoju (2003) writes that many West African migrants don’t

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register because they associate registration procedures with mass deportation of undocumented migrants, something that has occurred in nearly every West African country’s history both before and after the establishment of the ECOWAS community. One of the most notable examples comes from Nigeria, which in 1982 expelled over 1 million people, mostly Ghanaians, and expelled another wave in 1985. I estimate that West Africans living and working in other West African countries may amount to 10 percent of the total population of the country in which they live. Academics and other experts concur on West Africa’s significant number of intraregional migrants living elsewhere than their country of citizenship. Unfortunately, the statistics are unreliable. The head of Nigeria’s immigration office, for example, acknowledged that they keep no records on West Africans, even though other West African nationals are required to register and obtain identification. ECOWAS headquarters offers official statistics that provide a glimpse of a much larger population. My interviews with consular and embassy officials in ECOWAS member states in each country studied cited figures that were generally higher than officially recognized numbers. For example, the Burkina Faso consular office in Ghana estimates that there are 500,000 Burkinabes in Ghana. The Nigerian embassy in Mali estimates the number of Nigerians in Mali to be 50,000. Ghana’s immigration office estimates that 15 percent of its population is non-Ghanaian West Africans. Similarly, probably 10 percent of the Nigerian population is made up of migrants, mainly from West and Central Africa. The following sections present the data from my studies of this region.3 The following information is based on a series of fifty interviews I conducted in Ghana, Mali, Nigeria, and Senegal in 2005. This information provides an overview of migrants in the region, but the small sample size means that the results should be interpreted as suggestive rather than definitive. The interviews show that these migrants send money in amounts commensurate to their earnings.4 Like other migrants, most West Africans send remittances to their relatives, although they send smaller amounts and send them less regularly than their counterparts in other regions. Most have lived in their host country for an average of six years, and they are relatively young, ranging in age from twenty to forty-five. As Table 3.5 outlines, they send money to immediate relatives—mainly parents and, to a lesser extent, wives.

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In the four countries I studied, migrants reported sending money whenever they could afford to do so, but in general they remitted an average of three times a year. With two exceptions, where the amount sent was far greater than US$2,000, the average amount sent was US$157. Table 3.5 summarizes the amounts sent by migrants to and from each country. When estimating remittances to the region, the interviews showed that West African migrants annually remit an average of US$300.5 Although no figure exists for how many of them send money, the 60 percent reported from my larger survey of West Africans in Ghana serves as a baseline for all migrants. (Note, however, that surveys worldwide suggest that between 50 and 90 percent of migrants send money home [Orozco 2005a].) Ghana is an important example of how people move in and out of a country—within Africa, and throughout the rest of the world (Orozco 2005a). But Ghana is also host to many West Africans from most ECOWAS countries, including Nigerians and Burkinabes (see Table 3.6). I surveyed remittance senders in three different areas: Accra, northern Ghana, and Kumasi. Most respondents were male and young: 78 percent were under forty, earning an annual average income of US$1,400. In the last year, 61 percent had sent remittances. Migrant remitters in Ghana send about US$130 each time to their relatives in other West African countries. Fifty-eight percent send less than US$200, 19 percent send between US$200 and

Table 3.5

Remittance-Sending Among Migrants in West Africa, 2006 Migrants in West Africa

Country of Residence Ghana Mali Nigeria Senegal

Country of Origin Niger, Nigeria Nigeria, Ghana, Senegal Ghana Mali

Source: Orozco 2006e.

Average Amount Sent (US$)

Primary Beneficiary

Frequency Sending

130 100

Parents, wife Parents

Three times a year Three times a year

200 100

Parents, wife Sister

Four times a year Twice a year

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Table 3.6

Country of Origin for Migrants in Ghana, 2005 Country Niger Togo Nigeria Burkina Faso Mali Guinea Benin Senegal Gambia Côte d’Ivoire Liberia

Percentage 18.8 17.8 14.4 14.0 14.0 5.0 4.6 4.0 3.2 2.6 1.6

Source: Orozco 2006e.

US$400, and 8 percent send over US$800. These migrants send money an average of three times a year, but 20 percent send more than five times a year. Of these migrants, 37 percent have lived in Ghana from five to eight years, while another 35 percent have arrived in the past four years. The amount of money sent correlates to the length of time a migrant has spent in the host country, with people tending to send more the longer they have lived in the host country. This correlation is usually apparent for West Africans in Ghana, but the amount sent does not increase strictly in line with length of stay. The average difference in amount sent between a person who has been in Ghana less than two years and one who has been there for ten years is US$50. Moreover, the median amount suggests a rather inelastic trend in the sending of remittances, indicating that basic needs may only change if there is a crisis or new demands emerge in the recipient household, such as a decision to invest in economic activities outside of typical consumption. As in other countries, the main remittance beneficiary is an immediate relative. Forty-two percent of recipients are the mother or father of the migrant, and 22 percent are siblings. The latter may be caring for another family member. Again, like other migrants worldwide, out of all the mutually inclusive choices given in the survey, nearly 90 percent say the money sent is for food, 70 percent say it is for clothing, and 20 percent pay for education.

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Conclusion Developing countries in the same region engage in important economic exchanges. These flows occur in regions with a history of significant trade and labor movement across present-day boundaries. This chapter reviewed the intraregional flows of migrants and money in Latin America and West Africa. The sheer number of people who move across nearby borders, often seasonally, makes South-South migration an important feature of intraregional social and economic integration. In many cases, the number of migrants from a given country who move South-South dwarfs migration flows from that country to more distant developed economies. For example, the populations of Paraguayans in Argentina and Indonesians in Malaysia are at least as large as these migrant groups in all other countries combined. Additionally, regardless of size, the proximity of the countries in the corridors studied in this chapter makes South-South remittances as least as frequent as remittances from farther afield, and other economic exchanges and home visits often more frequent. The flows in each of these regions exhibit similarities and differences. For example, in each region, a large group of migrants comes from rural areas and earns less than their migrant counterparts in developed countries. Also, each region is experiencing a growing feminization of migrant labor. On the other hand, each country corridor also has different characteristics. In the next chapters, I explore structural factors, specifically those related to the regulatory environment and competition in the market for money transfers in different countries. The legal as well as cultural environment for migration also plays a role in migrants’ integration into the host country and the success of their economic exchanges with their home country. In West Africa, the ECOWAS arrangement has enabled cross-border movement to such an extent that migrants often aren’t even considered “migrants” but “West Africans” and can freely move within the region. However, due to the historic memory of deportations as well as current political issues and some restrictions on migrant economic activity, many migrants don’t register. The Dominican Republic has not managed to integrate Haitians, and Haitians maintain outsider status within Dominican society. Despite the remarkable migration flows and the significant amount of money that is transferred across borders, there is often a

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lack of awareness and even neglect about actual regional engagement. Many governments have yet to adequately manage these migration flows, much less develop innovative policy solutions to leverage this migration for greater social and economic development. The wholesale application of policies designed for migration to developed countries may not be appropriate for intraregional migration. For example, remittance transfers across contiguous borders still tend to be highly informal, often due to regulatory constraints that have hindered the development of functional and competitive remittance markets in these corridors, an issue discussed in the next chapter. The findings presented in this chapter shed light on the importance of these flows in order to foster greater awareness of the impacts that such intraregional activities have on the development of various world regions. The next chapter looks at how the regulatory environment impacts development.

Notes 1. For complete information on these studies, please refer to Orozco 2005d, 2005a, 2006d. This chapter also includes data from Orozco 2008d. 2. Interview in 2003 with Abelardo Morales, from FLACSO, San Jose, Costa Rica, by the author. 3. For complete information on these studies, please refer to Orozco 2006e. 4. Out of those fifty interviews, thirty-five were tabulated and quantified as they contained most of the information on sending profiles. 5. For detailed information on this study, please refer to Orozco 2006e.

4 Regulation and the Market for Global Remittances

Remittance trends do not emerge from a vacuum, but are shaped in part by the regulations that govern these flows and the marketplace in which they take place. Within this marketplace, rules and regulations for international money transfers are key to ensuring a successful and transparent process. These rules affect not only the marketplace but also asset building and development. Thus, in order to understand the dynamics of the marketplace for money transfers, I divide the analysis in this chapter into two components: (1) the regulatory issues on money transfers and (2) the marketplace (including the market players and industry trends). Following an overview of the issues and global trends, I examine regional patterns in Asia, Europe, the Americas, and Africa. Together, these sections constitute the most comprehensive review of remittance regulations and markets to date.

Rules Governing International Currency Flows Money transfers are associated with or affected by various aspects of a country’s economy and legal system. First, since they are international transfers that involve foreign currency, they are affected by regulations on cross-border payments—specifically, those regulations that require verifying the legal source of transfers. Second, regarding 57

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the intermediation of payments, rules have been established to authorize which entity is allowed to provide the international transaction and make the conversion into foreign or local currency. Third, both governments and end users of the transaction both face foreign exchange conversion issues that require regulation against possible foreign currency speculation that could affect consumers and the economy at large. Most governments worldwide have established regulations to ensure that transfers are legal in method and purpose. The main legal instruments adopted to ensure the legality of transactions include legislation and oversight controls to prevent money laundering and other criminal uses (such as arms trafficking, terrorism, or smuggling) of foreign currency transfers, limits on the amounts remitted (usually not to exceed US$5,000), and methods to identify the sender and recipient of the transfers. Industrialized countries have generally been more proactive at controlling money transfers against criminal activities, particularly after September 11, 2001. Nevertheless, developing countries are stepping up efforts to pass legislation, train regulators, and adopt mechanisms to stop criminal activities through money transfers. Money transfer operators (MTOs) have been important contributors to the regulatory environment, as they have led the way in implementing anti–money laundering (AML) and other compliance systems designed to prevent crime. While setting up their payment transfer platforms across the world and in banks and other financial institutions, MTOs have brought technology, training, and tips on how to prevent illicit activities connected to foreign money transfers. These companies’ efforts and methods, in many cases, have become effective AML systems in countries where legislation does not exist or is not successfully enforced. For example, until 2008, the Republic of Kyrgyzstan did not have legislation regulating financial crimes, but MTOs already had operations with banks and provided technical assistance to enforce international rules against money laundering. Two important international principles seek to provide guidance and clarity on regulatory issues: the General Principles for International Remittance Services and the Recommendations by the Financial Action Task Force (FATF) on Money Laundering. The FATF Recommendations establish that financial institutions providing money transfers should “undertake customer due diligence measures, including identifying and verifying the identity of their customers”

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(Rec. 5); gather information about the originating financial institution performing the transaction (Rec. 7); and pay “special attention to any money laundering threats that may arise from new or developing technologies that might favour anonymity and take measures, if needed, to prevent their use in money laundering schemes” (Rec. 8) (FATF 2003). Domestic Rules on Authorized Entities Regulating foreign currency transfers includes authorizing who can perform inbound or outbound foreign currency transactions. Because the intent is to seek to control capital movement and have sovereignty over local currency, most countries authorize only banking depository institutions to conduct foreign currency payments. However, the decision to allow only banking institutions to perform international money transfers can adversely impact financial access for remittance senders and recipients. In most developing countries, where nationwide banking penetration is relatively minimal, access to banking or other financial services is highly restricted, enjoyed only by a minority of the population. In countries that only allow banks to pay money transfers (inbound or outbound), migrants and their families face long, difficult, and costly trips to banks, and often turn to informal networks to avoid expensive transactions. In contrast, in countries that allow financial institutions other than banks to pay out money, transaction costs are lower, allowing for greater or universal financial access and increased competition on the ground. Regardless of who pays, authorized institutions are entrusted to ensure that risk is mitigated through good compliance systems that prevent the misuse of international money transfers. Their role is to confirm the identification of senders or recipients and to comply with national and international regulations. Thus, the burden of scrutiny is and should be strong. Where governments are unaware of the potentially high risks that international foreign currency transfers may pose to a country’s economic and political stability, the role of authorized entities is even more critical because it is up to them to protect a country’s monetary sovereignty. The FATF thus recommends (Rec. 23) that states should license and register institutions paying remittances and subject them to oversight, “for anti–money laundering purposes, having regard to the risk of money laundering or terrorist financing in that sector” (FATF

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2003: 7). That is, “At a minimum, businesses providing a service of money or value transfer, or of money or currency changing should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national requirements to combat money laundering and terrorist financing” (FATF 2003: 8). Regulations on Competition and Consumer Protection Regulatory norms on money transfers also address fair competition and consumer protection. Competitive controls and oversight are important because the industry has multiple players: remittance service providers (RSPs), originating or paying agents, and the banks holding the RSPs’ accounts to guarantee the efficiency of the fund transfers. Some companies establish contracts with agents—such as banks in the remittance recipients’ country—containing provisions for exclusive relationships. These partnerships preclude agents (e.g., retail stores, banks) from partnering with competing money transfer operators during the term of the contract. Such exclusivity agreements result in oligopolies or monopolies, depending on the number of agents that one MTO “locks” in the payout network. Few countries restrict or outlaw exclusivity agreements—Russia being an important and conspicuous exception, and more recently Nigeria. Regulations are often nonexistent because little government knowledge exists about how the money transfer industry operates, and because many countries have no (or inadequate) antitrust laws or laws against monopolistic practices. Principle 4 of the General Principles for International Remittance Services recommends preventing barriers to entry on who pays. The combination of the limitations of authorized remittance payers and the presence of exclusive agreements has direct effects on competition and “informality.” For example, in a country with only ten banks operating nationwide and an MTO that has exclusivity agreements with seven (as it happens in many African countries), competition is restricted; costs are therefore high, and people ultimately resort to informal payment and transfer mechanisms. Another key regulatory issue is consumer protection. Although competition has increased worldwide, speculation on exchange rate commissions or monitoring remittance costs raise concerns about consumer protection. In some industrialized countries, increased scrutiny has inspired ideas about introducing mechanisms to promote

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competition, lower costs, and protect consumers. To that effect, some countries (the United Kingdom, the Netherlands, France, and Portugal, for example) have introduced websites, and others (Spain, Germany, and Australia) have plans to do so as a way to monitor the cost of transfers. However, these websites have limited impact since migrants tend to have very poor access to the Internet and are unlikely to use them. In remittance-receiving countries, concern is also growing about the need to educate consumers about their rights. Some countries have established a phone number for directing complaints, in addition to online information systems. The “Remittance Calculator,”1 created by the Mexican government’s consumer protection agency for financial services (Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros [CONDUSEF]), maps the locations and costs of remitting from any US location to any Mexican location. The Marketplace for Global Payments A discussion of how money transfers are performed also involves analyzing who the intermediaries are, how competition operates in a given market, and what trends exist in the money transfer industry. Overall, the demand for remittance services is often accompanied by a supply side that is more complex than imagined. Remittance service providers represent an array of large and small businesses, including licensed and unlicensed corporations.2 Moreover, the existence of such money transfer operations depends on the competitiveness of the environment, the type of regulatory framework in place, and remittance senders’ preferences for the kind of player and sending method. Intermediation of money transfers is essential to an effective and efficient marketplace. The four kinds of RSPs are nonbank financial institutions (NBFIs), banks (and credit unions), post offices, and informal intermediaries such as nonformal couriers or even friends who take or facilitate the money transfers from sender to recipient. Depending on the transfer corridor, the proportion of sending via these means varies. NBFIs dominate as remittance intermediaries for outbound transfers. Among these, the most significant players are large MTOs like Western Union, Ria, Vigo, or MoneyGram. The RSP marketplace is shaped by the number and type of companies involved, degree of competition, government regulations and policy environment, type

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and number of remittance and related services provided, and the demand for remittance services. The Transfer Payment Process Transactions may originate via cash or bank account transfers, and the payout may also occur via cash or bank. For much of the world, the transfer of remittances is a cash-to-cash process, with banks’ having a limited role beyond being the “pipeline” for the funds between countries. Customers typically withdraw cash at the distribution agents. Many remittance senders are unbanked and recipients are even less likely than senders to have bank accounts or be tied into the formal financial system (as discussed in Chapter 6). Numerous money transfer entities participate in making the transaction possible. These include the RSP, the agent that the company contracted to sell remittance transfers, the agent that provides the distribution on the receiving side, and the financial institution used by the money transfer company to make transactions. Both information and money move through numerous stages and among a variety of players in the path from the remittance sender to its designated recipient. Frequently, both large and small companies contract with other companies, such as retail stores or banks, to provide the agent function. For outbound transfers, these agents receive a percentage of the fees charged for the transaction, and sometimes receive a portion of the commission on the foreign exchange. Remittance companies also need agents or distributors on the receiving (inbound) side. In most remittance-recipient countries, commercial banks are the primary distribution agent, and in some cases microfinance institutions (MFIs) operate as agents or subagents of banks.3 Other common distribution agents are retail outlets, such as supermarket chains. They make their money by negotiating a percentage of the total fee transferred and part of the commission on the foreign exchange rate. Competitive bids for the distribution contracts tend to drive pricing down, while a lack of competition for distribution tends to drive prices up. The Celent consulting group argues that the historically exclusive distribution agreements between MTOs and receiving agents “are beginning to crack—a full ten percent of Western Union’s receiving agent network is no longer exclusive” (Celent Communications 2005). Multiple forces may contribute to the decline or end of exclusivity, including legislative and market forces.

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Figure 4.1 maps out typical transactions between a sender and recipient, involving the various players and stakeholders that make this flow possible. From left to right, this figure depicts the initial monetary transaction. It begins when a sender initiates the transfer at the point of sale of an agent of a money transfer operator (or a branch of the money transfer operator itself). The money is then wired to the MTO’s payer in the recipient country, which is typically a bank or other type of formal financial institution. Depending on the regulations governing international money flows in the country, the payer may have several subagents that act as distributors inside the country and provide payout locations where the recipient can pick up the remittance money. Note that a typical transaction involves two streams of transfers (one for data and one for money) that take place between two countries (sender and recipient). Exactly which players and stakeholders are involved in a particular flow varies with competition, sophistication of banking and financial networks, regions or countries involved, and so on. Such competition affects profits to businesses, as well as the pricing and costs to consumers (remittance senders and recipients). Informal Remittance Transmitters Because of regulatory constraints and other factors that inhibit the availability, growth, or use of officially sanctioned remitting channels, many migrants send their remittances through informal channels (or businesses that operate below the regulatory radar screen). The concept of an informal remittance system is not a strict category, but includes any system that for one reason or another is not formal (Pieke et al. 2005). Thus, it may not make sense to distinguish between “formal” and “informal” systems, when the difference is often a matter of degree. For example, in complex and changing regulatory environments, some providers may comply with some requirements but not others. Informal remittance services are also quite complex: they are not simple “leftovers of a traditional, even precapitalist past” (Pieke et al. 2005). Some informal remittance providers use banking systems, multiple processes, and a variety of different actors in a single operation. These informal systems have different names but operate similarly in various regions. “Hawala” is the traditional transfer system of Pakistan, Afghanistan, and Bangladesh; and “Hundi” is the traditional

Remittance sender

64

Figure 4.1

Structure of an International Money Transfer Operation

Two data streams

MTC’s bank MTC’s Agent POS

Money Transfer Company

Data Transfer Report (customer’s sending information)

Wire Transfer (Cash Transfer Amount)

Regulatory Environment Compliance Monitoring AD’s bank

MTC: Money transfer company POS: Point of sale AD: Agent distributor (on receiving side) MTC’s receiving country Agent Distributor

MTC’s Agent POS

Remittance recipient

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mechanism of India. Money is not actually transferred in these systems. A financial transfer is made between principals located in countries A and B, using intermediaries, or “hawaladars” (HA) and (HB), who operate in the informal sector. HA receives funds in one (hard) currency and asks HB to advance the equivalent of the paid amount to a designated beneficiary in the local currency (El-Qorchi et al. 2003). In Africa, significant levels of informality exist largely due to poor financial and telecommunications infrastructure, weak security systems, and stringent controls on foreign currency exchange across borders, which prevent formal institutions from operating cross-border payments. Thus, both in Africa and Asia, regulatory environments often invite people to use informal frameworks. In more competitive world regions, such as in Latin America and the Caribbean, reliance on informal businesses is much smaller. The reasons for choosing informal networks are still unclear. Some argue that migrants use informal RSPs due to trust (Hanifi 2006). Informal providers may enjoy a better reputation in certain communities than formal providers. The challenge to formal providers is to build trust among customers (Pieke et al. 2005). One of the most compelling reasons that a migrant may choose an informal network is attractive pricing; the more costly it is to send money through a formal provider, the more likely that people use informal transfers. Industry Trends The increasing competition for remittance intermediation in the money transfer industry revolves around firm dominance, operating and consumer costs, and innovation. Thus, profits for industry players and costs to consumers depend on an array of factors: basic operating costs, local conditions (e.g., sophistication of banking systems in the recipient country), competition, regulation, demand, volume, amount and kind of intermediation, and company position in the industry. The degree of competition varies among countries, regions, and corridors, and sometimes within countries. For example, cities that have large migrant populations may have numerous competing RSPs that drop prices to attract or retain customers. In rural areas with fewer migrants and financial institutions, only one, higherpriced service may be available. Sending money used to be expensive, costing at least 10 percent of the amount sent. In 2011, the cost of remitting ranged from 2 to 10

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percent depending on which parts of the world are at the beginning and receiving ends of the transaction. For example, from Russia to the Commonwealth of Independent States, the cost was on average 2.5 percent of the value of the amount sent. The fee was 4 percent from Spain to Latin America and the Caribbean; 5.5 percent from the United States to Latin America and the Caribbean; 8 percent from Japan and 6 percent from Singapore and Hong Kong to Southeast Asia; and 10 percent to most African countries from Europe or the United States (Orozco and Fedewa 2005; World Bank 2012). In most cases, fewer than ten companies compete in a given country corridor, each holding between 5 and 30 percent of the market share. Thus, business expansion in the remittance sending industry tends to follow two main lines: increasing customer numbers for existing corridors and developing or expanding into new corridors. Methods used to increase market share include adding more agents on the sending or receiving side; increasing advertising, especially to niche markets, such as through ethnic stores; reducing prices; or introducing new technologies and services. The instruments for sending money include traditional as well as emerging or innovative means. Wire transfers and money orders continue to dominate as sending instruments. However, there is significant interest to adopt new and alternative instruments or products, like account-to-account transfers, money transfer cards, debit cards, Internet payments, and mobile telephone payments. New instruments like money transfer cards have been introduced by established companies like Wachovia Bank and MTOs like iKobo. Some new approaches, like that of Xoom for Internet payments or mobile transfers, are gaining acceptance.4 SWIFT and ACH wire transfers are the traditional standard of account-to-account remittances, but many banks have developed their own proprietary account-to-account transfer systems either through overseas branches and correspondent offices, or by establishing relationships with foreign banks. Some banks have developed systems that enable senders to transfer money through the bank’s online banking platform, by making a telephone call, or by visiting a branch and getting a special rate as a customer. Nonbank financial institutions and MTOs have also developed Internet-based systems to send money. These systems require the sender to have a bank account, and function much like making an online purchase: the sender logs into a website, selects the destination of the remittance, enters some personal information as well as information about themselves and the remittance bene-

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ficiary, and authorizes the transaction. The money is debited from the sender’s bank account, the back-end transfer processes are similar to a traditional cash-to-cash transfer involving wire transfers between two agents’ banks, and the recipient can either pick up the money at an agent location or receive it in their bank account. A number of companies have developed card-based remittance services, where the sender and/or the recipient (or both) use a debit or prepaid card for the transfer. A simple method consists of the sender depositing money in a bank account, which is linked to a debit card that their beneficiary draws down abroad. Additionally, a number of remittance service providers have developed cash-to-card transfers, where the sender designates the number of their beneficiary’s card when making the transfer. Cards can be debit or credit (linked to an account), or a prepaid card, which is a plastic instrument that registers stored value but is not linked to a bank account. Finally, an area of growing interest consists in mobile telephone–based remittances, where the telephone either functions as a stored-value instrument, much like a prepaid card, or where the phone functions as a communication instrument to authorize debits and credits from a separate account. The Regional Patterns In the following sections I examine the rules governing international currency flows (both domestic rules on authorized entities and regulations on competition and consumer protection) and the marketplace for global remittances (including the players and level of competition in each particular market) in various world regions: Asia (Southeast Asia, Central Asia, and the Caucasus), Europe (the European Union and the United Kingdom), the Americas (the United States and Latin America), and Africa. The information for each of these countries is based on interviews I conducted with experts and local fieldwork in several world regions.

Southeast Asia Regulatory Issues In Asia, regulatory issues pertaining to remittance transfers vary from country to country—from strict restrictions to more liberal approaches.

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Stricter regulations occur, for example, more in Japan and Malaysia, and less in Hong Kong and Singapore. Common to all countries, however, is all regulators requesting specific information about senders and recipients in order to monitor money laundering and criminal activities. Government AML rules are in place, as are efforts to enforce the compliance of businesses involved in international money transfers. This section is partly based on a study conducted in Southeast Asia in the nations of Japan, Singapore, Indonesia, the Philippines, Malaysia, and Hong Kong (People’s Republic of China) (Orozco and Fedewa 2005). In the majority of cases, these AML guidelines are similar or standardized. Such standardization of guidelines is demonstrated in the example of “Know Your Customer” (KYC), adopted by the Basel Committee on Banking Regulations and Supervisory Practice in December 1998 and by the banking community worldwide. All six Southeast Asian countries studied set minimum requirements to meet their KYC rules, the most basic of which are collecting name, date of birth, address, and valid ID from customers (Orozco and Fedewa 2005). Nevertheless, some regulatory differences exist. For example, Japan requires that KYC principles be applied for remittance transfers from zero yen upward for all international transactions. In contrast, Singapore requires no minimum amount to trigger KYC. There are strict KYC provisions in the AML guidelines for remittance licensees, where Singapore implements a zero-dollar policy for KYC. Meanwhile, in Malaysia, Bank Negara Malaysia does not specify any threshold amount for conducting KYC. However, banks are required by law to identify and verify all customers, and record keeping is required for all transactions for a period of no less than six years. Under the Anti–Money Laundering Act 2001 in Malaysia, banks are also required to report any suspicious transactions, regardless of the amount. In Hong Kong, special forms must be filled out for over MYR50,000 (US$13,158), and they check remittances of over HK20,000 (US$2,566). In remittance-receiving countries, Indonesia does not require an ID check except for amounts exceeding IDR100 million (US$10,452). Monitoring of incoming remittances of more than PHP500,000 (US$9,233) is required in the Philippines. Malaysia, also a receiving country, does not set a minimum level. Finally, Japan strictly monitors incoming and outgoing remittances of JPY2 million (US$19,020) and over. Threshold amounts required for reporting also vary by country. Japan’s Foreign Currency and Foreign Trade Law requires banks to

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apply these rules to transfers of more than JPY2 million (US$19,020). Amounts over JPY30 million (US$285,307) are reported to the Bank of Japan (BOJ). Singapore’s Monetary Authority (MAS), on the other hand, considers setting a minimum threshold to be impractical since customer types and behaviors vary widely. Hong Kong and Indonesia also do not require a minimum amount for reporting, though in Indonesia transactions over IDR500 million (US$52,258) are reported to the Center for Reporting and Analysis of Financial Institutions (PPATK). In the Philippines, transaction amounts exceeding PHP500,000 (US$9,233) are reported to the Anti–Money Laundering Council, and in Malaysia the amount is MYR50,000 (US$13,157) or higher. All of the countries must file reports of suspicious transactions, regardless of the amount considered to be suspicious. In addition to government-issued identification documents, an unexpired passport for nonnationals of the host countries is an acceptable form of identification for opening accounts and remitting money overseas in all of these countries. However, some countries require additional supporting documentation for account opening. For those remitting, documents include work permits or a national identity card (Singapore), a permanent resident card (Indonesia), a valid worker’s permit or a letter from the employer (Malaysia), an alien registration card for nonnationals (Japan), and the Hong Kong Identity Card in Hong Kong. In the Philippines, ID documentation varies from institution to institution, with the Alien Certificate of Registration and the passport as minimum requirements. Not all countries in Southeast Asia have uniform regulations or institutional bodies that oversee money transfers. In Malaysia, Hong Kong, Indonesia, and Singapore, the central banks (or monetary authority as in Singapore) have jurisdiction over the banking sector, and—where they are allowed to operate—any companies, outfits, and agents involved in the business of remittances. In the Philippines, the Charter of the Central Bank (Bangko Sentral ng Pilipinas [BSP]) is the main overseer, and qualified persons and nonbank institutions desiring to act as foreign exchange dealers, moneychangers, or remittance agents are required to register under BSP Circular No. 471. In Japan, the Ministry of Finance (MOF)5 was the main banking regulator until 1998, when the Financial Supervisory Agency (FSA)6 was established to serve as one of the external organs of the Prime Minister’s Office. The Bank of Japan has responsibility over price stability, the overall volume of money in the economy, and interest rates on a daily basis.7

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Policies vary for granting remittance licenses to operate legally. In Japan, Malaysia, and Indonesia, only banks are allowed to do wire transfers; whereas in the Philippines, Hong Kong, and Singapore, there is greater room for participation. Under special provisions in each country, post offices are also allowed to effect transfers directly through their branches and with corresponding offices. As an insurance precaution, governments may also require banking and nonbanking financial institutions to back their operations with minimum capital thresholds, which often may be significantly high. Japan is the only one of the four remittance-sending countries where no minimum capital requirement is imposed on foreign bank branches. Remittance charges can be set freely, and are thus unregulated, in all of the countries studied. However, in the Philippines various charges are assessed to the recipient, in addition to the remittance charge already paid by the remitter. For example, the Philippine National Bank levies a documentary stamp tax. While the documentary stamp tax is standard for all banks, other charges can vary from bank to bank.8 The Marketplace In most countries in Southeast Asia, intermediation occurs within a framework of institutions that are licensed or regulated, or both. Remittance transfers from Japan are carried out by the post office and national and international banks, which either contract out with international remittance companies or set up their own money transfer operation. The extent of the post office’s market share in the business is unknown. MTOs only operate through the banks and not as MTOs in Japan. For example, Suruga Bank has an agreement with Western Union, and Ogaki Kyoritu Bank has one with MoneyGram. International banks carrying out money transfers in Japan are also varied. Philippine National Bank handles a significant flow of the market for transfers from Japan to the Philippines. Finally, technology-based systems, such as online transfers and card-based transfers, among others, are entering the Japanese market, although these have a smaller presence. In Singapore, remittance transfers are carried out by domestic banks, local branches of foreign banks, and licensed remittance companies, among other players. Unlike Japan, national banks in Singapore are less involved in transfers; MTOs are the key players, dominating the industry with over 100 remittance companies

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that operate 200 branch locations throughout the country. Remittances from Singapore to the Philippines are predominantly handled by twenty remittance companies and banks. The Philippine National Bank (PNB) is the dominant player, with about 60 percent of the market. In contrast, competition in Indonesia is more fluid. Over thirty MTOs serve Indonesia and the main one, Bank Negara Indonesia (BNI), handles 20 to 30 percent of the total volume. Remittances to India and Bangladesh are largely sent through nonbank MTO subsidiaries of Indian or Bangladeshi banks that have been set up in Singapore specifically to channel remittances home. In Hong Kong, industry players include commercial banks (Filipino and Indonesian), international MTOs, local companies or ethnic stores specializing in money transfers (and possibly foreign exchange and other money services), and other businesses (such as travel agencies or cargo companies). The two main corridors for the Hong Kong market are the Philippines and Indonesia. For the market to the Philippines in particular, remittance transfers are mostly handled by Filipino banks, which offer account-to-account transactions, cash pickup, or door-to-door delivery. While intermediation in these countries occurs within a framework of licensed or regulated institutions, in Malaysia this is not the case (Orozco and Fedewa 2005). In Malaysia, where immigrants primarily remit to Indonesia or the Philippines, banks constitute the majority of market players, although some nonbank entities are allowed to operate remittance services. Banks particularly active in providing remittance services for foreign workers include RHB Bank, Bumiputra-Commerce Bank, and Maybank. BumiputraCommerce has a licensing agreement with Western Union. Other money transfer operations include businesses working in other countries under government-sponsored programs. As I describe in the next section, informal transfers are more frequent in Malaysia than the other corridors. Informal money transfer markets are overall less prevalent in Southeast Asia than in other regions. Immigrants in Japan, Hong Kong, Singapore, and Malaysia usually use formal money transfer mechanisms, either a bank or an MTO. In Japan, remittances are tightly regulated; the government maintains tight control on transfers from this country. Filipinos in Japan predominantly use formal networks for money transfers, and there is significant competition in this remittance corridor. Nevertheless, informality does exist in some

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Southeast Asian corridors, particularly the Malaysia-Philippines corridor and to a certain extent in the Japan-Indonesia corridor (see Table 4.1). In Malaysia, Indonesians and Filipinos use informal transfers as much as licensed methods to remit back home. In Singapore, informal money transfers also occur, mostly in corridors where there is a historically entrenched network of businesses operating in that context, as in particular corridors remitting to India, Bangladesh, and Sri Lanka, where an estimated 70 percent of total remittances go through channels of Hawala and Hundi. My survey of Indonesians in the region indicated that of all the reasons they choose to send money regardless of method, fee and foreign exchange rate commissions were key factors (Orozco and Fedewa 2005). Nearly 80 percent of Indonesians who choose a sending method based on cost considerations send their money informally through friends, while only 20 percent use formal providers. Competition is concentrated among no more than twenty players in most countries, with the exception of Singapore, where the availability of providers serving many Asian countries—including Indonesia, Malaysia, and the Philippines—is greater. Competition overall varies significantly, with companies processing from 1,000 to 40,000 transactions each month (Orozco and Fedewa 2005). In the case of the Singapore-Philippines corridor, where we estimate that monthly flows range to 200,000 transactions, competition is concentrated between local and foreign banks. Foreign banks, however, are the main processors in the business, controlling over 40 percent of the market. The larger international money transfer companies, like Western Union or MoneyGram, although very active, are not the major players but are nevertheless important competitors in this market.

Table 4.1

MTO Bank Post office Friend Other

Preferred Remittance Method Among Immigrants in Japan (in percentages) Indonesia

Malaysia

Philippines

Total

15 26 9 67 12

4 57 30 4 17

9 70 9 17 10

11 56 11 31 11

Source: Orozco and Fedewa 2005.

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Transaction costs vary from country to country based both on regulatory environments restricting NBFIs, and thus limiting competition, and on the size of demand. Figure 4.2 summarizes the cost of sending money to three downstream corridors—the Philippines, Indonesia, and Malaysia—from four upstream countries: Japan, Hong Kong, Singapore, and Malaysia. The cost is based on the fee that the person is charged to send the money as well as the commission on the exchange rate. In some countries, fees are divided into

Figure 4.2 The Cost of Sending Remittances in Southeast Asia

Sending Money from Japan The cost of sending money depends on the corridor where the money is being sent. However, overall minimum fees range from JPY2,000 and can go as high as JPY25,000. Western Union appears to be an expensive provider. Generally the transaction cost in Japan includes a 5 percent lifting fee, plus JPY2,000, plus the commission on the exchange rate. The average cost (excluding the commission on the foreign exchange) to send an average of US$500 from Japan to the four countries under study is 7.8 percent.

Sending Money from Hong Kong Sending remittances from Hong Kong is among the least expensive corridors in the world. Looking at twenty-six companies operating in World-Wide House, Central, Hong Kong, the average commission that companies charge on the foreign exchange rate is 1.3 percent of the average amount sent (HK$2,000) plus an average of HK$25.50 fee to send HK$1,000 or more, which means between 1.3 percent and 2.7 percent. For an average amount sent of HK$2,000, the total cost is 2.6 percent of the value of the principal.

Sending Money from Singapore Remittance transfers from Singapore operate in a competitive environment due to the presence of multiple providers and players. (continues)

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Figure 4.2 continued Looking at a sample of over twenty-five companies encompassing six country corridors, the transaction cost to an immigrant ranges from about 1 percent to 10 percent, depending on the receiving country. The average cost of sending SGD750 to China, India, and Malaysia is at or below 3 percent, while the cost of sending to Indonesia is about 3.8 percent. Bangladesh had the lowest cost of the sending countries, averaging 1.95 percent, while Pakistan had the highest cost, averaging nearly 9 percent.

Sending Money from Malaysia Remittance transfers from Malaysia operate in a less competitive environment compared to other countries. Bumiputra-Commerce Bank is the main player in remittance transfers and, with its agreement with Western Union, makes over 12,000 transactions a month to the Philippines and a similar number to Vietnam. In less busy corridors like Nepal, India, or Bangladesh, the monthly transaction volume is around 3,000. Depending on the country, Western Union competes by dropping prices and seeks to make up the revenue loss through the commission on the exchange rate. Because immigrants from either Indonesia or the Philippines send an average of RM500, the cost of sending money is 6 percent plus the commission on the exchange rate. This commission generally ranges up to 2 percent. When comparing transaction costs from the various corridors, the average amount paid varies from 7 percent from Japan to 2.5 percent from Hong Kong.

different components. Some businesses charge a flat fee up to a certain amount, whereas others charge a percentage.

Central Asia Regulatory Issues As in other regions, countries in Central Asia are concerned about implementing rules and regulations to control for money laundering

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and criminal activities. For example, the Republic of Kyrgyzstan passed a law in 2006 on the “prevention of money laundering and terrorism financing,” which mandates government scrutiny of money transfers through the information and reporting of transactions, as well as identifying the sender. Kyrgyzstan also established a financial intelligence unit that is adjunct to the Ministry of Finance. In contrast, Tajikistan does not have a specific law preventing money laundering and terrorism financing. As of 2012, the National Bank of Tajikistan has the capacity to track only suspicious transactions upon the request of law enforcement authorities. As far as the domestic rules on authorized entities, banks are the sole participants in money transfers in most Central Asian countries. This is partly because the regulatory environment prevents other NBFIs from engaging in the money transfer business. This prevention is often legal, as in the case of Kyrgyzstan. In Tajikistan, only commercial banks and exchange offices with licenses issued by the National Bank of Tajikistan have the right to conduct transactions in foreign currency with physical persons; legally there is no regulation restricting a range of organizations from providing money transfer services. The Marketplace In Central Asia, remittance transfers are performed through different sending methods, but the large majority of remittances are handled through MTOs via banks. Individuals also carry remittances, either the migrant him- or herself, or relatives and friends. Informal or unlicensed operators do play a role, but they are not widespread. In two representative countries in this region, Kyrgyzstan and Tajikistan, banks are the sole participants in the money transfer market (Orozco 2007a). In Kyrgyzstan, NBFIs cannot pay remittances, and only banks are allowed to do so. Regarding money transfers to Kyrgyzstan, competition has grown among MTOs, as well as among banks paying out money to the families of migrants. Most of the twenty banks working in Kyrgyzstan participate in the remittances market and have contracts with the major remittance companies based in Russia, which is the main destination of migrants from Kyrgyzstan. Western Union has traditionally been the dominant player, but has recently lost market coverage to large competitors including Anelik, UNIStream, and Contact.

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Tajikistan also operates its money transfers mostly through its system of banks (which consists of nine banking financial institutions) as a result of a process of consolidation and structuring initiated in January 2006. The flow into this country has been more pervasive than into Kyrgyzstan, but the level of competition has been relatively similar. Remittances as a revenue source have been critically important to these banks and have contributed to their structuring and reorganization during the process of consolidation. The main MTO competitor in Tajikistan is not a typical one; it is a smaller yet active group, STB Express (now Allure). Allure Money Transfer System is a Russian company with operations in Israel, Kyrgyzstan, and Tajikistan. Western Union is a minor operator, while UNIStream and Migom play a more dominant role. Putting the remittance issues in these two countries in Central Asia in the broader regional context—including the South Caucasus—indicates that the preference for formal channels varies among countries in this region. The highest preferences toward formal channels are in the Kyrgyz Republic and Tajikistan, followed by Armenia and Azerbaijan. Although the percentage of senders using official channels is larger than those using unofficial avenues in Kyrgyzstan and Tajikistan, the amounts transferred are greater when carried informally by migrants or relatives. Overall, the study of the region suggests that the demographic characteristics of migrants have little effect on the preference toward formal channels (Orozco 2007j). Looking at the industry trends, Russia offers a well-established environment for MTOs with worldwide activities, with particularly significant operations in Central Asia and other CIS countries. Thus, transfers from Russia represent the most important corridor in this region. Money transfer systems in Russia are highly competitive in an outbound market, estimated by the Central Bank to be more than US$10 billion in personal transfers in 2006. This is 54 percent of all fund transfers from Russia. Russian Central Bank officials have registered seventeen MTOs offering remittance services. Volumes and transfers, as well as the main players in the money transfer industry in Russia, are predominantly led by banks through specialized nonbanking financial credit institutions. Commercial banks in Russia established separate legal and business entities to provide money transfer services, instead of advertising their brand names for remittances. Also, the Russian outbound market is characterized by notable supply-side competition. Although the volume of private

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transfers outside of Russia is over US$18 billion, 32 percent is done through international MTOs like Western Union or MoneyGram. No one industry actor controls more than 20 percent of the market. The region is characterized by three pricing models for transferring remittances: economies-of-scale prices, standard percent pricing, and special corridor pricing. In the first case, Western Union and MoneyGram charge using a fee schedule and appear to be among the most expensive. Despite their costs (around 7 percent on the value of the transaction), Western Union retains a high market share partly because of its marketing and network capability. The second prevalent practice in this region is standard percent pricing. Most companies charge 3 percent on the value of a transaction, which is typically US$350 and is sent eight times a year. The fee is shared among the two agents on the sending and receiving ends and the MTO in almost equal parts, with variations depending on the agent’s aptitude to leverage a greater share of the transaction. Most of the transactions are made in US dollars. The third prevalent practice is marking down prices in certain corridors by offering special deals. Even though some employ this method, the most frequent practice continues to be standard percent pricing.

The Caucasus Regulatory Issues As in Central Asia, the South Caucasus countries studied also regulate international currency flows, primarily in an effort to control for money laundering and other international criminal activities (Orozco 2007j). In Armenia, for example, the government modified the functions of the Central Bank, mandating that it regulate financial crimes and terrorism financing. It also introduced the Law on Combating the Legalization of Proceeds from Crime and Financing of Terrorism, which establishes more concrete controls on money laundering, suspicious activities, and other financial crimes. There are also various domestic rules for entities authorized to perform money transfers. The money transfer payment markets in Georgia and Azerbaijan, for example, are regulated by the national banks of each country, which require that banking financial institutions be the sole payers of money coming from other countries. However, an NBFI, such as a

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microfinance institution, can work as a subagent of a bank. The exception is Georgia, which allows microfinance institutions to offer payments as primary agents. In Armenia, the Law on Currency Regulation and Currency Control stipulates in Article 3, item 9, that “currency transactions are transactions or payments between residents and non-residents irrespective of their amount,” and explains in Article 7, item 8, that “banks, credit organizations, [and] settlement organizations have a right to perform financial transactions, including deposit and credit operations, empowered by law in foreign currency, except for cases specified by the law.” The law gives banks the prerogative to transact foreign currency payments. The Law of the Republic of Armenia Relating to Banks and Banking Activities assigns banks the functions of conducting these types of transactions. However, it does not restrict money transfers to only banks. The Law on Payment Systems and Payment Service Organizations (2005) allows money transfer operators to perform money transfers independently from banks. NBFIs can obtain a license to carry out money transfers. The Marketplace Remittance transfers in the Caucasus are predominantly inbound, except in the Ukraine where there are both inbound and outbound flows due to labor migration to that country. In the South Caucasus where inbound transfers occur—for example, in Azerbaijan, Georgia, and Armenia—most transfers take place through a network of banks in each country (Orozco 2007j). Armenia’s financial system, for example, has twenty-one banks and seventeen credit associations, in addition to nearly 300 foreign exchange offices and fifteen insurance firms. Even though credit associations can obtain a license to operate money transfers, banks are the dominant payers for most MTOs operating in the region. Since the flows to Armenia have grown significantly since 2005, MTOs’ competition for shares in the market has increased. The banking industry in Azerbaijan is bifurcated between a single bank, the International Bank of Azerbaijan (IBA), which holds 50 percent of all bank assets in the country, and forty-four banking institutions with assets one-tenth or less the size of IBA. Thus, in terms of competition in the payment industry, significant differences exist between IBA and the other competitors. The perception among banks in Azerbaijan is that competition is relatively saturated (Orozco

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2007j). Nevertheless, financial institutions in the country still believe that there is some room to expand and attract new customers. Aside from IBA and Standard Bank, most banking institutions conduct fewer than 5,000 transfers a month. Their low participation reflects the large presence of banks, most of which engage in money transfer payments. Combined, Azerbaijan’s forty-four banking institutions have 350 bank branches, with operations predominantly in urban areas, which represent their points of sale and payment of transfers. In Azerbaijan and Georgia, most transfers take place in the formal transfer system through a network of banks in each country. Informality is greater in Georgia, where informal transfers make up 33 percent of transfers, versus 19.5 percent in Azerbaijan. The competitive landscape in Georgia exhibits similar characteristics to Azerbaijan because competition is constrained by the strong presence of the Bank of Georgia, which is the largest bank in the country. The remaining banks compete to attract flows among each other but face a large constraint from the monopoly role that the Bank of Georgia plays. In terms of MTO presence, one-quarter of payments originate from Western Union branches, followed by Anelik and MoneyGram, and then other companies with market shares below 5 percent. Financial institutions generally perceive the market to be growing, with over 80 percent of the turnover from Russia (Orozco 2007j). As in Central Asia, this region is characterized by three pricing models: economies-of-scale prices, standard percent pricing, and special corridor pricing. The prevalent practice in this case is also standard percent pricing. Most companies charge 3 percent on the value of a transaction, which usually runs around US$350 and is sent eight times a year. Another prevalent practice is marking down prices in certain corridors by offering special deals. In the Russia-Armenia corridor, for example, UNIStream has offered a 1 percent charge if the transfer takes place at its own outlets outside of banking agencies. 9 It also offers a lower cost if transferred in rubles and converted in Armenian currency.

Europe Regulatory Issues in the European Union According to the European Parliamentary Financial Services Forum (EPFSF), the European Union (EU) has a “fragmented payments

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landscape” in which each member country has its own standards and regulations when it comes to cross-border payments (EPFSF 2006). The United Kingdom and Sweden have among the most flexible regulatory environments in Europe (Minikin and Cignola 2005). In both of these countries, MTOs are required to register and apply standard security assessments.10 In contrast, other European countries and the European Union in general have far more stringent rules and laws on remittances. For example, France requires money remitters to obtain full banking licenses, and enforces other stringent conditions, such as relatively high capital requirements (FEMIP 2006). The European Union’s remittance regulations include AML requirements, initially shaped by the Financial Action Task Force (FATF) of the Organisation for Economic Co-Operation and Development (OECD). In 1990, the FATF released forty recommendations to challenge money laundering, particularly as it relates to the illicit drug trade. After the terrorist attacks in the United States in September 2001, new recommendations aimed at preventing the financing of terrorism were added (further revisions were also made in 1996).11 In October 2005 the European Union adopted the Third Money Laundering Directive addressing identification verification, intended to deal with terrorist financing.12 MTOs are not included unless cash payments exceed 15,000 euros. Stricter regulations and procedures surrounding customer identification could make it more difficult for some migrants to open bank accounts. As a result, countries such as France, Belgium, the Netherlands, and the United Kingdom have introduced basic bank accounts, which are accounts for people who do not meet the criteria to qualify for a standard bank account, and which are only intended for making payments such as remittances. Germany, Ireland, Portugal, and Sweden also passed legislation in support of these types of basic banking services (FEMIP 2006). The United Kingdom has relatively less regulation governing remittance transfers than other European countries (Orozco 2007d). Remittances are not considered to be a “regulated” activity in the United Kingdom as defined by the Financial Services and Markets Act of 2000. Unlike France and Germany, for example, the United Kingdom does not require MTOs to hold a banking license in order to conduct business. Regulation levels are determined by magnitude of the financial risk involved in the business; because MTOs do not lend money and have less systematic risk than banks, they are subject

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to fewer regulations. However, money transfers are considered risky in terms of money laundering, and for that reason MTOs are subject to regulation under AML statutes.

The Marketplace in Moldova and Spain Moldova is a major remittance recipient in Europe, with migrants in Italy and other parts of the world. Spain is among the leading remittance-sending countries in Europe, with a large and diverse migrant population from Latin America, Africa, Europe, and Asia. Moldova and Spain serve as examples of the marketplace trends on the old continent. Remittances to Moldova arrive from Russia and Italy predominantly, and the level of competition existing in these corridors reflects the nature of the inbound market. Overall, remittance payments to Moldova represent a relatively competitive landscape (Orozco 2007j). All banks in Moldova pay remittances. Their participation in the market is more evenly distributed than in some of the other regions, with some exceptions among the largest banks. Nevertheless, the payments are distributed among the majority of banks and nearly correspond to their size. Overall, Western Union is the primary partner remitting the most volume to Moldova. Other competitors include Anelik, Migom, UNIStream, and ImpexBank. Regarding informality, about half of remittance recipients in Moldova use formal channels, and nearly 30 percent use informal methods; the rest bring the money upon return to Moldova. Twothirds of recipients live in rural areas, and the majority use money transfer operators as a liaison with banks or the post office. There is no evidence that informality is higher in rural areas (Orozco 2007d). The consequences of informality, however, are significant. First, according to recipients, informal transfers are as expensive as or more expensive than formal systems (Orozco 2007d). Second, the amounts received are generally smaller than through licensed mechanisms. Third, the percentage of those using formal systems who save and own bank accounts is higher than for users of informal transfers. This situation highlights the need to increase financial intermediation through greater supply of banking services, and to allow other savings and credit institutions, particularly in rural areas, to participate in the payment market (Orozco 2007d) (see Chapter 5).

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The competition in the Moldovan money transfer market results from more than ten MTOs actively remitting as well as the great geographic distribution of inflows. One strong competitor in the market is Victoria Bank. It identifies itself as third place in remittance payments after Agroindcon and Banca de Economii. When inquiring about transaction cost, recipients in Moldova indicate that using a courier or the post office is the cheapest method to send remittances to Moldova (Orozco 2007j). Of households that receive remittances in a foreign currency, 64 percent indicated they usually exchange money into lei in a bank, 32 percent in a currency exchange office, and 2 percent with individuals offering currency exchange services. The market for money transfers in Spain is also worth highlighting, as labor mobility from Latin America, Northern Africa, and Eastern Europe to Spain has led to the creation of a notable remittances corridor. The remittance marketplace in Spain is tied predominantly to remittance service providers: money transfer operators, and banking financial institutions to a lesser extent. The level of competition among RSPs results from the presence of several MTOs transferring from Spain to Africa (mostly Morocco); from Spain to Latin America (the main destinations being Brazil, Colombia, the Dominican Republic, Ecuador, and Peru); and to a lesser extent to Eastern Europe (mostly Bulgaria and Romania), and to Asia (mostly to the Philippines, as well as China). Several MTOs have a large presence in Spain, and commercial banks participate significantly in the money transfer market as well. This level of competition in the money transfer market significantly shapes the remittance cost from Spain to the various world regions. In general, the greater the level of competition in a given corridor, the lower the cost to remit to that country (the cost being a combination of the fee charged per money transfer and the commission from the foreign exchange rate charged by the MTO). For example, the average commission fees to send money to Latin American countries, where there is a great degree of competition among MTOs, is much lower among most competitors compared to regions where there is less competition, such as to Asia and Eastern Europe. Despite these general trends, Western Union and MoneyGram are on average the most expensive across all world regions, with an average of 12 percent and 9 percent cost, respectively, on the amount sent.

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The United States The rules governing money transfers in the United States are similar to those of other world regions. The concern within the United States about inbound and outbound payments, however, pays special attention to compliance with AML issues and addressing other suspicious activities (Orozco 2005c). It also addresses consumer issues concerning rights of money senders. Money transfer companies are regulated in more than forty states and municipalities as NBFIs labeled as money service businesses, with the requirement to have a license and a bond to operate. Federally, the regulatory environment for money service businesses is managed by the Treasury Department through the Office of the Comptroller of the Currency, the Financial Crimes Enforcement Network (FinCEN), and the Office of Foreign Assets Control (OFAC)—agencies that comply with the Bank Secrecy Act and the USA Patriot Act. Reporting to FinCEN focuses on preventing money-laundering practices, while reporting to OFAC involves monitoring transfers from entities or countries on an OFAC list. Companies need to meet several procedural legal requirements, including having a written compliance handbook and a compliance officer, and implementing an AML training program for staff. In order to ensure efficient reporting, companies maintain database records containing customer information, including recipients’ data, and monitor transactions that exceed a typical amount sent by an immigrant, usually over US$10,000. Immigrants are required to provide full identification and contact information for both the sender and the recipient, which puts the burden on the sender. Despite company compliance, there are still challenges in preventing money laundering because not all remittance companies are fully interconnected; an individual could visit different agencies to send money separately and above the US$10,000 limit. Thus, a clearinghouse company, Enforcement Compliance Officer, based in New Jersey, was created to share information from nearly thirty businesses about daily transactions and identify suspicious activities. This clearinghouse operates independently from each company’s compliance system. One issue of particular concern is the closing of remittance company bank accounts as a result of pressures from US Treasury regulators. Since September 11, 2001, regulations have required that

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MTOs and financial institutions apply stricter requirements to remittance transactions, such as tightened Know Your Customer guidelines, the Bank Secrecy Act, and the Patriot Act.13 These requirements have made the internal costs of regulatory compliance soar. According to one major business, MTOs and financial institutions often have to devote as much as 65 percent of their time and personnel to compliance issues. In addition, US Treasury Department regulators have pressed banking institutions to perceive MTOs as high-risk businesses and have encouraged them to close MTO bank accounts.14 In this respect, one industry analyst stresses, “Bankers are concluding that the best approach is to withdraw services, in some cases leaving these bank customers (and their customers) with no legitimate financial system alternatives. The harm to individuals and businesses trying to legitimately conduct their financial affairs has not yet been factored into the regulatory excesses” (Rockett 2005). As a result, many businesses have been unable to fully operate because major banks have closed MTO accounts nationally. Early in 2006, for example, Bank of America decided to cancel all its accounts with money transfer companies, including those with MoneyGram and Western Union. Between 2002 and 2004, ten businesses reported the closing of over sixty of their bank accounts (NMTA 2005).

Latin America Regulatory Issues In contrast to the United States, in Latin America the regulatory approach is broader, but still pays attention to rules that do not conflict with US regulations (Orozco 2006c). In Latin America, the regulatory environment regarding domestic entities authorized to perform money transfer operations is relatively minimal. In some countries, MTOs and their distributor counterparts are required to hold a license and report transfers above US$10,000. However, because most transactions are below US$300, little reporting occurs. Moreover, in some countries, companies do not report any kind of information about their business, nor are they required to do so. This situation not only adds to uncertainty about the amounts received and recorded by the Central Bank, it also raises risks of potential illicit activities.

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Restrictions on authorized payers occur in only a few Latin American countries. A study of fourteen countries shows that only two countries restrict authorized payers to banks and foreign exchange (forex) bureaus: Haiti and Guatemala. In both countries, MFIs may conduct foreign currency transactions, but only as subagents of banks. Ecuador, El Salvador, Colombia, the Dominican Republic, and Honduras allow banks, forex bureaus, MFIs, credit unions, and NBFIs, while other types of institutions may be required to receive Central Bank approval. Finally, the remaining six countries surveyed allow a broad spectrum of institutional types to participate as authorized payers in foreign currency transactions. Limits on the amount of transfers have generally been liberalized in Latin America and the Caribbean. Only three of the countries studied have reporting requirements for transactions under US$10,000: Haiti, Honduras, and Nicaragua. Every country also has a law requiring proof of beneficiary for large transactions and has passed AML legislation, with legislation in several countries dating back before 2001. The Marketplace Half of all payers in the money transfer marketplace in Latin America are banks (Orozco 2006c). Nevertheless, there is still a certain degree of informality in the region, although it is not as high as in other regions. Unlicensed businesses in Latin America represent a variety of players, such as individual entrepreneurs; travel agents who have a license for airfare sales, for example, but not for financial transfers; or retail outlet stores whose agents offer “alternative” transfers to licensed businesses, though they may also have a license to provide transfers. Informal businesses typically operate in countries where flows are not particularly attractive to companies because of their small volume, foreign currency transfers are highly regulated, technology is still inaccessible to individuals and businesses, or customers prefer person-to-person delivery. Informal businesses make up over 50 percent of the total volume transferred to Haiti, Cuba, and Nicaragua. Nevertheless, most transfers to Latin America take place through fully licensed businesses. Outbound transfers in this market are allowed and thus facilitate intraregional flows through licensed businesses. Cuba is a case with particularly high levels of informality (Orozco 2006c). The majority of Cubans choose to send remittances

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through informal mechanisms, particularly through mulas. Mulas are entrepreneurs—men and women, Cuban Americans and foreign nationals—who can and do travel with ease and frequency to the island. They carry both money and packages to the sender’s relatives in Cuba for relatively inexpensive fees. They go to Cuba predominantly as tourists, as they are informal entrepreneurs without a license to operate as a business. However, they have an established network of contacts, from Miami residents and businesses to customs officials in Cuba, to the distributors of goods. Finally, mulas may be sporadic travelers or entrepreneurial travelers. The sporadic traveler is a person who is approached by an entrepreneur to arrange delivery of money. Instead of earning a salary for the operation, their trip is paid for in exchange for carrying money and in-kind remittances. Many individuals, particularly low-income Cubans and the elderly, find this to be a practical and useful means to enable them to visit their relatives in Cuba. These sporadic or occasional mulas may only conduct such operations once a year. Lately, however, informality has declined. A survey of recipients in 2009 showed that 29 percent of recipients received money through informal channels from Europe, and 46 percent did so from the United States (Orozco 2009c). The number of competitors in Latin America has increased, leading to a decline in costs to the consumer. In 2000, the cost of sending money was on average above 10 percent of the amount being sent. This cost included the fee, which alone was 10 percent, plus variable exchange markups that were over 5 percent (Orozco 2006c). By December 2005 the transaction cost paid by migrants to send US$200 to various countries in Latin America had dropped to 5.6 percent. Since the average individual transaction amount by 2006 was US$300, the average cost incurred by senders was less than 5 percent. This decline in costs, while it has occurred across all corridors, has been more pronounced in certain countries. In countries where the US dollar is the main currency transferred, such as in El Salvador, Ecuador, and Honduras, the decline was smaller. Costs dropped more sharply in places such as Colombia, Bolivia, and Haiti. Meanwhile, the costs of transfers to Cuba continue to be among the highest in the region. The cost of sending money to Venezuela shows strong variations due to foreign currency fluctuations that occurred during the country’s political crisis of 2003–2004. In the Dominican Republic, the decline in pricing was primarily due to a gradual shift

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among consumers in 2003 toward sending money in dollars instead of local currency in order to cope with the financial crisis that the country faced during that period. Although one could argue that costs continue to be expensive, their widespread decline signals the strength of a competitive environment in Latin America.15

Africa Regulatory Issues As mentioned in previous sections, regulations guarantee that funds can move through a formal mechanism; however, regulations can also hinder the ways money flows when laws do not correspond to the realities and needs of a society. Africa faces significant issues concerning money transfer regulation. In 2009 I analyzed primary data collected on the laws, rules, and ordinances on foreign currency transfers, financial crimes, and microfinance in twenty-five African countries.16 The laws governing these transfers and the compliance to international rules on money laundering are relatively new, the earliest passed in 1998. Generally, African countries authorize banks to perform international foreign currency payments and, secondarily, foreign exchange houses. Of the twenty-five countries reviewed, eight authorize banks only, and seven authorize banks and foreign exchange houses. Ten countries allow microfinance or savings and credit cooperatives to pay. In places where foreign transfers are left only to banks, financial access for inbound or outbound international payments is more restricted—in turn, increasing the likelihood of informality (Orozco 2005c). Meanwhile, MTOs’ control of banks is higher in countries where authorization is given only to banks. This situation is problematic because, among these companies, the prevalence of exclusive agreements prevents banks from performing money transfer agreements with other MTOs.17 Where only banks are authorized to pay, 65 percent of all banks in these countries are agents of Western Union. Unless otherwise regulated (as in the Nigerian case studied in Orozco and Millis 2007), exclusive agreements reduce competition as these contracts prevent other MTOs from entering the market and negotiating with banks. The combination of exclusivity agreements and restricted regulation leads to the concentration of pay-

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ments to few MTOs and in turn increases the cost of the money transfers. Most countries studied in Africa have liberal requirements for inbound money transfers, but outbound transfers are generally more restricted. While half of the countries studied have the same limits and requirements for both inbound and outbound transfers, seven countries require amounts less than US$10,000 to be reported to the Central Bank. Another five countries limit outbound transfers to less than US$10,000. In more than half of the African countries, a proof of beneficiary is required to make an outbound transfer. Looking at AML efforts, while legislation against corruption, racketeering, and some other forms of money laundering for organized crime syndicates was passed before 2000, new and comprehensive AML legislation was introduced in African countries starting in 2002, most likely in response to a global climate that increased pressure on cutting off terrorist financing. While legislation for most countries reflects efforts to comply with the forty recommendations of the Financial Action Task Force (FATF) on Money Laundering, accountability and compliance remain two central issues difficult to assess based on current regulations. In the majority of countries with AML legislation, a specialized AML unit or task force has been established within the Central Bank, Ministry of Finance, or other government agency to oversee financial institutions and monitor suspicious transactions and other activities. While accountability and compliance may be difficult to determine based solely on legislation, the presence of such entities suggests a greater chance that financial activities can be effectively monitored for money laundering. Such legal requirements, however, pose a challenge for opening the remittance marketplace to payers outside the traditional banking sector. AML efforts often raise the cost of doing business for financial institutions. Enacting cross-border transactions may require more staff or more training for employees, or both—increased institutional capacity that a smaller NBFI may not possess. Looking at regulations on the ownership of foreign currency accounts, half of the countries studied allow residents to open personal or business foreign currency accounts without restriction or permission from the Central Bank, while another three countries require residents to seek permission first. 18 The other half does not allow residents to maintain such accounts for personal or business ends. The ability to own foreign currency accounts is important

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because it allows remittance recipients to have foreign currency savings from their relatives. Nonresidents are allowed to open foreign currency accounts in all the selected countries, but doing so for personal use requires Central Bank approval in Zone Franc countries, South Africa, and Sudan. In Cameroon and Chad, a nonresident seeking to open a foreign currency account for business purposes may do so without requesting permission from the Central Bank. In selected economies like South Africa and Zimbabwe, foreign currency accounts may be maintained but are only available in US dollars, euros, or another of a selected group of currencies. Finally, regulations on microfinance activities also vary widely across Africa. In some cases, the only MFIs that are regulated under the law are cooperatives or credit unions, and in almost half of the countries, no specific legislation for MFIs exists. Legislation specific to microfinance is very new, the earliest appearing in 2002; legislation for seven countries passed into law in 2007. While several countries allow MFIs to carry out money transfer services, these organizations are met with legal and institutional challenges. In most other countries that prohibit MFIs from making money transfers, MFIs cannot make foreign exchange transactions, activities reserved predominantly for banks and foreign exchange bureaus. However, about two-thirds of all countries allow microfinance institutions to carry out domestic money transfers between their locations and other banking and nonbanking financial institutions. In four of those countries, MFIs are banned from international money transfers. In Africa overall, a large number of countries maintain restrictive measures to prevent NBFIs from paying remittances. Thus, market share concentration emerges among a few MTOs and banks, which reduces market competition and lowers the possibilities for financial access. After a discussion of the marketplace in Africa, I provide more detailed description of the regional regulatory environments in the Middle East and North Africa, East Africa, and West Africa. The Marketplace In a 2009 study I looked at the competitive environment in the money transfer marketplace in twenty-five African countries (Orozco 2009b).19 The findings suggest a market with few MTOs transferring to Africa, and significant participation of either banks with poor presence in rural areas or of microfinance institutions.20 In most African

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countries, Western Union and MoneyGram are the two largest companies that process remittance transfers. Overall they have 40 and 20 percent of the market, respectively, with varying levels of involvement among countries. For example, Western Union is stronger in countries such as Rwanda and Uganda, but less so in Algeria, where the postal system facilitates transfers in partnership with the French post office. Such market control is symptomatic of distinct problems and issues, one of which is the regulatory environment, which in turn prevents competition. Two additional factors influence the participation of these two players: the greater risk they took to enter this market, and the lack of knowledge among payers about the money transfer market. The contribution of these two companies in establishing payout networks in Africa has been a major accomplishment as it has facilitated global transfers in real time, thus making it easier and more effective to participate in the global economy while paying or getting paid at the moment of a transaction. However, banks believe that Western Union and MoneyGram are the main competitors, and thus are prepared to sign exclusivity agreements in return for guaranteed volume. In the long run, such knowledge turns obsolete, and banks can lose market share because other institutions enter the competition. In places where NBFIs are allowed, the participation of microfinance institutions is relatively small, amounting to 18 percent of the market at most.21 A look at the low participation of MFIs in the payment of remittances suggests that regulations are an important cause. Banks position themselves as the entity capable of handling foreign cash transfers, thus keeping MFIs out, and the microfinance institutions are relatively unaware or untrained to participate in the market. Moreover, in the countries where these institutions pay, they often operate as subagents of banks—as is the case in Uganda, for example. This situation curtails MFIs’ independence and revenue options. As a result, MFIs lose bargaining power vis-à-vis the MTO, and receive much lower commissions, equivalent to only 50 percent of what they would have received otherwise. The absence of MFIs reduces competition in the market because they are excluded from competing directly with foreign exchange bureaus or banks themselves. While the competition is tight on both the MTO and the payout side, the combined effect may be more troublesome when the two main businesses participating in transfers control most of the market.

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In fact, 42 percent of payments are handled by banks in partnerships with Western Union and MoneyGram. If Algeria is excluded from the list, the percent participation of Western Union and MoneyGram with banks goes to 78 percent from 54 percent, and in relationship to all payout locations, the percent increases from 43 percent to 58 percent. The dominance of these actors poses various challenges relative not only to competition but also to financial access. The competition factors include a proclivity to exclusivity agreements, exclusion of other competitors in both the inbound and outbound channels, and cost. Western Union’s and MoneyGram’s exclusive agreements with banks prevent other MTOs from participating in the market. This situation locks in more than half of available payout locations. Because the exclusive agreements apply to all agents—banks, foreign exchange bureaus, postal offices, among others—effective control of 65 percent of the authorized payout markets results. Anyone wishing to partner with these companies has to sign these agreements, thus restricting other competitors from expanding their networks beyond those institutions that are (a) not agents of the two large companies, or (b) not in the market, as is the case of most MFIs. Post offices emerged to participate as payers in many countries worldwide, either on their own account, creating bilateral partnerships with other offices, as in the case between France and Algeria; as agents of money transfer operators, particularly of Western Union; or in a multilateral effort with the Universal Postal Union. This latter option seeks to network all postal unions through their own software platform for money transfers. Currently, most post offices are working as agents or subagents of Western Union. In most cases, post offices do not play a significant role, except in Algeria, where the postal system is engaged in a partnership with the French postal system and is one of the main mechanisms Algerians use to remit in that country. Overall, the postal unions may represent less than 10 percent of all payout networks in Africa. However, they are increasingly gaining attention as governments and their post office administrations seek to modernize. The use of the offices varies across countries and may reflect the effective presence of those post offices. While post offices have a strong geographic presence, not all are capable of paying money transfers. The establishment of a paying agent depends on various factors, such as cash flow availability to pay the transaction,

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effective Internet and intranet connectivity, and trained staff, among other factors. In total, 20 percent of all post offices pay remittances, a percentage far lower than that of banks or foreign exchange bureaus. However, participation in rural areas is important: 76 percent of all post office locations paying remittances are outside the capital of their respective countries. Their potential to pay money is significant but needs greater exploration and discussion. For example, 55 percent of all post offices paying remittances (excluding Algeria) are agents of Western Union held by clauses of exclusive agreements. In West Africa, overall, the banking industry—whether national, regional, or international banks—has not given migrants much attention. Inaccessibility to financial intermediation also negatively impacts migrants attempting to remit funds to family members in their country of origin, giving them no other choice but to resort to informal businesses. Thus, most of the mechanisms used to send money are informal. Results show that 65 percent of migrants send money to their relatives through another person (Orozco 2006e). Furthermore, a combined 20 percent send money through a driver or take the cash themselves. Reasons provided for the choice of sending method are straightforward: convenience (70 percent), recommendation (32 percent), safety (15 percent), and reputation (12 percent), based on multiple-choice response. Speed, cost, and reliability do not play as much of a role in the selection of sending method. This finding raises the question as to whether a reliable and low-cost transfer mechanism would actually make a difference, provided that the regulatory environment allows for outbound payments. Another problem resulting from challenges in cross-border payments is cost. In order for companies or individuals to send money, they must address the regulatory licensing issues associated with foreign exchange controls, which rely mostly on bank-to-bank transfers. Even when a bank-to-bank transfer is the chosen mechanism, costs are not low. Bank wires are expensive when people are sending amounts under US$500, ranging around 10 percent of the amount sent. For example, the transaction cost of sending money to West African Economic and Monetary Union (UEMOA) countries from Mali and Senegal range from 8 percent to 10 percent. In this context, most banks interviewed highlighted Ecobank’s wire transfer program as one money transfer alternative. This program charges US$10 per transaction plus 0.15 percent of the amount transferred (Orozco 2006e). However, no one interviewed was aware of how it worked,

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and those entrepreneurs who had tried using the bank’s network had been unsuccessful. Many of these competition and regulation issues are illustrated in the specific case of Nigeria, as described in Figure 4.3.

Figure 4.3

The Remittance Marketplace and Regulation in Nigeria

Transfers into Nigeria offer a mixed environment. Outbound, the competition is relatively diffuse and unclear, while inbound twentyone banks handle the market. On the US (outbound) side of the corridor, the number of MTOs sending to Nigeria is small, with fewer than five companies, including Western Union and MoneyGram. A study on remittances from the United States showed that 78 percent of transfers were done through Western Union, and that Western Union transfers from the United States represent about 50 percent of all Western Union transfers to Nigeria (Orozco and Millis 2007). In this corridor, the presence of exclusive agreements has been a primary cause for lack of competition, and the situation is comparable on the UK side of the corridor. As of 2007, twenty-one out of twenty-five banks operating in Nigeria have agreements with MTOs. Fifteen banks work with Western Union, five with MoneyGram, and one with Coinstar and Vigo Corporation (Vigo is owned by Western Union). Thus, Western Union controls approximately 80 percent of money transfers through banks.22 The geographic diffusion of bank branches, while very important, is not sufficient to ensure effective delivery across the country. Nearly 35 percent of all bank branches are based in Lagos (29 percent) and Abuja (6 percent) alone. Therefore, people may be finding alternative ways for transferring remittances in order to address the lack of choices. Relatively high costs of sending to Nigeria are one implication of the anticompetitive context. For countries receiving over US$1 billion a year in remittances, costs are below 6 percent, whereas Western Union costs are 7 percent of the principal. At least in the US- and UK-to-Nigeria corridors, a large number of competitors exist that are prepared to participate in the market.

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Regulatory Issues in the Middle East and North Africa Focusing specifically on North African and Middle East countries, there are basic regulations on international money transfers as in the other world regions discussed, particularly on issues pertaining to supervising the actual transfer. In Egypt, Law No. 38, 1994, allows for the “free transfer of foreign currency into or out of Egypt, and from one person to another within the country.” Egypt removed its foreign currency controls in 1991, allowing for market-determined exchange rates. Jordan legislates foreign currency under the Foreign Exchange Control Law of 1966 (No. 95), which stipulates that the Central Bank is the authority for foreign exchange controls, but allows banks to purchase, sell, and manage accounts in foreign currency. In Lebanon, the Bank Secrecy Law of 1956 sets foreign exchange regulations. Morocco enacted its controls on foreign currency in the Banking Law of 1967 (replaced by a 1993 law), and the Moroccan Office of Exchange controls international transactions. The Central Bank of Syria authorizes banks and agencies to deal in foreign exchange. Syria prohibits the export of Syrian currency, while import of foreign currency is not restricted for nonresidents. Remittances by nonresidents working in Syria are limited to 50 percent of their salary and 100 percent of severance pay that is subject to Syrian income tax. Law No. 24 prohibits Syrians from holding foreign currency. In Tunisia, the Foreign Trade and Foreign Exchange Code, 1976, regulates foreign exchange. Tunisia authorizes banks to manage foreign currency, and it can also be purchased from the Central Bank of Tunisia. Finally, the Bank of Israel issues currency and oversees monetary policy and regulations for Israel. A General Permit established in the Currency Control Law of 1978 permits foreign currency transactions. Israeli residents are permitted to hold and purchase foreign currency. Foreign residents are permitted to repatriate transfer money.

Regulatory Issues in East Africa The regulatory environment governing money transfers in Uganda is led by foreign exchange laws (Orozco 2008c). The Exchange Control Act of 1964, which established controls on foreign exchange inflows

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and outflows, has been progressively amended. It allowed foreign exchange bureaus to operate and, after 1997, allowed liberalized funds transfers. Currently, the foreign exchange regulation of 2006 establishes various classes of licensed institutions to conduct international money transfers and sets out various requirements for operation. Uganda is recognized as a leader in microfinance development in the region, and the central bank has created a regulatory classification for deposit-taking microfinance institutions, which now fall under its supervision. Four microfinance institutions are supervised by the Bank of Uganda, and they tend to have more of a rural presence than most commercial banks in the country. Meanwhile, Rwanda’s legislation on money transfers is relatively new, dating back to the late 1990s. Law No. 8/99 on Regulations Governing Banks and Other Financial Institutions addresses financial institutions, and Law No. 11/97 focuses on the foreign exchange market. Article 15 of this law establishes that transfers of funds to or originating from abroad must be done through the intermediation of licensed banks or by the Central Bank. Article 10 shows that payouts of US$1,000 are to be made with presentation of valid ID and explanation of the purpose of the transaction. Article 57 of the law on microfinance institutions, Instruction No. 06/2002 of the National Bank of Rwanda for Microfinance Activities, establishes that MFIs can only engage in foreign exchange operations if they operate as a subagent for a bank. The law is also limiting when it comes to (national or foreign) individuals’ ability to open foreign currency accounts. Article 19 of the Foreign Exchange Regulation (2007) establishes that licensed banks may open a foreign currency account for any resident or nonresident individual or institution, but it also sets limits on credits and debits, such as giving reason for withdrawals.

Regulatory Issues in West Africa In order to understand the state of cross-border remittance transfers in the region, it is critical to assess the structure of West African regional integration as well as the regulatory environment governing payments. The regional integration system in West Africa, ECOWAS, is one of the first efforts of its kind and has been regarded by many as an important African integration partnership. Monetary policy is

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mostly developed by the independent Central Bank of West African States (BCEAO), for all eight West African states. The remaining countries have their own currency and national systems of monetary policy with little regional coordination. However, these countries have agreed to work independently toward the adoption of the fiscal and policy requirements in order to create the West African Monetary Zone (WAMZ). In West African countries, cross-border payments in foreign currencies are regulated by the Banking Acts, the equivalent of the NonBank Financial Institutions Acts, and the Foreign Exchange Control Acts, which regulate the formal transfer of money services customarily through authorized dealers such as banks and money transfer organizations. In Ghana, the Banking Act of 2004 regulates the licensing of banks; establishes the requirements for capital, reserves and liquidity, and ownership and control; restricts lending and investments, accounts, and audits; and grants powers of supervision and control. Senegal and Mali, both UEMOA member states, have achieved a deeper degree of integration, including development of common monetary policy throughout the Union. The Banking Law of 1990 was developed through the regional mechanism, is applicable throughout the Union, and is incorporated into the domestic legislation of each state. The Banking Law provides for an exact definition of banks and financial institutions, and of the credit and investment activities conducted by the latter. It specifies the conditions of entry and exercise of banking functions, and determines the obligations that banks and financial institutions must meet in the execution of their operations. It also defines the scope of the control exerted by the Central Bank and the Banking Commission, and spells out the rules governing the Monetary Union and the sanctions applicable in cases where these rules are broken. The regulations for money transfers in Nigeria are mostly based on the Foreign Exchange Act of 1995 and the Banks and Other Financial Institutions Decree of 1991, amended in 1999 (Orozco and Millis 2007). The act authorizes banks to perform foreign currency payments under its narrow definition of “authorized dealers” in foreign currency. Section 14 of the act (Monitoring and Miscellaneous Provisions) regulates outbound payments under specific circumstances or conditions. By establishing a very low limit of N5,000 (US$40 in August 2007) as the unrestricted allowance for outbound transfers, the act implicitly restricts most transfers. The act also establishes an

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autonomous foreign exchange market and provides for the monitoring and supervision of the transactions conducted in the market.

Conclusion Regulations on money transfers represent one of the integral parts of a well-functioning payment of worker remittances, as they guarantee that funds can move through a formal mechanism. When it comes to regulations on foreign currency transfers, most governments have established comparable instruments to ensure that the transfer is legal in method and purpose. In most countries, legal instruments are in place to prevent money laundering and other criminal uses of foreign currency transfers. Governments often also put in place limits on the amounts sent or remitted as well as methods to identify the sender and recipient of the money transfers. When it comes to the issue of authorized payers, most countries authorize banking depository institutions to conduct foreign currency payments. However, the decision to allow only banking institutions to perform international money transfers can have adverse implications for financial access for senders or recipients of remittances. When access to payments or other financial services is highly restricted, higher levels of informality, reduced competition, and higher costs result. Thus, these issues represent areas for improvement and opportunity. The marketplace of remittances for any particular country is tied to regulations and to the participation of players. While the players involved in the market vary by country, generally, money transfer operators (MTOs) dominate as remittance intermediaries on the outbound side. In most remittance-recipient countries, commercial banks are the primary distribution agent on the inbound side. In some cases, microfinance institutions also operate as agents or as subagents of banks on the inbound side. However, even in countries where MFIs are allowed to act as agents or subagents, many of these institutions have not yet entered as players in the market. This suggests an opportunity, discussed in detail in the next chapters, for increasing competition and expanding remittance services to people in rural areas where MFIs have a relatively larger presence compared to commercial banks. Moreover, several differences between world regions are apparent when looking at the levels of competition and informality present

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in the market. Overall, there is a general trend toward increased competition, leading to lower costs, as can be seen in the example of various Latin American countries. With lower costs, the problem of informality in the market may decrease in the future, as people find formal channels more accessible. This signifies an important step on the road toward economic development, given that access to financial services is the cornerstone of financial independence. In the following chapter I explore in greater detail the link between financial access, remittances, and development.

Notes 1. See http://portalif.condusef.gob.mx:8000/Remesamex/Datos/default .jsp. 2. An unlicensed business is typically referred to as an informal one. 3. When MFIs are not authorized to handle foreign payments, they may work as subagents of banks to expand the payout network for the RSP. 4. For example, Celent Communications offers a “high-tech” option, assuming that winning new as well as retaining existing clients lies in the use of sophisticated programming and technology that allows for the transmission of money via the Internet or card-based payments. A key assumption and selling point are the advantages the high-tech approach offers in terms of speed, volume, and lower costs. Companies can therefore compete with significantly lower consumer prices without sacrificing swiftness (Celent Communications 2005). The high-tech approach sets its sights on particular migrant profiles. A general rule of thumb is that the more likely immigrants are to have bank accounts, the more likely they are to be open to high-tech remitting options (Orozco, Jacob, and Tescher 2007). 5. See Ministry of Finance, Japan, www.mof.go.jp. 6. See Financial Supervisory Agency, Japan, www.fsa.go.jp. 7. See Bank of Japan, www.boj.or.jp. 8. Interview at International Transactions Processing Group, Philippine National Bank Head Office, Philippines. 9. Morgan Stanley Research Note, 2007. 10. In some countries, like the United States, an MTO is required to acquire a license also known as a money service business license, which is a requirement for any business involved in financial transfers (check cashing, money transfers, prepaid cards, etc.). 11. “The eight Special Recommendations call for the ratification of the UN resolution against the financing of terrorism, the criminalization of the financing of terrorism, the confiscation of terrorists’ assets, the reporting of

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suspicious transactions, international cooperation, monitoring of remittance systems, monitoring of originator information for transactions, surveillance on NGOs as possible vectors for financing terrorism, and detection of physical cross-border transportation of currencies” (FEMIP 2006: 10). 12. Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. 13. After September 11, 2001, Congress toughened requirements on banks to investigate their own customers. The Know Your Customer guideline became Know Your Customer’s Customer—more tightened than before. The Bank Secrecy Act requires banks to keep basic data on account holders, report cash transactions larger than US$10,000, and file “Suspicious Activity Reports.” The USA Patriot Act, enacted in late 2001, added new requirements for banks to scrutinize high-risk customers and conduct special due diligence with foreign financial firms, although it is unclear if the act is referring to banks or MTOs. As William Fox, the director of the Treasury Department’s Financial Crimes Enforcement Network, stated, “It does no one any good if banks refuse to take these businesses—that just encourages them to go underground” (Simpson 2004). 14. An MTO needs a bank account to operate so that it can both store the money it collects from migrants’ transactions and wire it to their partners in the recipient country. These partners, in turn, are in charge of disbursing the funds. Without a bank account, an MTO would have to physically transport the money across borders. 15. A comparative review of transaction costs in more than ten non–Latin American countries, such as Ghana and the Philippines, shows that costs to those countries are also dropping (Orozco 2006a). 16. Algeria, Benin, Burkina Faso, Burundi, Cameroon, Cape Verde, Chad, Democratic Republic of Congo, Egypt, Ethiopia, Ghana, Kenya, Mali, Morocco, Nigeria, Rwanda, Senegal, Somaliland, South Africa, Sudan, Tanzania, Togo, Uganda, Zambia, Zimbabwe. 17. Exclusive agreements are contracts that contain clauses preventing a convening party from partnering with other service providers in the same line of business. These agreements can have effects on the formation of monopolistic control in certain markets, as in the case of money transfers. 18. South Africa, Tanzania, Zimbabwe. 19. See note 20. 20. This section is based on an analysis of all paying institutions in twenty-five African countries. The data comprise information on 7,000 kinds of financial institutions paying through a total of nearly 17,000 branch locations authorized and enabled to pay money transfers. The appendix in the 2009 study explains the methodology employed in detail. The figures in this section cannot be compared to those in the regulatory section because the

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data provided in that section look at all banking financial institutions, paying or not in the marketplace. Also, the numbers reflect the actual branches paying remittances from a given institution rather than all the branches of that entity. 21. Rwanda’s percentage is higher for MFIs because one of the major MFIs was a payer but has recently become a commercial bank. 22. In November 2008, however, the Central Bank of Nigeria warned banks against signing exclusive deals with MTOs to hinder competition in a deregulated environment. All deposit money banks were notified that the Central Bank of Nigeria would no longer approve any money transfer agreements between International Money Transfer Operators and agent banks that contain exclusivity clauses (Orozco and Millis 2007).

5 Remittances for Asset Building

Migrants and their families’ financial activities not only impact national economies and financial systems, they also demonstrate an active capacity to build assets in relation to remittances through money management and formal financial tools. In this chapter, I analyze regional trends where the flow of money is linked to bank account ownership, savings, and investment activities. This chapter includes an examination of the theoretical framework of the link between remittance and development through financial asset building and includes case studies from world regions based on research I conducted in various countries in Asia, Europe, Latin America, and Africa.1 I specifically highlight the links between the financial practices of remittance senders and recipients to asset building.

Development and Financial Access Remittances interplay with development. Overall, development has been associated with a condition that ensures a better standard of living for people. According to the United Nations Development Program, development is “about creating an environment in which people can develop their full potential and lead productive, creative lives in accord with their needs and interests. People are the real wealth of nations. Development is thus about expanding the choices people 101

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have to lead lives that they value” (UNDP 2005: 9). A preliminary definition of economic development may then be as follows: a condition by which individuals and society at large enjoy a healthy quality of life, are free, have opportunities for upward mobility, and are able to improve their material circumstances. The literature on poverty has looked more specifically at the ways the poor cope with their reality with regard to wealth accumulation or creation, given assets, capabilities, or vulnerable conditions. Moser’s analysis of asset accumulation as a differentiated practice from livelihood strategies and social protection is an important consideration when thinking about the ways “a stock of financial, human, natural or social resources that can be acquired, developed, improved and transferred across generations” (Ford 2004, as cited in Moser 2006: 22) enables people to have a better quality of life. An asset-based approach to development, in turn, provides clues about people’s capabilities to strengthen or expand their resources (Moser 2006). Asset accumulation is thus critically important and directly intertwined with financial access.2 Finance and access to financial resources are cornerstone components of material asset accumulation. Together, they provide the means with which to strengthen or enhance a person’s or society’s material base, specifically by mobilizing existing assets in order to generate new resources and wealth, including education, health, real estate, and business. Overall, a strong financial basis provides opportunities to build wealth and thus promote development. An adequate stock of capital ensures the positive capital output ratio necessary to generate additional wealth. Research has shown that lower cash-to-deposit ratios and higher deposit-to-GDP ratios are linked to higher per-capita GDP levels (Peachey and Roe 2006). In addition, such resources are more efficient when made available for credit and investment in local economies, and are efficiently distributed when such credit is made universally accessible and affordable to anyone seeking to expand their capacities. While a country’s resources are critical for economic growth, they are only effective when put to use; they must be available or accessible in the form of interest earnings or credit that can then be tapped for investment. Financial access is a condition by which individuals are able to enjoy services without substantial restrictions. As Peachey and Roe show, greater financial access increases and strengthens the

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health of the financial system and the economy by making the system more competitive and capital more accessible for investment. The challenge for policymakers is to ensure that financial tools such as credit are sufficiently accessible and that they are in fact being used. According to Beck and de la Torre, countries might face three possible problems with credit access: (1) potential borrowers (for noneconomic reasons) cannot or do not tap into credit, (2) creditors are not fully exploiting their outreach possibilities and hence are inefficient, and (3) creditors are operating at an unsustainable level where excess credit is being granted. Beck and de la Torre suggest further that government and financial institutions both have roles to play in addressing these three challenges, separately and collaboratively (2006). Access to microfinance and banking institutions, particularly for migrants and remittance recipients in this context, is thus critical for development. Savings and credit must go hand in hand in order first to stabilize the situations of vulnerable households and then to provide them with opportunities for upward mobility. The World Savings Banks Institute recommends that approaches to improving access both strengthen nonbank alternatives for those without access and increase the role of savings banks in improving access for those who have been neglected by the formal banking system (Peachey and Roe 2006). When placing financial access in the context of gender, asset accumulation and the opportunity to build wealth can also have significant social implications related to financial and social empowerment for women. Current findings show that women overall have lower levels of account ownership than men, pointing to a critically important inequality. Women’s access can be inhibited by financial institutions’ lack of understanding of the financial behavior among remittance senders and recipients, unwillingness to work with lowincome or rural customers, limited coverage in rural areas, high costs of formal banking services, or financial illiteracy among remittance receivers and senders. Remittances and the Financial Sector Research on remittance transfers shows the existence of an organic relationship between remittances and finances, with four important findings.

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1. Financial institutions, particularly in countries that are remittance-dependent, rely heavily on transfers as part of their revenue base. 2. When comparing remittance recipients to the general population, the former tend to save more, have higher savings, and own more bank accounts. 3. Remittances emerge as a statistical determinant of savings and bank account ownership. 4. The level of supply of financial services among banking and other depository institutions is relatively low vis-à-vis the demand and use of financial activities, partly explaining why people keep their savings informally. Because remittances are foreign earnings that come into a country in the form of savings, investment, or expenditures, they have a direct and indirect effect on the financial system. The transfer of the money provides important revenues to banking and nonbanking institutions. In developing countries where banks are relatively small and their sources of earnings are limited, the revenue from these transfers is quite important, often constituting 20 percent of all their earnings.3 Thus, the inflow of money not only has a positive macroeconomic effect in sustaining foreign exchange shortfalls to facilitate imports of goods and services, but also helps financial institutions operate day-to-day activities. Other analyses highlight the macroeconomic impact that remittances have through increases in deposits, with the caveat that such an impact is more pronounced in less developed financial systems. For example, using balance-of-payments data on remittance flows to ninety-nine countries over a twenty-eight-year period, Aggarwal et al. (2006) find that remittances have a positive and significant impact on bank deposits and bank credit to the private sector. Similarly Giuliano and Ruiz-Arranz’s (2005) study using a cross-country data series for seventy-three countries between 1975 and 2002 shows that, “By relaxing liquidity constraints, remittances have compensated for the lack (or the inefficiency) of the financial system and have helped to channel resources toward productive investments.” Therefore, remittances function in lieu of other financial services, such as credit and insurance, to promote growth. In more developed financial systems, growth from remittances is less important. In fact, Giuliano and Ruiz-Arranz (2005) show that in

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countries with well-developed financial sectors, the impact of remittances eventually turns negative. In these environments, demand for financial investments is met through other means, such as credit and insurance; remittances, therefore, are used on activities that do not foster growth. Asset Building At the household level, remittances contribute to asset building, both liquid and fixed. This impact is seen in the differences in financial practices among people who receive remittances and those who do not. In general, remittance senders tend to consider investment options and remit for savings or investment in the household. As a result, recipients tend to have a higher ability to save, invest, and open bank accounts. In most remittance-receiving countries, the percentage of people holding bank accounts is higher among remittance recipients than nonrecipients. A similar pattern is found among those who save, where the percentage among recipients is also higher. Table 5.1 presents empirical evidence from selected countries. While these trends hold true for most of the countries reviewed in this section, receivers in some countries in Africa, namely, Burkina

Table 5.1

Savings and Account Ownership by Remittance Recipients Nonrecipients/ General Population

Uganda Burkina Faso Honduras Senegal Paraguay Guatemala Nicaragua Moldova

Recipients

Have a Personal Bank Account (in percentages)

Have a Personal Bank Account (in percentages)

58 71 33 49 62 — 21 12

77 73 57 55 47 31 26 19

Save (in Amount percentages) Saved (US$) 78 73 59 32 23 22 37 30

Sources: Country surveys conducted by author 2007, 2008, 2009, 2010.

582 243 1,880 406 344 1,460 500 2,135

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Faso, Kenya, and Somalia, exhibit a lower propensity to save than nonreceivers. Studies also show that some migrants may see a portion of remittance as an asset itself because the money is used to invest in their families’ material circumstances to transform their lives (Pozo and Amuedo-Dorantes 2006). Table 5.2 shows the kind of asset-building practices that were found among migrants and their families from twelve Latin American countries. The characteristics of persons receiving money in some ways are similar to those who send money, at least between Latin America and the United States. Ownership of a banking or savings account is correlated with the amount of remittances received. For example, among Latin American recipients, those with a banking account receive 27 percent more than recipients without bank accounts. Those with a savings account receive about 11 percent more than those without an account. These findings suggest that account ownership is linked to better money management. The most influential factors on the likelihood that a receiver runs a business, pays off a loan, or holds a savings account are gender, income, bank account ownership, and purpose of remittance received. Female recipients are substantially less likely to run a business. Recipients who run a business are significantly more likely to have a higher income. For example, individuals with US$320 in monthly earnings are more likely to run a business than individuals

Table 5.2

Asset-Building Methods Among Migrants and Their Families, Selected Latin American Countries (in percentages)

Have a bank account Have a mortgage loan Have a small business Have a small business loan Have a student loan Are paying insurance policies Lend money to family to invest Do not have financial obligations Source: Orozco and Lowell 2005.

Sender

Recipient

27 10 3 1 1 2 2 NA

50 10 17 4 3 6 2 32

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who earn less. More importantly, having a bank account increases the likelihood of running a business by 1.3 times. Individuals who take or send nostalgic goods to the United States are 1.8 times more likely to run a business than those who do not. Nevertheless, the greatest likelihood of running a business occurs when a recipient reports that the sender’s money has been budgeted for business expenditure: recipients who report getting money targeted toward business are seven times more likely to be running a business than those who do not report such targeted monies. Worldwide, the demand for financial services (such as savings, credit, or insurance) has yet to be met by a supply of these products from banking institutions. As mentioned earlier, this lack of correspondence between the supply and demand of financial services is due to a combination of factors such as misperceptions of behavioral spending among recipients and unwillingness to work with lowincome or rural customers, lack of access to remittance-receiving locations in rural areas, business models geared toward high-income groups, and lack of financial literacy among remittance receivers and senders. For example, fieldwork research has shown limited efforts to provide financial intermediation among remittance senders or recipients. Also, in most cases, financial services are more limited in rural versus urban areas. Nonetheless, recipients exhibit a demand for financial services, partly because of their ability to save and invest, thanks to these financial inflows. While this is an opportunity for building assets, the relatively low level of financial services available among banking and other depository institutions partly explains why people keep their savings informally. Until recently, this demand has not been met by a sufficient supply of financial services, either provided by banks or microfinance institutions. There is overall little correspondence between the existence of banks as remittances payers and the percentage of recipients having bank accounts (Orozco 2007a). Financial access among remittance recipients includes payments (such as money transfers), and the services of other financial products, such as a variety of savings instruments, loans, and insurance. The World Banking Institute measures access to financial services in four ways: Usability: Capable of opening accounts affordably and with small balances

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Openness: Capable of reaching everyone without hurting any social sector Formality: Capable of enforcing regulations without compromising use and openness Functional capacity: Capable of serving the four core financial product needs—payments, savings, credit, and risk mitigation Lack of access represents a policy challenge that I review later in the book. In the next section of this chapter, I provide an analysis of remittances and asset building in select countries of various regions of the world—namely, Asia, Europe, Latin America, and Africa. I look at the degree to which financial institutions are offering financial intermediation and the way that remittance transfers positively influence remittance recipients’ access to bank account ownership. Specifically, I first analyze recipient data on banking and saving in various world regions, including the characteristics and determinants of bank account ownership. Second, I review the institutional setting of banking institutions. Later in the book, I review the extent of financial intermediation efforts and perceptions on banking in these regions.

Asia Southeast Asia A large majority of remittance recipients (between 40 and 60 percent) in Indonesia, the Philippines, and Malaysia who receive from relatives in Southeast Asia have savings accounts (Orozco and Fedewa 2005). Likewise, a slightly lower but still significant percentage of Filipinos, Indonesians, and Malaysians working in Japan, Hong Kong, Singapore, and Malaysia have savings accounts in their country of origin. Between 30 and 50 percent of those polled, except in the case of Malaysian recipients, indicated that some of their remittance money is allocated to savings in the home country. Overall, recipients appear more inclined than senders to choose some form of savings mechanism for remittance funds. Moreover, when remittance recipients were asked about their main financial activities, a large majority of Filipinos and Malaysians,

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and almost a quarter of Indonesians, listed having a savings account at a local bank. Table 5.3 describes remittance recipients’ top two economic activities in the receiving country. Central Asia Remittance recipients in Central Asia, specifically in Kyrgyzstan and Tajikistan, save at almost double the rate of those who save among the general population. However, recipients who have disposable income to save use mostly informal methods to do so, which includes keeping cash in local currency. Another group keeps cash in foreign currency as a saving method, except in Kyrgyzstan. The number of people who keep cash in foreign currency is greater in places where the economies are more dependent on foreign currency. Tajiks have the highest percent of those saving, saying they save in consumer goods for future consumption. Keeping savings in foreign currency accounts is the third or fourth choice next to saving in precious metals or stones. Moreover, the percent of people saving increases with income levels; the higher their earnings, the higher their savings will be. The reasons that justify the use of their savings are similar among these groups, and similar to those in other remittance-receiving societies. Using savings for cases of emergency is the first reason most people give, followed by home improvement and special events. Home improvements are a priority to most relatives of migrants and

Table 5.3

Remittance Recipients’ Top Economic Activities, Selected Countries Ranking

Philippines Indonesia Malaysia

1st 2nd 1st 2nd 1st 2nd

Economic Activity Savings accounts (82%) Small business (19%) Small business (47%) Savings accounts (22%) Savings accounts (100%) Mortgage (86%)

Source: Orozco and Fedewa 2005. Note: Numbers total more than 100 percent because categories in survey were not exclusive.

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migrants who seek to repair their houses or make extensions to their homes. Ninety percent of these households own their homes; therefore, their interest is in making improvements or rebuilding their dwellings. This typical response also is a reflection of a lack of financial literacy and understandings of investment, whereby they focus on a material, tangible, and nearly instant return on their cash. As with savings, borrowing is a common practice and is mostly done through informal means. For example, more than half of people who borrow use friends to do so. People in Kyrgyzstan use banks to get loans as a second choice after friends or relatives. In general, 44 percent who borrow through banks are borrowing to purchase real estate, and 26 percent borrow to repair or buy a car. More problematic, only a very small number of people have bank accounts. As noted above, bank account ownership is one of the first steps in financial access, and the lack of it restricts the opportunity to save, borrow, or use other financial services. Those who receive remittances and save are more likely to save when withdrawing money through banks.

Europe The Caucasus The percentage of remittance recipients with bank accounts varies greatly among South Caucasus countries, specifically Georgia and Azerbaijan (Orozco 2007j). About 23 percent of Azeri recipients have bank accounts, compared to only 11 percent of Georgian recipients. In Azerbaijan, account ownership is more prevalent among men and those above fifty years of age. Moreover, while account owners are distributed among all income brackets, remittance recipients more often have accounts. Among Azeris, 32 percent of male recipients have bank accounts while only 15 percent of women recipients have bank accounts. The majority (59 percent) of those who have accounts are above fifty years old, while only 20 percent are twentyfive to thirty-four, and another 20 percent are thirty-five to forty-nine years of age. Only 13 percent in the eighteen-to-twenty-four age category have bank accounts. Nevertheless, account owners are more or less evenly distributed across income brackets: 20 percent of people with household incomes of US$0 to US$100 have a bank account, 23

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percent of those with incomes of US$101 to US$140, 30 percent of those with incomes of US$141 to US$230, and 23 percent of those with a monthly income of US$231 and up. Remittance recipients who receive money from abroad are more likely to have a bank account. Specifically, 33 percent of those who receive money once a month and 37 percent of those who receive money two times a month or more have bank accounts, while only 10 percent of those who receive money every four months and 8 percent of those who receive once a year have bank accounts. Recipients with bank accounts receive more frequently than those without accounts: almost half of those with bank accounts receive money once every two to three months (48 percent) and 35 percent receive once a month, compared to only 24 percent of those without accounts who receive every two to three months, and 18 percent receive once a month. The incidence of investments in Azerbaijan is low among remittance recipients with and without bank accounts. Seventy-seven percent of remittance recipients have no investments. Of the 12 percent with investments, 6 percent of recipients with bank accounts own property, while only 1 percent of recipients without bank accounts do. Three percent of those with bank accounts have invested in a business, compared to 2 percent of those without a bank account. Just over 75 percent of recipients own their home, but there is no difference in rates of home ownership between recipients with and without bank accounts. In Georgia, recipients in urban areas and those who receive money most frequently and in higher amounts have a higher account ownership. Unlike in Azerbaijan, recipients who have accounts in Georgia have higher incomes and are more evenly distributed in age. Geographically, recipients in urban areas are five times more likely than recipients in rural areas to have a bank account. Remittance recipients in Georgia who receive money from abroad more frequently have a bank account. Specifically, 40 percent of those who receive two times a month or more have bank accounts, while only 2 percent of those who receive about once a year own bank accounts. Furthermore, those who receive more money per transaction have a higher rate of owning a bank account. In fact, 53 percent of those who receive more than US$500 per transaction have bank accounts. Of those who receive US$51 to US$100 per month, only 7 percent have an account. Over 60 percent of recipients with bank accounts

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are university graduates, and 16 percent graduated from technical school. In terms of age groups, 37 percent fall in the thirty-five-toforty-nine age category and 35 percent in the eighteen-to-twenty-four age category. Recipients with savings accounts tend to have other investments as well. For example, of those remittance receivers with stocks, 67 percent also have a savings account. For those with property, nearly 29 percent have a savings account. For those with a business, 25 percent have a savings account. Moldova In Moldova, only 14 percent of the population has a bank account, though among remittance recipients the percentage is higher: 19 percent have bank accounts against 12 percent of those who do not receive remittances (Orozco 2007f). The link between the transfer method and financial access is telling: the number of those who use formal methods to receive their money and have bank accounts (25 percent) is double the number of those who use informal transfer methods and have bank accounts. However, the amount received and frequency of receiving are two factors that are not as significant to account ownership. Twenty percent of those with accounts receive more than US$500 per transaction, while about 30 percent receive US$100 to US$200, and 15 percent receive US$1 to US$100 per transaction. Unlike in most countries in this section, more women than men own bank accounts in Moldova, 55 percent compared to 45 percent. The income distribution of those with bank accounts is fairly even, with around 20 percent in each of the groups, as is age distribution. Nearly 30 percent of those who own bank accounts are university graduates, while 23 percent only completed secondary school.

Central America and the Caribbean When looking at Latin America as a whole, banking access rates are still quite low; only one-third of recipients currently have bank accounts.4 The following sections provide a snapshot of banking, saving, and financial access in the region by way of examining four countries.

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Guatemala Although Guatemalans have generally poor access to the banking and financial system, those who receive remittances exhibit a greater propensity to save and have bank accounts and access to credit than those who do not receive (Orozco and Hamilton 2005a). In a 2005 survey, 22 percent of receiving households had some type of savings and saved an average of about US$1,460 a year. Regarding the composition of savings and investment, 62 percent of remittance recipients put money aside if there was money left over at the end of the month. Interestingly, 32 percent of remittance recipients worked an extra job, in contrast to only 25 percent of nonrecipients. Overall, however, most savings were held informally and outside the financial system. Recipient and nonrecipient households predominantly used their savings in case of a health emergency or a death in the family. Other prevalent uses included home improvements and repairs in addition to improved education for offspring. Another important component of the profile of Guatemalan remittance recipients was their financial obligations. Whether a household received remittances or not did not seem to affect their financial expenses. Health, sickness, and emergency expenses in addition to school and education expenses were cited by more than half of recipients as well as nonrecipients (Orozco and Hamilton 2005a). The purchase of home appliances was also an important financial outlay, cited by 39 percent of receiving households and 26 percent of nonrecipients. Few statistical factors determine access to the financial system through bank ownership; however, gender, education, age, income, saving, and financial needs are the most significant determinants, rather than receiving remittances. On the other hand, having savings is determined by the volume of remittances received, schooling, income, employment status, and age. Only 25 percent of Guatemalans had some type of bank account. The overwhelming majority (77 percent) who did not have bank accounts most often cited not having enough money to open an account or not having trust in banking institutions in general as reasons for not owning a bank account (Orozco and Hamilton 2005a). Moreover, one-half of Guatemalans believed that banks only seek to attend to the privileged sectors of society, while 46 percent felt that banks fail to effectively explain interest rates or other details about their financial products. These perceptions are significant and point

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to the inaccessibility of the financial system to this population. They emphasize the importance of finding ways to provide incentives to remittance recipients to mobilize savings through the use of formal financial products. Nicaragua In Nicaragua, as with other countries mentioned, remittances are positively and statistically associated with bank account ownership and savings. First, 26 percent of remittance recipients have a bank account, compared to 21 percent of nonrecipients. Second, 37 percent of recipients save formally or informally, compared to 33 percent of nonrecipients. Third, the stock of cash saved by recipients typically averages US$500, a higher amount than that of nonrecipients. An interesting relationship is apparent between the amount of time that a recipient has been receiving remittances and the person’s propensity to save. Recipients who have been receiving remittances for over ten years are more likely to save than recipients who have been receiving remittances for a shorter period of time. Moreover, this pattern is more pronounced for recipients in rural areas. On the contrary, recipients in urban areas are more likely to save if they have been receiving remittances for a shorter period of time (less than four years) compared to those who have been receiving them for longer (more than ten years). Finally, the propensity to save by recipients in both rural and urban areas drops after they have been receiving remittances for about seven to nine years, then returns to a higher level for recipients who have been receiving for over ten years. Among recipients, a larger percentage of males have some type of savings or investment compared to females (41 percent vs. 31 percent), and males have larger savings amounts. On average, women have US$700 worth in savings and investments a year, compared to US$1,000 for men. These differences may be explained by the fact that women tend to earn less than men, and thus are able to save less of their incomes. Men typically have higher-earning jobs compared to women: 19 percent of men have a professional job, compared to only 7 percent of women holding like positions. In addition, men are more likely to have more than one job, helping them to supplement their income (13 percent of men vs. 7 percent of women). This difference may be explained by societal expectations and gender roles, as

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more women are expected to be the caretakers in the home than men (53 percent of women versus 0.8 percent of men). Women also have lower levels of bank account ownership compared to men, 29 percent compared to 35 percent, though both genders have similar reasons for not owning a bank account. However, a higher percentage of women indicated that they did not have an account because they did not have enough money to put into an account. With regard to other financial products, remittance recipients and nonrecipients have similar usage of credit cards, at 8 percent compared to 6 percent, respectively. As a reference point, there were about 270,000 cards in circulation in 2008, and credit card sales totaled US$334 million. Among recipients, 12 percent of males indicated that they have a credit or debit card, while only 5 percent of women do so. However, men and women have similar loan ownership, except for car loans, of which men have slightly more. Honduras As with other countries, remittances in Honduras are positively and statistically associated with bank account ownership and saving. With regard to saving, 59 percent of recipients have some type of savings or investment, compared to 36 percent among non–remittance recipients. Additionally, 41 percent of Hondurans have a bank account, though a larger percent of recipients have accounts than nonrecipients, 57 percent compared to only 33 percent. Of those who save, nearly half (44 percent) save an average of US$1,660 annually, although savings for remittance recipients are larger by US$1,880 compared to nonrecipients. For each dollar received in remittances, a recipient saves 5 percent more than a nonrecipient. Moreover, there is an interesting relationship between the amount of time that a recipient has been receiving money and the propensity to save. The longer the time period, the less likely a person is to save. The average annual amount saved for those who have been receiving remittances for less than three years is $2,304, while the average for those who have been receiving remittances for more than ten years is $887. While men and women hold savings and investments in similar proportions—44 percent of men versus 43 percent of women—

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women have on average a smaller amount in savings than men: women have an average of 5,000 lempiras (or about US$267) in savings and investment each year, while the average for men is 8,000 lempiras (about US$428). As with other countries, one reason might be that women typically have smaller incomes than men. Men in Honduras tend to have higher-earning jobs compared to women: 5 percent of men have a professional job compared to 1 percent of women, and 23 percent of men have jobs as small business owners or vendors compared to 11 percent of women. Thus, women have less disposable income to save. In addition, men are more likely to have more than one job than are women (15 percent compared to 12 percent), which helps to supplement their income. This trend may again be explained by the fact that 69 percent of females are homemakers, compared to only 2 percent of men. The propensity to save is 2.4 times higher for people with bank accounts. Not having financial obligations increases savings by 70 percent, and those with greater income levels save more, as do those with more years of education. Regarding the composition of savings and investment, a majority of respondents use their savings to invest in a business or buy a home, and among recipients, these patterns are similar among men and women (18 percent of each gender group use savings in this way). When confronted with a financial emergency, only 10 percent of Hondurans seek assistance from banks. Most, however, seek the help of family members in these circumstances (40 percent). Among recipients, despite similar tendencies to save and invest by men and women in Honduras, women continue to display lower levels of bank account ownership. As in Nicaragua, a slightly lower percentage of females indicated that they have a savings account with a bank, microfinance institution, or savings cooperative: 20.6 percent of women have a savings account compared to 23.5 percent of men. Also noteworthy, 29 percent of recipients have a savings account in a cooperative, compared to 19 percent of nonrecipients. Among those who do not have a bank account, their primary reasons are similar to those of Guatemalans: a lack of money (33 percent) and distrust in financial institutions (18 percent). Among recipients, slightly more women than men (67 percent compared to 64 percent) cited lack of money as a reason. Some shared perceptions among respondents are that banks only provide services to the finan-

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cially privileged and that the services and products offered by banks are inadequate. Moreover, 20 percent believe that banks do not educate clients about interest rates and the best ways to save or provide sufficient information regarding monthly service fees. About 9 percent of Hondurans have a credit or debit card, higher among remittance recipients: 12 percent of recipients have a credit or debit card, compared to 8 percent of nonrecipients. Among recipients, 12 percent of males in Honduras indicated that they have a credit or debit card, compared to only 7 percent of women. Men and women recipients also displayed some differences in loan ownership in Honduras. While the difference is minor, as in the case of Nicaragua, a higher percentage of males indicated that they had a housing loan, business loan, education loan, or a car loan compared to women. Dominican Republic In the Dominican Republic, 49 percent of recipients have some type of saving or investment, and 45 percent have bank accounts. With regard to savings, a greater percentage of male respondents compared to female recipients indicated they have some type of savings or investment: 52 percent of men versus 46 percent of women. Approximately 24 percent save any money they have left over at the end of the month, which results in an average annual savings amount of US$1,440, though men have savings/investments that are higher than those of women: US$1,851 compared to only US$781 annually, respectively. Regarding the composition of savings and investment, a majority of respondents stated that they use their savings for health care expenses (30 percent), investing in education (17 percent), household expenses (15 percent), or investing in a business (10 percent). Notably, men are more likely to invest in a business: 39 percent of men indicated that their investment was in a business, versus 27 percent of women. When confronted with a financial emergency, only 6 percent seek assistance from banks. Instead, most seek the help of family members within the Dominican Republic in the event of such emergencies (45 percent). As with Central American countries, one of the primary reasons stated for not having a bank account is not having enough money. This speaks to the perceptions among Dominicans

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that banks only provide services to the financially privileged and that the services and products that banks offer are inadequate. Moreover, people mistrust banks. Credit card ownership is similar among men and women. Only 4 percent of women and 7 percent of men own a credit card while 16 percent of women and 18 percent of men own a debit card. Twelve percent of both groups own both. Loan ownership showed differences among men and women. As in Nicaragua and Honduras, a higher percentage of males in the Dominican Republic indicated that they had a housing loan, business loan, or car loan compared to women. Nevertheless, in this case a larger percentage of women seem to have an education loan.

Africa As in cases elsewhere in the world, in Africa the percentage of remittance recipients who save is higher (80 percent) than the rest of the population (63 percent). Moreover, people owning savings bank accounts is higher among those receiving remittances (30 percent) than the rest (20 percent). Overall, however, the percentages are low—even among clients of MFIs. These percentages also vary widely from country to country where the surveys took place. For example, results in Benin and Burkina Faso show percentages below 10 percent, and in Nigeria those receiving remittances and holding any savings account was 60 percent. Only 13 percent of MFI clients and 11 percent of people who live near microfinance institutions use formal savings accounts as part of their saving mechanisms. Even fewer (5 to 6 percent) have money in checking accounts. In Rwanda, 24 percent of remittancereceiving clients own savings accounts compared to only 9 percent of nonreceiving clients. With regard to checking account ownership, respondents in Burundi and Cameroon have the highest levels, and Tanzania and Ethiopia have among the lowest levels. When looking at financial expenses, the survey shows that remittance recipients and nonrecipients alike have significant investments in education, health, and business, the latter especially among clients of MFIs. Among the most cited expenses per country were education in Cameroon and health in Uganda. Notably, Nigeria has the highest prevalence of business loans, and Chad and Burundi have the lowest.

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Overall, savings are not negligible; amounts vary from country to country, but people may be saving around US$535 (see Table 5.4).5 In most of these countries, recipients are able to save higher amounts, with the exception of Burkina Faso, Kenya, and Somalia. Nigeria In 2007, 92 percent of the sample population in a multiple-choice survey said they saved or invested in some way: 45 percent saved in the bank or in a post office account, 36 percent saved whatever was left at the end of the month, 30 percent took advantage of sales on goods, and 33 percent invested in a business. Financial emergencies were commonly dealt with through assistance from a family member in the country (62 percent) or one working abroad (28 percent). Only 11 percent asked for a loan from a bank in such circumstances (Orozco and Millis 2007). Ninety percent of respondents of a survey conducted in Nigeria had a domiciliary bank account used to receive wires of foreign currency, while 55 percent had a savings account with a bank, mostly with United Bank of Africa and First Bank (Orozco and Millis 2007). This relatively high proportion of bank Table 5.4

Benin Burkina Faso Burundi Cameroon Chad Ethiopia Kenya Nigeria Rwanda Somalia Tanzania Uganda Zambia Zimbabwe

Average Amount in Personal Savings by Country Surveyed (in US$) Does Not Receive Remittances

Receives Remittances

310 149 203 694 79 93 720 199 267 1,318 373 198 98 98

347 121 203 1,011 145 187 583 224 338 568 567 347 393 196

Source: Survey of clients and neighbors of MFIs, Orozco 2009b.

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accounts may result from the urban composition and relatively high income levels of the sample of people interviewed. Of the 10 percent of recipients who did not have a domiciliary bank account, lack of sufficient money to save (34 percent) and lack of need (31 percent) were the most common reasons cited. Bad experiences and complex procedures were also prevalent issues. The majority of survey respondents—96 percent—did not have credit cards, while 56 percent did not use automated teller machines. In nearly 60 percent of cases, family members overseas helped with financial obligations above and beyond the remittances they sent. The most common obligation, mentioned by 35 percent of respondents, was school fees, followed by maintenance of a business at 23 percent. Loan payments and fees for travel documents to migrate both took about 10 percent. Recipients were saving substantial amounts, averaging US$1,000, but women were saving less than men. Class status matters when it comes to savings: the lower the class category of the group, the lower the savings. Rwanda As with other countries, data from remittance recipients in Rwanda regarding financial access and saving confirm the finding that recipients save, though largely informally (Orozco 2009a). The results from the survey conducted by a microfinance institution in Rwanda in 2008 show that 26 percent of people interviewed have a relative abroad and that 10 percent receive remittances.6 Among those receiving remittances, respondents reported receiving about US$200 in remittances, on average four times a year. This increased their earnings to US$800 more in income, plus showed savings of US$250 over US$200 among nonrecipients. Also important is that the percentage of those saving was higher among those receiving remittances, though the methods employed were relatively similar. Uganda One of Uganda’s major deficits with regard to understanding transfers to the country is the lack of reliable data on who among remittance recipients owns a bank account as well as how much they are

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saving. Therefore, the scope of liquid or fixed assets that remittance recipients hold is unknown. A survey by Bendixen and Associates in Uganda offers an important baseline to understand remittance recipients’ financial habits or financial access (Orozco 2008c). The survey asked people how much of the remittances received they saved. Thirty-five percent said they saved at least 75 percent of the money received, and the median saved over US$500. Moreover, those receiving remittances over US$300 were also among those who were saving more, and people saving more were among those interested in investing in their families’ education. A positive statistical relationship exists between saving remittances and the amount remitted: the more remittances people receive, the more they save. There is also a positive relationship between saving the money and investing in the family’s education. However, a negative relationship is found among those saving the remittance and receiving for a shorter period of time or among women. In the first case, those who have been receiving for shorter periods of time are more likely to save more of the money, and women are also less likely to save their remittance. These two latter findings are consistent with experience in other countries. While it seems intuitive to save more over time, in countries where remitting is a relatively new reality of migration, people tend to save more during the earlier periods as a precaution against the uncertainty of future flows.7 The finding that women save less than men is found in most remittance-receiving countries. The reasons reflect the reality of gender differences whereby women have to carry more responsibilities than men in the household, thus trying to diversify their expenditures more and leaving less cash to save.

Conclusion In this chapter I examined the link between remittance and development through financial asset-building activities, and included case studies from various countries in Asia, Europe, Latin America, and Africa. It looked at the financial practices of remittance senders and recipients, specifically by examining trends in bank account ownership, savings, and investment activities. Overall, a clear relationship

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is present between remittances and finances. First, financial institutions themselves rely heavily on transfers as part of their revenue base. Second, the case studies suggest that remittance recipients tend to save more than the general population. Third, remittances emerge as a statistical determinant of savings and bank account ownership. Finally, the level of supply of financial services among banking and other depository institutions is relatively low vis-à-vis the demand and use of financial activities, partly explaining why people keep their savings informally. One of the interesting findings across world regions is that geography is a key component of financial access. As discussed, bank institutions, even when present in rural areas, often do not meet the needs of the rural population (with the exception of entities such as rural banks and microfinance institutions). The case of Southeast Asia is an example of this deficiency and also of how it could be addressed. Indonesian remittance recipients have a lower level of bank account ownership compared with Filipino and Malaysian recipients (Orozco and Fedewa 2005). This difference is partly due to the geographic distribution of survey respondents: a large portion of respondents from Indonesia were rurally based, while most survey respondents from Malaysia and the Philippines were based in urban areas. Since banks typically have a much lower presence in rural areas, this explains the lower levels of financial access there. Interestingly, some rural banks in these countries engage in efforts to reach out to remittance recipients and offer various financial services. In the Philippines, for example, there are close to 1,800 rural banks, with branches in 103 cities (93 percent), and 753 municipalities (50.4 percent), with services available to an additional 20 to 30 percent of all municipalities. Moreover, the Rural Bankers Association of the Philippines (RBAP)’s RuralNet is a platform aimed at connecting rural banks to the Central Bank (Bangko Sentral), urban commercial banks, government agencies, and other service providers through a nationwide network of business, service, and information (BSI) centers, also known as the Countryside E-Market. Through their local bank’s connection to RuralNet, migrant-sending families participate in a range of activities at the local level, from conducting remittance transactions to applying for overseas work assignments, as well as accessing educational and pension plans, auto and housing loans, government securities and privately issued bonds, insur-

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ance products, and any other existing or yet-to-be-developed financial service. In Chapter 6, I investigate efforts like RuralNet, specifically by reviewing regional experiences with banking remittance receivers and microfinance institutions that offer a variety of remittance-related financial services to recipient households. Chapter 6 particularly focuses on the crucial role that MFIs play in rural areas and thus highlights their importance for efforts to promote economic development.

Notes 1. Chapter 5 relies on interviews with experts and local fieldwork in Asia, Europe, Latin America, and Africa. Some of the data in this chapter also appear in Orozco and Fedewa 2005; Orozco 2005d, 2007a, 2008c. It also includes data from a survey of clients and their neighbors living near microfinance institutions (MFIs) in twenty-five African countries conducted in 2009. 2. Assets are defined as stocks of human and material resources that contribute to wealth creation. Assets are fixed (e.g., property) and liquid (e.g., cash). 3. A financial institution reporting net income of US$2 million and paying 30,000 transfers a month may earn over US$700,000 a year. 4. Note that gender issues are based on random surveys of remittance senders who send through formal institutions in the United States conducted by Orozco 2008d. The migrants studied are from six different Latin American countries: Guyana, Mexico, El Salvador, Colombia, the Dominican Republic, and Bolivia. 5. The amounts saved are significantly lower than those found in other countries, but may relate to the African socioeconomic context. 6. This was a household survey of 600 people who are clients of an MFI and 400 who reside near branches of the MFI. The survey was carried out in coordination with the research team of Vision Finance Company. 7. This evidence is found in Honduras and Paraguay, two countries where remittance receiving is relatively new, or dates back less than ten years. In countries like Moldova, Armenia, or Ghana, savings increase over time.

6 Financial Access and the Role of Microfinance Institutions

As noted in Chapter 5, financial access is measured using four criteria: usability, openness, formality, and functional capacity of financial institutions and their products and services. Challenges to achieving these four criteria are prevalent within the financial sector environment, financial institutions, and the potential client population in many countries worldwide. These challenges are reflected in inadequate reach in rural areas, misperceptions of behavioral spending among recipients, inadequate marketing and financial products, and lack of financial literacy among remittance receivers. In this chapter I contextualize these challenges in the regions and countries discussed, and provide cases where banks and microfinance institutions have improved financial access efforts. I then examine these issues more closely, with a focus on MFIs. The chapter offers a broad overview of the many and varied efforts from around the world to bank the unbanked and expand markets for financial products, thus contributing to investment and, cumulatively, to a country’s development.

Financial Institution Efforts Recipients exhibit a demand for financial products associated with remittances. In most of these countries, the majority of recipients pick up their money at banking institutions. Thus, it would seem 125

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intuitive that these institutions should expand their financial services to a cohort that already offers financial benefits and demands further financial products. However, the understanding of the volume of remittances and the potential for financial intermediation varies across regions, countries, and specific financial institutions. In some contexts, banks have a bias against recipients with regard to their income and level of financial literacy, thus affecting their product design and marketing strategies. However, some financial institutions have developed varying levels of efforts to reach out to remittance recipients, starting with providing interest, developing targeted marketing and financial product strategies, and moving toward effectiveness with measurement tools. Following is a review of the challenges and some of the practices from Central Asia, the Caucasus, Europe, Central America and the Caribbean, and Africa. Across all regions, the older and more established MFIs are the ones that have tended to enter the remittances market. Meanwhile, remittance-paying MFIs tend to have a larger number of branches, bigger lending portfolios relative to institutions that do not pay remittances, and a larger presence in rural areas. In countries where the regulatory environment allows MFIs to offer remittance services, a valuable opportunity is available for these institutions to play a key role in promoting asset building and thus economic development. Meanwhile, in those world regions where laws still prohibit MFIs from entering this market, significant room exists for change and innovation. Central Asia A handful of banks in Kyrgyzstan have articulated ideas regarding remittance recipients and identify recipients as a growing market for a variety of banking products. Other banks offer transfer services but state that they are not interested in attracting remittance recipients as clients. The banking sector in Tajikistan is the most lacking in terms of offering financial intermediation to remittance recipients, especially when compared to Kyrgyzstan banks. Overall, these latter banks believe little is saved due to the fact that most if not all the money is spent to acquire food and other basic necessities, such as clothing, medicine, or school supplies (Orozco 2007j). Nevertheless, banks in both countries have made efforts to address remittance recipients. In Kyrgyzstan, for example, Energo Bank has considered moving toward microfinance, savings, and card

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products that target remittance recipients. Other banks think that introducing mobile banking technology is one way to provide financial access. For example, Settlements and Savings Company has considered a joint project with Bitel, the cell company. Amal Bank offers deposit options targeting remittance recipients and provides loans to clients who receive remittances, especially education loans. Moreover, Ecobank is interested in transforming people into bank account holders. The bank knows how many recipients have businesses, and the bank is reaching out to this group, but it has yet to set a systematic way to learn about their outreach success and would like to track it. The bank stresses that people often save informally and keep the savings in foreign currency (Orozco 2007j). In Tajikistan, Bank Eskata and Orientbank are interested in providing financial intermediation. Orientbank offered a targeted type of saving deposit with a better percentage rate that fluctuated in 2007 between 8 and 15 percent in dollar deposits. Bank Eskata is trying to recruit remittance recipients by marketing products and offering recipients to keep their transfer in bank accounts. This bank is also interested in providing debit cards to clients who send and receive remittances. The Caucasus Financial institutions in Azerbaijan and Georgia are relatively new. Although there was a banking infrastructure prior to 1989, only after independence did these countries begin to engage in establishing a financial network. The banking system in Azerbaijan offers a variety of institutions interested in providing financial products to remittance recipients and senders, but generally banks stress that they do not provide cross sales of financial services and do not perceive recipients to be targets of financial product marketing outside payment of remittances (Orozco 2007j). One financial institution with an interest in leveraging remittance recipients’ resources through financial intermediation is Bank of Baku: its policy requires that remittance recipients open bank accounts. However, executives acknowledge that one of the major challenges in incorporating remittance recipients into the banking system is recipient understanding of bank accounts. Other banks that share the goal of increased focus on recipients, in part through the provision of financial education and marketing efforts, are Azerdemiryol Bank, Respublika Bank, and Microfinance Bank.

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Banking institutions overall in Georgia see remittance recipients as important customers and have tried to offer financial services to them. Standard Bank and TBC Georgia are two examples. The success of these efforts is not known partly because banks have not evaluated their approach or because they lack a well-defined marketing strategy. Moreover, as with Azerbaijan, the institutions argue that provision of financial services often contrasts with lack of financial literacy among consumers or little or no savings capacity. In some cases, the lack of marketing tools may impede the supply of financial products. Moldova Moldova is among the leading countries for outmigration and is an example of a remittance-recipient country in Europe. As a European country, it exhibits more characteristics of the low-income countries found in Asia, Africa, or Latin America. With its high migration rate to Europe and Russia, Moldova’s experience with remittances and financial access offers a comparative perspective vis-à-vis other countries. Financial intermediation efforts in Moldova may be more substantial when compared to other countries, such as Azerbaijan and Georgia (Orozco 2007f), and its banking sector is considered generally sound with respect to a number of industry indicators. Many banks cite remittance recipients as a market for deposit accounts and even credit products (Orozco 2007f). While their marketing tools are not tailored to this cohort, outreach to this sector is part of bank efforts to expand their market. MobiasBank, for example, is implementing cross sales through time deposits and savings accounts with higher interest rates to remittance recipients. It also offers credit products, including mortgages, by considering the history of receiving remittances. EnergBank offers a variety of other services to remittance recipients, such as payments, savings, and loans. Bank officials estimate that about 30 percent of recipients open deposit accounts (Orozco 2007f). Moreover, the bank is organizing a marketing campaign with Western Union to attract more customers. Meanwhile, Banca Sociala offers the service of depositing money into an account provided to migrants and has also tried to offer debit cards and savings. FinComBank advertises reduced prices for those who deposit the remittance money into an account and uses remittances as a base for credit history when issuing mortgages.

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Central America and the Caribbean Since around 2008, a small number of banks have introduced financial intermediation products to remittance recipients in order to motivate savings and credits among them. In each Central American country, for example, at least one bank is selling various financial services, from traditional saving products to specialized credits and insurance such as body repatriation in case of death outside their country of origin or small business loans. In turn, surveys of Central American urban remittance recipients conducted in 2003 and 2007 show an increase among those owning bank accounts. Representatives of financial institutions interviewed in Guatemala agree that the remittance transfer business is not an end in itself but a means to offer a range of services to recipients, and possibly senders (Orozco and Hamilton 2005a). These services include opening savings and checking accounts, and offering credit, loans, and other services like debit cards. However, financial institutions perceive that people lack an understanding of how to use their money, and clients do not perceive the importance of savings or investment, focusing entirely on consumption. Others stressed that Guatemalans are risk-averse and lack a business mentality. At least six banks conduct money transfer operations in Guatemala; two of the most salient players are Banco Industrial and Banrural. First, Banco Industrial, the second-largest bank in Guatemala, started remittance services in 2002 in partnership with One Money transfer. It later expanded its services and as of 2012 pays 250,000 transactions a month, holding 25 percent of the market. Remittance recipients are offered other bank services; savings accounts are usually the first product they select. The bank teaches the client how to manage the account and about the financial institution, and also offers special promotions for opening accounts through gift items and the chance to participate in a raffle for prizes like home appliances. Overall, results in turning remittance clients into full bank clients have been satisfactory. Similarly, its reloadable debit card is proving to be a successful effort: 650 cards were activated every month during 2007. The bank also offers ninety-day loans for US$650 to recipients, and the bank takes their history of receiving remittances as a basis to approve the loan. In Honduras, BAC-Honduras SA Bank introduced a strategy consisting of expanding its competitiveness in money transfers, building

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trust and loyalty with the families sending and receiving, and bringing financial services to recipients. Its product offering has been significantly important, given that few financial institutions in the country have taken an active role in banking the unbanked recipients. BAC’s banking strategy has sought to convert its remittance clients into bank clients through different services. By 2012, nearly 60 percent of its clients held bank accounts. It has also introduced debit cards to more than many of its clients, who have become regular users of retail services with point-of-sale terminals, thus reducing currency cash circulating in the streets. In addition to its savings products, BAC offers housing loans to senders and recipients. In the Dominican Republic, at least six payers are offering money transfer services: Caribe Express (with about 40 percent of the market), BHD (about 18 percent), Banco Union (about 10 percent), Vimenca (about 20 percent), Banco Popular (about 5 percent), and Banco de Reservas (less than 2 percent). Banco Popular has been paying out remittances since 2006, and operates as a payer for MoneyGram, Citibank, and Servicash. The bank offers clients who receive remittances the option of direct deposit into their bank account, as well as a debit card. For those who are not account clients, the bank offers other services, including the option to open a savings account with them when clients enter the bank to use remittance services. Other efforts to reach out to bancarize their clients (provide access to banking services) include a marketing campaign about “Telebanco” (bank services via telephone), which features option number seven, allowing clients to deposit remittances directly into their bank account. Remesas Dominicanas employs various strategies more directed at their remittance payout methods. First, Remesas Dominicanas is gradually switching to the agent payout model since the homedelivery method has proven to be too risky and costly for them. They are also carrying out several marketing campaigns that stress the cost advantage of the agent payout services, including one on their “speed, trustworthiness, and safety.” Bank executives also reach out to clients already using the agent payout services by encouraging them to open an account. Second, the bank aims to get clients to switch from cash to plastic (debit cards or prepaid cards). Finally, Visa International is currently assisting in an effort to offer 16,000 clients prepaid cards (42 percent of 500 of the bank’s clients contacted by bank representatives so far have accepted this product).

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Prepaid cards are plastic instruments that register stored value but are not linked to a bank account. The overall bancarization efforts by the various financial institutions in the Dominican Republic have had mixed levels of success. However, the overall trend for most financial institutions has moved away from home-delivery services and toward agent payout services. Interviews with bank executives suggest that about 75 percent of remittances are currently paid out using home-delivery methods, and 25 percent using agent payout services, compared to 80 percent and 20 percent, respectively, in 2000. Moreover, there is an effort to increase the percentage of clients with credit and debit cards. Nevertheless, the use of cards currently represents less than 1 percent and the use of cards by recipients is basically concentrated in the hands of clients of Vimenca, BHD, and La Nacional. Africa Banking institutions in Africa have emerged as solid players in the financial system of the continent. There are fewer than 600 banks in Africa, including several with regional operations like Ecobank, among others. These institutions also carry out over 65 percent of remittance payments in Africa and thus present themselves as nodal points for development finance among remittance recipients. Two countries in Africa in which remittances play a relevant role, but are among neither the leading recipients nor the lowest, are Rwanda and Uganda. Both countries have experienced historic migration and also show recent migratory flows. In both cases, their financial institutions are directly connected to transactions of remittances. Rwanda’s financial system is relatively new; most of its institutions have been operating for less than thirty years. At least five major banks and three major microfinance entities work in the country. Their approach to retail banking is also relatively new, and overall has mostly been concentrated on corporate accounts and few personal current accounts. This model has partly influenced any approach toward cross-selling financial services to people receiving remittances. Interviews with executives of these banking and NBFIs showed their interest but lack of knowledge or effort in getting people into banking institutions (Orozco 2009a). Some efforts aimed at bancarization, however, are important to highlight.

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Banque Comerciale du Rwanda—founded in May 1963, privatized in December 2004—is currently one of the biggest banks in the country, with more than ten branches and head offices in Kigali. It is a private commercial bank now owned by ACTIS, a private equity investor in emerging markets based in the United Kingdom, holding 80 percent of the shares and the government of Rwanda holding 20 percent. 1 As for efforts to increase financial access to remittance recipients, bank officials expressed much enthusiasm. Bank officials interviewed also expressed interest in working to form partnerships with microfinance institutions, and said that they have already engaged in dialogues with two of the main MFIs in the country, Urwego Opportunity Bank and Vision Finance. However, bank officials explained that the microfinance institutions have not been very proactive or shown much interest in these opportunities. Nevertheless, officials hope that such projects do solidify in the future, since MFIs could be the missing link to provide services to remittance clients in rural areas. Banque Comerciale du Rwanda has also made a concerted effort to reach out to the Rwandan diaspora living abroad. The bank offers a unique facility to give Rwandans abroad support in their financial activities in and outside Rwanda, ranging from opening accounts via the Internet, profitably saving money, and supporting family to planning for any future investment in Rwanda. Banque Comerciale du Rwanda states that its “goal is to establish a strong relationship with you (the diaspora) and adapt our services to your needs.”2 Through their services, clients have access to online banking, various term loans, and savings products that assist their family within the country or abroad. Banque de l’Habitat du Rwanda was established in 1975 as a limited liability company to act as a housing finance institution as well as a property developer in Rwanda. Its objectives include mobilizing and collecting housing savings through housing savings plans and housing savings accounts, as well as through fixed deposits and mobilizing internal and external long-term resources to channel into housing finance. 3 They offer a broad range of loans to their customers, and a special loans program to the Rwandan diaspora living abroad and wishing to own a home in Rwanda. In addition to loans, savings plans and savings accounts are also offered to diasporans when they enter the program, and the other housing loan conditions are applied to them.4 As of January 2009 the bank had lent to approx-

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imately thirty people from the diaspora. Their average housing loan is approximately RWF$25 million, or US$50,000 and they are usually provided to middle-class clients.5 They have been advertising their program to the diaspora via their website and the Rwandan Embassy, but they have no other formal marketing campaign. Access to financial services is limited in Uganda, especially for the poor and for rural Ugandans. Stanbic Bank estimates that 62 percent of Ugandans are unbanked, a percentage that rises to 92 percent in rural areas (Orozco 2008c). Northern Uganda has the lowest level of penetration on the part of financial institutions, owing largely to ongoing political instability in the region. The high cost of doing business, deficiencies in transportation and communication, and diseconomies of small size may explain the high cost of banking services and institutions’ inability or unwillingness to expand into new regions and markets. The limited geographic reach of formal financial institutions in Uganda may be the biggest obstacle to accessing credit and savings products for Ugandans. Nevertheless, financial institutions (banking and nonbanking) are formidable players in money transfers and exhibit a greater potential to leverage the flows beyond just transactions by promoting the cross-sale of financial services. Interviews with banks showed that in some cases they make some effort of cross-selling financial products, but more can be done (Orozco 2008c). Diamond Trust Bank (DTB), for example, developed a strategy to cross-sell to remittance recipients. The staff at DTB’s branches invites recipients to sit down and learn about the bank’s products. The exercise includes a discussion of their products and the advantages to clients to improve their financial management. Currently, only about 10 percent of DTB’s Western Union clients have bank accounts, and DTB is hoping to increase the conversion rate. DTB is also considering a strategy in which the bank’s Western Union subagents would help remittance recipients fill out forms to open savings accounts. To encourage subagents to open accounts on behalf of the bank, DTB is considering giving the subagent a higher commission on that customer’s Western Union transactions. Currently, subagents get 70 percent of the commission. With all of its customers, DTB focuses on opening savings accounts. To encourage savings, DTB has a financial literacy effort to encourage the habit of saving. According to bank executives, remittance recipients are more interested in savings accounts than other products (Orozco 2008c).

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Barclays Bank sees itself as engaged in cross-selling. The bank has offered a promotion to target remittance recipients and has managed to open new accounts through this effort. The bank has trained cashiers to talk to recipients about the bank’s products. Cashiers encourage recipients to put money into an account instead of walking out the door with all cash. Moreover, Barclays has been considering mobile banking for payments and account inquiries, but hasn’t considered mobile banking for remittances. Centenary Bank, a former microfinance institution, is another Western Union agent. The bank was a subagent from 1998 until 2007, processing about 6,000 Western Union transactions per month. Bank executives interviewed believe that 90 percent of the money is used for “family upkeep,” while 10 percent is used for savings and medical expenses such as medicine.6 In addition, the bank processes about 100 SWIFT person-to-person transfers, many of which are likely to be deposits into savings accounts. Centenary Bank also reflects the belief that financial cross-selling is important. Cashiers are trained to offer accounts to remittance recipients, and they are trained in all of the bank’s products and given incentives (such as T-shirts) for increasing transaction volume. In addition to on-the-job training, Centenary also holds annual “conventions” to train its Western Union operators. To further promote their Western Union business, Centenary offered a “Back to School” promotion in which remittance recipients could enter a raffle to win UGX500,000 (US$307).

The Role of Microfinance Institutions Aside from commercial banks, some MFIs have been leading the way in bancarization efforts. Microfinance intersects with remittances because MFIs serve a physical and geographic base that often coincides with the places where remittance beneficiaries live. Regarding this relationship between microfinance and remittances to promote economic development, Orozco and Hamilton defined the linkage as “a condition in which microfinance institutions offer remittance transfers in underserved areas through an effective market presence, selling tailored financial services based on a systematic understanding of the remittance recipient market” (2005b: 2). Specif-

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ically, a number of factors affect MFIs’ capacity to increase the development impact of remittances, including (a) MFIs’ geographic presence in underserved areas, (b) their market position, (c) the effectiveness of these institutions in providing a broad range of financial services, and (d) the quality of transfer technologies and management information systems. Hastings, consistent with experience and previous studies, highlights the valuable opportunities that “entry into the remittance market represents for pro-poor microfinance institutions” (2006: 6). These opportunities include the ability to provide a quality product at a low cost, help clients build a safety net, attract new clients and open opportunities to cross-sell other microfinance products, increase loyalty among existing clients who receive remittances through the MFI, generate income (and ultimately profits) from a fee-based product, and mobilize savings from incoming remittances as a means to strengthen the lending capacity of the MFI. In turn, development institutions have increasingly welcomed the idea of the remittanceMFI nexus and are financing more projects linking microfinance institutions with remittance transfers. Most MFIs have a moderately effective presence vis-à-vis the major competitors, but whenever they are present, they are “strategically placed to provide a wider range of financial services than remittance recipients might otherwise have” (Hastings 2006: 37). In addition, most MFIs offered transfer costs below the market average. Nevertheless, only one-third of the MFIs offered financial services to remittance clients (Hastings 2006). This section examines the role of microfinance in the market for remittances and financial intermediation, highlighting case studies on microfinance institutions in Latin America, Europe, and Africa.7 First I look at the spectacular growth of MFIs in the remittances business since 2000, with particular attention to the reasons MFIs chose to get into the business, their unique geographical advantage, and the challenges and opportunities they face in a competitive remittances marketplace. Next, I examine the role of MFIs as financial intermediaries; they have a very special role in providing a missing link between financial access and development in rural areas. I consider the experience and opportunities of financial institutions in designing special products for remittance senders and recipients, as well as cross-selling traditional financial products through innovative marketing techniques, such as financial education.

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Growth of the MFI Sector In the last five to ten years, there has been a boom in microfinance institutions getting into the remittance business as payout agents for MTOs. One-third of MFIs that entered the market did so within ten years of a global expansion of retail money transfers and can be seen as the first generation of MFI payers. Many microfinance institutions first decided to participate in the remittance market because they recognized the extent to which their branches were already working with clients whose relatives were migrants or clients who had raised some of their collateral or working capital through savings accumulated thanks to remittance transfers. Many of these institutions have benefited from an important new revenue stream through remittance transfers, but have yet to tap into further opportunities such as crossselling financial products. Looking closely at several leading global MFI networks, in 2008, 39 percent of their member institutions in Latin America and Africa, and 31 percent in Asia, had entered the remittance business.8 Across Latin America, Africa, and Asia, MFIs that have entered the remittance market exhibit different characteristics from those that have not (see Table 6.1). For one, in all regions, older and more established MFIs are the ones that have tended to enter this new product market. Remittance-paying MFIs tend to have a larger number of branches and a significantly larger lending portfolio relative to institutions that do not pay remittances. They also typically have a larger presence in rural areas. These differences may suggest their comparative advantages as payers and the main reasons for providing remittance services: branch network size, portfolio size, and rural position. These MFIs are representative of the microfinance world. They have portfolios that are representative of MFIs in their respective countries and also form part of a global or regional network, as is the case of INAFI International or Forolacrl. Bansefi was selected on the basis of its nationwide presence offering saving products to people living in poorer areas of the country. MFIs’ average monthly transfers are relatively small and vary across world regions. In the Americas, the median transfer value paid out by MFIs is US$200. In Asia, the median value paid by MFIs is even lower, at US$113. Interestingly, the median and average value of transfers paid by African MFIs is larger than that of other regions, at US$425. This may be partly due to the fact that MFIs in Africa

Table 6.1

Median Size and Characteristics of MFIs That Pay and Do Not Pay Remittances Does Pay Remittances

Africa Inafi International Americas L@Red de la Gente Forolacrl Inafi International Asia Inafi International

Does Not Pay Remittances

Branches (number of)

Rural Branches (number of)

Year Started

Lending Portfolio (US$)

Branches (number of)

29

18

1993

30,796,289

15

5 17 17

1 5 12

1996 1993 1992

4,368,500 11,650,000 10,500,000

149

138

1988

19,058,100

Rural Branches (number of)

Year Started

Lending Portfolio (US$)

8

1996

2,117,740

7 10

2 7

1994 1997

2,500,000 6,400,000

12

11

1993

1,762,255

Source: Orozco 2008b. Note: Data on MFIs are obtained from three different microfinance networks: Inafi International, with operations in 114 countries; L@Red de la Gente, a network of small savings banks operating in Mexico; and Forolacrl, a Latin America microfinance network with more than 100 members operating in over twenty countries.

137

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often work as subagents of banks and thus receive transfers from larger MTOs. The growth in transfer volume from the time most of these MFIs entered the remittance market to the time they were interviewed (two years) has been tremendous. Volumes rose nearly ten times for transfers to the Americas and Asia and doubled to Africa. Latin America is the region where microfinance institutions have perhaps advanced the furthest in the remittances business. Due to a highly competitive environment and a favorable regulatory environment, many institutions have been able to grow their remittance transfers to spectacular numbers. This broad and rapid growth of MFIs in the remittances business reveals MFIs’ strategic positioning as payout agents, particularly in rural areas underserved by banks and retail payment networks, but the growth also holds important lessons about profitability, strategy, and the potential to harness these flows for development. Caja Popular Mexicana (CPM) shows how many institutions develop greater payment capacity and traction in the second or third year of receiving transfers from their MTO partners.9 CPM is a nationwide credit union in Mexico that experienced dramatic growth in its first five years of operation, partly due to alliances with a number of MTOs. With an institutional mission to contribute to the improvement of clients’ lives through financial education on savings, mutual help, and responsible use of credit via the provision of quality financial products and services, CPM decided to enter the remittances market in August 2003 to expand its product offering. The credit union initiated its remittance transfer service in partnership with Vigo, and later negotiated deals with MoneyGram and Uniteller. In its first year in the remittances business, CPM paid out 2,977 transactions totaling over $1.24 million. In 2007 the credit union paid out 306,642 transactions—62 percent of which were processed through Vigo and 36 percent through MoneyGram—totaling over $117 million. Their average transaction is relatively higher than that reported by the Bank of Mexico. As of 2008, CPM’s number of transactions has grown to around 23,000 monthly. As the company adds another MTO, these volumes are likely to grow partly because of its reliance on one major provider, Vigo, which pays two-thirds of the transfers. Even without the advantage of working through multiple MTOs, some MFIs have managed to become formidable players in the countries where they operate. Financiera El Comercio, a Paraguayan MFI with more than thirty years of experience in the country and more

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than two decades in the rural and agricultural sectors, has become one of the largest payers in Paraguay.10 El Comercio entered the remittances market in 2004. Since then, El Comercio has grown dramatically from fewer than 500 transfers in 2004 to over 40,000 in early 2008, transferring US$12 million monthly. Such growth places them with 50 percent of Western Union’s market in Paraguay. El Comercio’s success in the remittances business can be attributed to its advantageous geographic presence in rural areas. Paraguay is among the most rural societies in Latin America, and particularly in South America. Its population relies significantly on agricultural production, and most of El Comercio’s credit goes to serve that market: 60 percent of its clients are small entrepreneurs, most of whom (80 percent) are rural based. Moreover, 33 percent of credit goes directly into agriculture and cattle. According to a survey conducted by El Comercio in Spain, only 38 percent of Paraguayan migrants were sending the money to the capital; the rest were sending to rural areas all over the country. Positioning between the location of an institution and the geographic destination of remittances is a key defining factor that can only be determined with a systematic survey of remittances into a given country, matched to the branches and operations in different communities. Like Financiera El Comercio, the Federation of Salvadoran Savings and Credit Cooperatives (FEDECACES), has used its geographic positioning as a competitive advantage.11 With operations in rural areas where remittances are destined, FEDECACES has been able to negotiate MTO partnerships that are advantageous to both parties. FEDECACES was one of the institutions to offer remittance services quite early in the development of money transfers. The federation started in 1998, offering payments in small numbers, but it became significantly active in 2002 after negotiating with MTOs in order to be their agents through agreements with the World Council of Credit Unions (WOCCU). WOCCU initiated negotiations with Vigo, a successful money transfer company that was later in 2003 bought by an investment firm, and again in 2006 by Western Union. The management of FEDECACES realized early on that in order to capture remittances, they needed to work directly with MTOs. As a result, they have engaged over time with more than one MTO. At the end of December 2007, FEDECACES was paying nearly 25,000 transfers a month, or 300,000 a year. Although they have

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experienced significant growth, the increase from 2005 to 2008 was not as fast as in the initial period in 2002. As a result, FEDECACES has expanded its partnership with more MTOs with the aim of increasing the number of transfers and connecting with more consumers. In terms of revenue, the federation and its members are sharing the revenues and costs for payment and obtain US$2 per transaction, which is more or less split between the federation and each cooperative. As with other agents paying remittances, not all transfers are evenly distributed throughout the member cooperatives. Rather, a geographic distribution often mirrors migration patterns. FEDECACES (2007) found that six out of the twenty-six agents paying remittances are paying nearly 80 percent of all transfers, particularly from Acodjar and Acaciba. Clearly MFIs have a unique advantage in the remittances marketplace, as demonstrated by Financiera El Comercio in Paraguay, which took advantage of the fact that most remittance recipients in that country live in rural areas, and CPM in Mexico and FEDECACES in El Salvador, which have shown that their rural advantage can be even further strengthened through strategic partnerships with multiple MTOs. Additionally, as the survey data from Africa show, MFIs help to formalize the remittances marketplace, bringing remittance services into rural areas underserved by traditional providers, where transfers may otherwise be highly informal. As in Latin America, MFIs in Africa have benefited from their geographic advantage over banks and other payers in rural areas. A survey in 2009 (Orozco 2010) found that 25 percent of clients and neighbors of MFIs belonging to the INAF International network receive remittances. The surveys were carried out in nineteen countries with 200 clients of microfinance institutions and 400 neighbors in the vicinity of the MFI branch locations in collaboration with INAFI-network MFIs. The vast majority of these MFIs (88 percent) are located outside of the capital, often in rural areas. MFIs in Africa also have the unique opportunity of helping to reduce the use of informal channels to send remittances, a major challenge faced when trying to harness the development potential of remittances. In Africa, the survey of MFI clients and neighbors found that over 30 percent of transfers are handled by informal or unlicensed companies (over 60 percent of transfers are handled by

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money transfer companies, predominantly withdrawn from a bank or foreign exchange agent), while account-to-account transfers account for 6 percent). Perhaps not surprisingly, those remittance recipients who are clients of an MFI are more likely to receive money through a licensed means (such as an MTO paying out through an MFI) than non-MFI clients. While recipients may not receive through their MFI, these data show the role MFIs have played in Africa in providing lower-cost formal remittance services to people in rural areas who might otherwise use costly and informal means of transfer. African MFIs have a presence in rural areas where traditional banks don’t reach, but the participation of MFIs in the remittances market in Africa still has a long way to go. International cooperation through technical assistance can be accelerated to ensure the participation of microfinance institutions in the payout of money transfers as well as their participation in financial intermediation. In a number of notable cases, however, MFIs have succeeded in entering the remittances business, yet as discussed in Chapter 4, most African countries only allow MFIs to pay out remittances as subagents of banks. Senegal is a good example of a country with a relatively large microfinance sector that has made significant inroads into the money transfer business, but still has a ways to go (Orozco, Burgess, and Massardier 2010). Indeed, MFIs have participated in the expansion of a competitive remittances marketplace in Senegal by undermining the prevailing trend in Africa whereby the largest MTOs demand exclusivity from their agents. Among MFIs that pay out remittances in Senegal, all but one are paying out remittances for more than one MTO, and they are all looking to add new operators as well. One of the biggest payers in Senegal is the country’s largest microfinance institution, Credit Mutuelle du Senegal (CMS), which pays out about 50,000 Western Union transfers per month (compared to 90,000 transactions by the largest operator in the country, the post office). In 2009 the MFI paid out some US$180 million in remittances, in a US$832 million market. CMS has 188 branches in Senegal, with just over half located in rural areas. The MFI also does a significant volume of domestic transactions. In January 2010, it paid out 21,000 domestic transfers, adding up to about CFA700 million per week (US$1.5 million). In addition to CMS, PAMECAS, and ACEP, at least two other MFIs are very involved in the remittances marketplace, despite their

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relatively low volumes of about 1,100 transfers each per month. 12 U-IMCEC, a predominately rural MFI composed of four agricultural mutual societies, has thirty-nine points of service for money transfers. U-IMCEC pays out Money Express transfers as a subagent of Banque Regionale de Marche, as well as for CashMoney, a Switzerland-based company, as a subagent of Banque Atlantique. The MFI’s general manager said they noted a decline in remittance volumes in 2009, but transaction numbers remained the same. The MFI also experienced serious liquidity issues in 2009. DynaMicrofinance, a federation of twenty small credit associations belonging to the UNACOIS traders industry association, works with Western Union as a subagent of BRS, with Money Express as a subagent of BHS, and is planning to ramp up its MoneyGram business with a new subagent contract with United Bank of Africa. UNACOIS started offering transfer services in 2002 with Money Express, which at the time operated using fax machines, as a subagent of BHS. Then, from 2005 to 2007, UNACOIS ceased to offer remittances due to technological issues. In 2007 the MFI started up remittances again, this time with Western Union through BRS, and later reinitiated Money Express transfers. Capacity and Profitability The huge inroads made by MFIs into the remittances marketplace have not happened easily. A number of critical factors determine MFIs’ success in the business, which in turn enable or impede their role as agents for harnessing remittances’ economic development potential. For one, data suggest that small or very small MFIs may be less likely or unlikely to pay remittances, or that MFIs with small asset size may not pay (Orozco 2008b). MFIs that pay out remittances tend to have larger branch networks and greater assets than institutions that are not in the remittance business. However, these statistical indicators provide only a preliminary scope of the context. The financial size of an institution is critically necessary but not sufficient to perform money transfers. Small MFIs can pay money transfers provided they have enough cash flow to pay money on a regular basis. A minimum rule of thumb resulting from observing MFIs is that these institutions should have cash flow capacity to pay four transactions (US$1,200 in total) a day at each branch. Financiera Fama in Nicaragua and AMUCSS in Mexico, profiled below, are

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small MFIs with less than US$30 million in assets, yet most of their branches can pay four transfers a day (Orozco 2008b). In addition to financial size and geographic presence, other critical issues affecting an MFI’s success in the remittances marketplace include the type of MTO partnership they have, their market position, investment in marketing, and the commitment to grow and improve their current position. The type of partnership an MFI negotiates with MTOs is one of the most important factors affecting its ability to succeed in the remittances market. The case of AMUCSS in Mexico illustrates the limitations placed on an institution with ambitious goals to bring remittance recipients into the formal financial sector, but a subagent remittances partnership that constrains profitability. AMUCSS (Asociación Mexicana de Uniones de Crédito del Sector Social), a Mexican association comprising credit unions, insurance funds, cooperatives, and savings banks, has been in operation for fifteen years in the area of rural finance.13 The association includes Enlaces, a network of rural microbanks encompassing over fifty different institutions in Mexico. AMUCSS’s main objective is to integrate remittance payments and the bancarizing of the local population, mobilize savings generated by remittances, and invest locally through the use of credit. Their strategy for accomplishing this aim is to design financial products and services—such as savings, credit, and insurance—to attract and maintain clientele in rural communities where the microbanks are located. Local financial intermediation and the capture of migrant savings, as opposed to the mere payment of remittances, is what AMUCSS believes to constitute the appropriate mechanism to enhance development in rural areas of high migration. To strengthen its network of microbanks, AMUCSS has developed close ties with federations of migrant hometown associations in the United States. The existence of these relationships in Illinois, California, and North Carolina helps direct the representatives of these organizations and their remittances through AMUCSS institutions. At one point AMUCSS was paying US$4,000 monthly in remittance transfers through its member microbanks in rural communities, which was aided in large part through agreements with Intermex in Puebla and Guerrero (accounting for 60 percent of the remittances sent). However, due to problems with robberies in some of the communities, the banks decided to interrupt the service temporarily, lowering the volume to a monthly US$1,000 average. Nevertheless, the volume rose again later on, especially with the incorporation of sev-

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eral microbanks in the L@Red de la Gente network. However, such impressive and accelerated growth has perhaps exceeded AMUCSS’s operational capability to effectively bank the unbanked. While the incorporation of remittance payment services has had a positive effect on confidence-building in migrant communities, the problem of profitability remains. The transfers vary from bank to bank, and their transfer operations depend predominantly on the extent to which they are located in areas of significant migration as well as their agreements with MTOs for which they work as agents. Currently, AMUCSS’s main operation has been with Finrural institutions, which made an agreement with a remittance processor, Intermex. Intermex is a company that processes transactions for several MTOs in the United States and offers a commission to the bank. The small commissions that the companies pay (an average of US$1) represent a very small income for the participating microbanks. Even if volume reaches 1,000 to 1,500 remittances per month, the commissions paid by remittance companies only cover the rise in operational costs and perhaps the financial cost of working capital that should be invested. AMUCSS, however, sees their work as a public service rather than as a profitseeking enterprise. Like AMUCSS in Mexico, Nicaragua’s Financiera FAMA works with a subagent model.14 FAMA initiated remittance transfers in October 2003 through a subagent partnership with local cooperatives that have an agreement with Vigo through the WOCCU system. It also established partnerships with a Costa Rican MTO, ServiExpress, and one in Spain, e-transfer. The number of monthly transactions they were making in total as of 2007 is relatively small, 2,500, up from 300 from the year they started. Like AMUCSS, their operation through the partnership with the cooperative may be limiting their ability to grow further, both in revenues and volume.15 Remittances to Nicaragua have historically demonstrated an informal component partly because of the flow from Costa Rica, but also because MTOs have not considered Nicaragua a major market. As opposed to other Central American markets, such as Honduras, El Salvador, and Guatemala, transactions from the United States to Nicaragua are estimated to have increased to 400,000, a figure at least half of any of the other countries. However, competition has increased as MTOs seek to expand worldwide, and the number of transactions exceeds earlier estimates. In 2008, only 12 percent of

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recipients were relying on informal mechanisms. The opportunity of the MFI to improve its payment position is significant, considering that the branch locations where they are located (in 63 percent of places where remittances go) coincide with the national geographic distribution of all flows. In turn, this positioning gives more potential to operate with larger volumes and present itself as an appropriate competitor and payer to more than the current MTOs and under a different mechanism as subagent. MFIs in Senegal face similar challenges (Orozco, Burgess, and Massardier 2010). Most MFIs in Senegal entered the remittances business because of the income diversification opportunity that transfer commissions represented.16 While some MFIs have limited their payout networks to their own branches, others have expanded their footprint by enrolling retailers as their agents. The subagent model is not without its problems, however. Many MFIs would prefer to be direct agents of remittance-sending providers, enabling them to earn full commissions and invest this revenue in expansion, such as by enlisting subagents of their own. In Africa, Senegal is host to some of the strongest lobbying efforts, led by the largest MFIs, to change existing regulation and allow nonbank financial institutions to conduct cross-border payments directly. It is unclear to what extent this lobbying has been effective. The 1997 Parmec law, which authorized savings and credit unions (mutuelles) and cooperatives to offer financial services with approval from the Central Bank, did not result in MFIs’ authorization to be direct MTO agents.17 CMS found an innovative way to get around this regulation. In 2005, CMS established Banque des Institutions Mutualistes d’Afrique de l’Ouest (BIMAO), and today CMS pays out remittances as a subagent of BIMAO. BIMAO also serves as the institution that manages CMS employees’ salary accounts. In their lobbying efforts to obtain authorization to pay out remittances directly, larger MFIs argue that smaller institutions ought to be restricted from being direct agents by placing on them strict capital requirements they must retain in reserve in order to conduct crossborder transfers. Capital requirements are an important element of remittances regulation. Among the MFIs surveyed for this study, many reported experiencing significant liquidity shortages in many cases forcing them to limit remittance payout service. This situation poses a challenge as to the extent to which these institutions can perform successfully in this market. A large MFI with US$50 million in

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assets that pays over 10,000 transactions a month may face liquidity problems if it doesn’t have enough reserves to cash transfers upon demand. The cases illustrated in this section illustrate how important the type of MTO partnership an MFI pursues can be. The cases of Caja Popular Mexicana and FEDECACES, as well as research into many other MFIs around the world (Orozco and Hamilton 2005b), show that partnering with large MTOs or with multiple ones ensures a competitive position, while the cases of many African MFIs—and Latin American MFIs like AMUCSS and Financiera FAMA—show the limitations placed on institutions that operate under a subagent model. Another aspect of key relevance to an MFI’s success in the remittances business is the extent of its commitment to work on expanding and strengthening its market position. Some institutions, such as Caja Popular Mexicana, have adopted remittances as an added service of their overall product delivery to members. Other institutions, such as El Comercio in Paraguay, have introduced the service not only to their clients but also to the community at large, and have sought to expand their presence as a way to effectively provide a value-added product attached to other financial services. There are no right or wrong choices in these cases; however, the impact on development will vary depending on the institutional resources invested to include more clients into a wider range of financial services, and the mobilization of savings into loans in the local economic base. Table 6.2 compares the institutions highlighted in this section.

The Regulatory Context Another issue of concern relating to money transfers among MFIs is capacity in legal and regulatory compliance, or the capacity to follow and demonstrate awareness about rules related to international money transfers. Interviews with Latin American MFIs generated important data relating to their investments in remittance products, the extent of awareness of compliance to international regulations on money transfers, and the role of cross-sales (Orozco 2008b). On this latter issue, MFIs were asked about the aspects of the regulatory environment on international foreign currency payments about which they had knowledge. The large majority had sufficient understanding of AML

Table 6.2

Characteristics of MFIs in the Latin American Remittances Market CPM

AMUCSS

Type of partnership

Direct agent of three MTOs (Vigo included)

Transaction cost

FAMA

FEDECACES

El Comercio

Subagent of Subagent for two L@Red de la MTOs (Vigo Gente, Intermex; included) negotiating directly with MTOs

Agent for 12 MTOs (Vigo included)

Main agent for Western Union

Average

Average

Average

Average

Above average

Market position

Very low positioning

Competitive where it operates

Very low

Relatively competitive

Very competitive

Marketing

Poor or limited

Strong

Poor or limited

Strong

Strong

Institutional position and commitment

Modest

Strong

Modest but shifting

Strong

Strong

Source: Orozco 2008b.

147

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Migrant Remittances and Development

and suspicious activities regulations, but knew much less about the Office of Foreign Assets Control (OFAC) and Know Your Customer (KYC) regulation (see Table 6.3). The response on KYC is surprising because tellers and cashiers at the institutions are quite rigorous about complying with actual KYC regulations. My visits to at least ten branches of MFIs in several Latin American countries and observations of cashier transactions showed diligence in security measures. While performing remittance payments and cross-sales of financial services, cashiers were careful about verifying beneficiaries’ identity by asking for passwords required by the money transfer companies and requiring proper identification that matched the transfer name with the actual recipient. In other regions around the world, microfinance institutions are very well placed to offer remittance services, but they have not been able to do so because of regulatory prohibitions. Looking at microfinance institutions in other regions of the world, particularly in Europe, it is possible to see some similar trends when it comes to MFIs and their link to the remittances market. This section provides the results and analysis of a survey of members of the Savings and Credit Association in Moldova (Orozco 2007f). As part of the economic transition in Moldova during the 1990s, and in a step toward providing rural financial services, the World Bank initiated a rural finance project that created the Savings and Credit Associations (SCAs). SCAs in Moldova are institutions organized as nonprofit organizations, where only the members can make deposits or take loans. The profits earned by the SCA can only be used for operational

Table 6.3

MFIs’ Awareness of International Compliance Rules (in percentages)

Knowledge about . . . Anti–money laundering laws Suspicious activities OFAC list KYC (Know Your Customer) Knows very little about international regulatory issues Source: Orozco 2008b.

L@Red de la Gente

Members of Forolacrl

83 67 22 11 22

86 79 43 14 36

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expenses, saved as a reserve, or capitalized. The activity of SCAs is supervised not by the Central Bank, but by the State Supervisory Board, a state agency subordinated to the Ministry of Finance. The Rural Financial Corporation (RFC) was created as a main financing and refinancing institution that provides SCAs with loans from donor organizations and other creditors.18 As of 2007, there were approximately 550 SCAs in the country, with more than 103,750 members, which is twice as much as in 2002 when there were 475 SCAs with 53,000 members. Deposits of members amounted to US$5.3 million in 2007 against US$2 million in 2002, a significant increase in five years. Although savings mobilized by SCAs increased significantly, they are still far from covering loans made to members. Savings represented only 22 percent of total loans in 2002, and their share has not changed much since then. Compared to commercial banks, SCAs serve a relatively small share of customers, which is partly explained by the limited financial resources concentrated in hands of SCAs. Only 20 percent of all loans were financed by members’ deposits, while 80 percent were provided using the loans of commercial banks. In order to increase the role of SCAs as financial intermediaries, some reforms have been implemented. The last reform took place in the summer of 2007, which produced some major legislative changes. The main objective of the reforms was to increase the efficiency and credibility of SCAs and build a better infrastructure to protect the interests and needs of SCAs. Finally, the reform helped to better define the legal status of SCAs: their types, functions, and accountability. The infrastructural reforms included the creation of a Central Association of SCAs, and of Liquidity and Consolidation Funds. The Central Association will be established to serve interests of SCAs by facilitating delivery of financial services to members and focused on coordinating capacity building, representing the interests of SCAs, conducting research, providing technical assistance, knowledge management, and monitoring activity of SCAs. The Consolidation Fund was initiated with the aim of helping associations to investigate consolidation opportunities, including financial analysis, market study, and legal framework. It will also be used to cover the costs of mergers and acquisitions for approved cases. Finally, the Liquidity Fund will serve to meet needs of SCAs when it comes to additional funding in case of emergencies—that is, a lender of last resort—and will ease the burden on SCAs in cases of crises.

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According to the new legislation, SCAs are divided into three categories. The first type of SCAs will own “A” licenses. They will be allowed to give loans but restricted from taking deposits. Their activity will be limited to one village, and they are accountable to the Supervisory Board. Type “B” and “C” licensed SCAs will be allowed to take deposits and give loans; however, type “B” SCAs are limited to one district (province), while type “C” SCAs are allowed to function nationally. Members of SCAs are generally females in their mid-forties with a personal monthly income below US$130, but with a high level of education. Members are highly interested in both borrowing money and making deposits. The percentage of members who say they save (55 percent) is higher than national averages. However, most of the money is saved informally: only 27 percent of respondents indicated keeping their savings in SCAs, 3 percent save in banks, and 25 percent invest in business (see Table 6.4). The rest save outside financial institutions. The amount of money saved is not negligible. On average, people are saving over US$1,500. SCA members derive their savings from at least one of three main sources: earnings, income from business, or remittances. Sixty-two percent of people who save or invest finance these activities through personal salaries and incomes, while half of these people (33 percent of all who save) have earnings as an exclusive source of savings. Just over one-third of those who save do so through remittances received. Less than half of those respondents rely only on remittances to save. Although most people save and borrow beyond the SCA activity, bank account ownership is low (12 per-

Table 6.4

Methods of Saving in Moldova

Saving Method Savings and credit association Invest in a business Bank or post office savings account Put some money aside from the remittances I receive Put aside bonuses or gifts Source: Orozco and Kabulova 2007.

Percentage of People Who Save 27 25 3 24 18

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cent), but no different from national averages and, in fact, is higher than the figure for non-SCA members (9 percent) (Orozco 2007f). The main reason for not owning an account is not having enough money, despite the fact that the amount of money saved (mostly informally) is not negligible. Only one-third argued that belonging to an SCA was a reason to not need an account. Meanwhile, migration and remittances are significant in the life of SCA members. First, more than one-half of them have a family member who works abroad. Second, 43 percent receive remittances from those migrants. Third, remittances play a role in finances and represent a service that members would like an SCA to provide. The personal characteristics of respondents who receive remittances are similar to those who do not, but there is a larger share of females among recipients. The most popular transfer mechanism is an MTO, which is used by 80 percent of migrants. However, people do not limit themselves: 33 percent of migrants use more than one transfer method, and 38 percent of those who send through an MTO also use other means of transfer. Although the percentage of SCA remittance-recipient members who keep their savings aside without using financial depository institutions is higher than those who do not receive remittances, recipients who save rely on SCAs to put their money away. Overall, the penetration of remittances in rural areas in Moldova has been observed through previous studies (Orozco 2007f). This section showed that people belonging to SCAs—rural financial institutions—also receive remittances. These institutions are highly relevant, as they can function as facilitators of greater financial literacy, intermediation, and technical assistance. In the first case, remittance recipients who are already clients of these associations can benefit from minimum financial counseling by introducing them to literacy classes about money management and moving their savings into the regulated financial institutions. Financial literacy is a missing factor in the intersection between remittances and finance, and may be a reason for low mobilization of resources into these entities. Given the amount of savings people hold, the regularity of transfers they receive, and the reputation these institutions enjoy among recipients, support to SCAs to design and market financial products can enhance financial access and savings mobilization of Moldova’s productive sector. The majority of members rate SCAs quite highly, and the majority of recipients express an interest in having these associations offer

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remittance transfer services. Therefore, allowing SCAs to participate in money transfers would be beneficial to everyone. Such participation can include SCAs to work as subagents of banks, to reach out to remittance recipients who are not SCA members to join in, and to expand and market financial products to those members already receiving remittances. In turn, attracting this cohort would allow SCAs to increase their capitalization and saving mobilization into lending—in particular, to rural Moldovans. This issue of saving mobilization is particularly important given the low access to loans in agriculture. Although banks’ loan portfolios increased steadily by an average of 34 percent between 2004 and 2006, the share of loans to agricultural business dropped from 27 percent to 18 percent in the same period. Therefore, access to capital is still an issue in a context where the productive base of an economy is associated with the agricultural sector. Intermediation of remittances through financial services can help cope with liquidity or the costs of financing. The average interest rates for a small business in Moldova set by banks is around 21 to 23 percent, which is 3 to 5 percent higher than for other enterprises. Moreover, collateral requirements equal to 130 percent of a loan turn into a hard burden for local farmers who are not allowed to offer the land as collateral, according to Moldovan legislation (Buresh and Tornea 2007). Moreover, financial intermediation can include remittance transfers not only as an income resource and savings reference when applying for a loan, but also as a mechanism for credit scoring. People who receive a steady flow of money during a minimum period of years could get a more positive credit scoring. A third area of intervention for SCAs is in the segment of technical advice for business activities. Many remittance recipients often manifest their interest to invest their savings in productive schemes. However, they frequently do so without proper advice. Thus, advertising to and performing technical assistance for business development among recipients of remittances and migrants can be important methods of increasing investment ratios and productivity in the country. Currently in Rwanda, microfinance institutions can only act as subagents of banks when it comes to money transfer services, but cannot pay remittances directly. Currently, however, none of them are doing so. Interviews with the microfinance institutions (Orozco 2009a) did show, however, a strong interest and desire on behalf of the MFIs in the country to work in remittances and offer financial

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services. Nevertheless, these institutions lack the skills and resources needed to operate money transfers, as well as the tools to market financial products to remittance recipients. One example of an MFI interested in the remittance market and a typical kind of institution providing microloans is Vision Finance Company (VFC). VFC was founded by World Vision International’s program in Rwanda, World Vision Rwanda, in 1997. By 2004 VFC became a separate legal entity regulated by the Central Bank of Rwanda and wholly owned by World Vision Rwanda. VFC offers various types of products to its clients, including cooperative loans, agricultural loans, individual loans, and village phone leasing. Over 80 percent of VFC clients are rural, and the majority of all clients, 61 percent, are women. They have about 11,204 clients in their Kigali city branches and 11,696 in rural areas. As of 2008, the bank had US$2.57 million in assets and a loan portfolio of US$1.95 million.19 Bank officials interviewed (Orozco 2009a) expressed a strong interest in offering remittance services to their clients. They further mentioned that they have started a dialogue with Banque Comerciale du Rwanda to soon sign an agreement to pay as subagents of Western Union. Bank officials also agreed that “when [Rwandan] families get money [in remittances] from the diaspora, they definitely save,” and they see the diaspora as a source of investment for the country.20 One of the biggest problems facing the bank as of January 2009 was related to technology, since they still did not have an intranet system in place. Since July 2008 they have been requesting data lines to expand their network in rural areas, but they are still waiting for access. Currently, the government is focusing much of its efforts and human resources on establishing phone lines throughout the country instead. During a meeting with bank officials on January 16, 2009, the possibility of applying for funding from the African Development Bank to realize a project to modernize the government’s systems and technology was discussed.21 Urwego Opportunity Bank of Rwanda (UOB) is a fully regulated commercial bank in Rwanda, founded in June 2007 after a merger of Urwego Community Banking S.A. (formerly a microfinance institution) and Opportunity International Bank of Rwanda S.A. (a new microfinance commercial bank that acquired its banking license in August 2006 to operate in Rwanda). Urwego issued its first microloans in July 1997, and after operating for nearly a decade, it grew to become one of the leading microfinance institutions in Rwanda. As

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of 2008, the bank had twenty-seven branches across the country, 33,692 credit clients (over 85 percent of them women), 9,138 savings accounts, and a portfolio of US$3.2 million.22 The bank is currently exploring ways to deliver banking services beyond conventional banking and considering the possibility of technology innovation for rural areas. Bank officials interviewed showed interest in the possibility of working with one of the leading banks in the country to act as a subagent and pay out remittances to its clients.23 They believe that this step would help them reach their objective of assisting the poor in rural areas. Bank officials hope that cost reduction initiatives are introduced, as they expressed concern for the lack of competition in the market—mostly a result of the prevalence of exclusivity agreements between MTOs and banks in the country. Duterimbere is a nonprofit organization founded in 1991 that provides credit, loans, and business training to women throughout Rwanda. Duterimbere started a project to support foster mothers, who have extended themselves to care for orphaned children. Duterimbere gives individuals and women’s cooperatives working capital loans of around US$150, and the women repay the loans at a low rate of interest over a period of twelve months.24 As of 2008 the bank had five branches across the country, 33,021 clients, and about US$406,000 in deposits. When asked about the possibility of offering money transfer services to their clients, bank officials said they are very interested in doing so, but that currently their intranet systems are not in place.25 They estimated that by March 2009, all of their systems may be computerized. Overall, the three MFIs reviewed in this section could have the capability to participate in remittance transfers as well as to offer financial products to clients and increase the supply for an already existing demand. Their capability to succeed at these tasks, however, depends on fulfilling certain factors relating to technology, cash flow, compliance, and staff training, as well as geographic presence. This is not only the case with these MFIs, but also with most other MFIs operating in different world regions.

Remittance-Linked Financial Products While the previous section demonstrated the unique advantage that microfinance institutions have to bring remittance services to under-

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served areas, the role of MFIs goes far beyond just offering payout services. As financial service providers, many MFIs have begun systematically offering products such as savings, credit, and insurance to remittance recipients, thus helping to address the missing link mentioned earlier in bringing formal financial services to underserved populations. As explored in earlier chapters, a growing number of financial institutions around the world, MFIs included, have developed financial services that are directly tied to remittances, while others have been successful in cross-selling traditional products to remittance clients. MFIs are in many cases at the forefront of these efforts, in part due to their institutional mandates to serve low-income individuals and their geographic presence in underserved areas. Given the low-income financial profile of many low-income remittance recipients, microfinance institutions are often better suited than many traditional banks to provide financial services that meet customers’ needs, such as loans that don’t require banks’ strict collateral standards. In addition, MFIs often have a special affinity with lowincome clients due to their strategic focus on this market segment. In this section I look at the experience and opportunities of MFIs in providing remittance-linked products, developing new products, cross-selling traditional products, and using innovative marketing techniques, such as financial education, to expand access to these products. The role of MFIs in leveraging remittances to further expand services to recipients depends on their varying levels of engagement and commitment. One key aspect that determines an MFI’s success is the trustworthiness that the institution enjoys in the community (see Table 6.5). People are more likely to establish a financial relationship with an institution if they are familiar with its reputation. A second aspect is the familiarity of the institution with its clients. The MFIs reviewed above were relatively familiar with the clients withdrawing remittances and in some cases knew the client very well. This element is a key component to developing a relationship with a client that would foster their uptake of new products and services. The case of Banco de Servicios Financieros (BANSEFI) illustrates how introducing a modern remittance payment platform with a strategy to get people to build savings has a positive effect on the population they serve. BANSEFI is an institution working for the Mexican government with the mandate to increase the financial prod-

156

Table 6.5

Financial Intermediation Among MFIs in the Latin American Remittances Market

Trustworthiness of institution Familiarity with clients Staff awareness of the role of remittances in the financial asset chain Institutional commitment Financial product design Financial product marketing Organic growth of transactions Source: Orozco 2008b.

CPM

AMUCSS

FAMA

FEDECACES

El Comercio

Strong

Strong

Widely recognized

Strong

Strong

Moderate

Strong

Moderate to strong

Very strong

Strong

Unclear

Relatively strong

Limited or weak

Relatively strong

In progress

Unclear

Strong

Committed

Strong

Strong

None

Several products

One product

Active

In progress

Unknown

Comprehensive

Limited

Active

Limited

Limited

Significant

Limited

Significant

Moderate

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ucts and services available to the Mexican population, particularly those Mexicans with low incomes. BANSEFI created L@Red de la Gente, a pool of popular banks, MFIs, and credit unions to act as a remittance payer. It established arrangements with companies like GiroMex and DolEx and has extended its partnerships to Vigo, MoneyGram, El Camino Transferencias, Via America, and Moneyda. BANSEFI also works with US banks and Directo a Mexico, the Federal Reserve Bank of Atlanta’s partnership with the Bank of Mexico. BANSEFI offers financial products and tries to give individuals a sense of financial culture. As part of its Partnership for Prosperity program between the Mexican and US governments, BANSEFI is trying to disseminate information about the costs of remittances from the United States. It is also working with other institutions to teach people about the benefits of using the account-to-account transfer system. Savings and credit institutions (SCIs) are beginning to play an active role in this market. Together with BANSEFI, sixty-nine SCIs form L@Red de la Gente. This alliance has enabled SCIs to participate in the distribution network of remittances through contracts negotiated by BANSEFI. Under this scheme the members of L@Red de la Gente can offer financial services in their communities, mostly low-income urban and rural areas where the formal financial system has no coverage and also where many migrants originate. Once the remittance is paid, member institutions of L@Red de la Gente have the incentive to open savings accounts for the migrant and their family, knowing they have an income source. BANSEFI’s extensive distribution network is well-positioned to serve Mexicans in areas where commercial banks have no presence or knowledge of the local market. The transformation and formalization of the sector will contribute to deepening the Mexican financial system, allowing more people—particularly those with low levels of income—to have access to financial products and services and new opportunities to promote their own personal financial growth. BANSEFI’s L@Red de la Gente has grown to a network of 1,385 branches throughout Mexico, servicing over 700 municipalities. Only two banks, Bancomer and Banamex, can boast more coverage. Despite its relatively recent startup, L@Red de la Gente has managed to capture 2 percent of the market share of the remittance market, and the 120,000 remittances paid out in May 2007 represent a 28 percent year-on-year growth.

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BANSEFI has been actively promoting Directo a México as a faster and cheaper method of sending remittances, as transfer fees are significantly lower and money is deposited directly from account to account the next business day. BANSEFI is in the process of expanding the reach of this initiative by having more of its banks connect to the system as well as attempting to expand the number of participating banks in the United States. Already, 250 accounts in Mexico have been opened to specifically take advantage of the Directo a México payment scheme, and BANSEFI has found that the average transfer to these accounts is much higher than traditional cash-tocash transfers. In addition, the balance of these accounts (after several months) tends to be double the amount of other conventional accounts. As a method to “banking on both sides of the border,” BANSEFI has also introduced the BAR (Beneficiary Account Registration) System. This innovative tool allows US financial institutions to preopen an account at any BANSEFI or participating L@Red de la Gente credit union branch for a third-party beneficiary in Mexico, who then has ten days to go to the selected branch, formalize the account, and receive their money. By increasing financial access in Mexico and promoting bank usage, BANSEFI has removed the obstacle in account-to-account remittances from the United States to Mexico. Banking individuals on both sides of the border will be an effective solution in reducing the cost of remittances. In turn, migrants will have access to needed financial products, so their income and remitted funds can be used to improve their standard of living through access to savings accounts, health and life insurance, and pension funds, as well as investment opportunities to build or improve housing through access to credit. While BANSEFI has experienced significant success in reaching remote corners of Mexico, there still remains the challenge of attracting more migrants in the United States to their services. Many still hesitate to provide banks with any sort of personal information for fear of deportation. Furthermore, BANSEFI has yet to implement all of its financial products and services throughout its branches. Increasing the financial literacy of existing and potential customers also remains a task to be tackled more effectively. BANSEFI sees the account-to-account transfers as the most valuable product for remittance recipients. While reduction of costs and

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fees associated with remittance transfers is a major goal of BANSEFI, it also emphasizes customer service. Most bank officials are from the local community and seek to treat their clientele with understanding and respect for the vital role they play in Mexico’s development. In addition to promoting the benefits of account-toaccount services, BANSEFI seeks to expand its product line to include stored-value cards as it has embarked on a pilot program in Orlando, Florida. On the marketing side, the Mexican Foreign Ministry’s Institute for Mexicans Living Abroad and BANSEFI invite banks like US Bank, Wells Fargo, Bank of America, HSBC, and Citigroup to discuss remittance and other services with hometown association leaders. Individual banks will then follow up with the associations, invite them to the branch, let them observe their Spanish-speaking employees, and make them feel comfortable. Word of mouth has been effective in the United States and proved the best strategy in Mexico. BANSEFI opened an office in the Mexican Consulate in Chicago as a pilot marketing program. The office distributes information about BANSEFI’s remittances and other products. The case of the Federation of Credit Unions in El Salvador, FEDECACES, also demonstrates financial intermediation efforts by credit unions. The commitment to reach out to remittance recipients is translated into a series of instruments that seek to expand the membership of the credit union with remittance recipients. To FEDECACES, financial intermediation or financial inclusion has been the driving force in offering remittances. The executive group at the federation sees the relevance of remittances beyond the earning itself, and as a source of financial asset building. To the executive director of FEDECACES, the savings and credit cooperatives are effective instruments of financial inclusion and mobilization of remittances into the local economy.26 Therefore, the federation has worked toward increasing financial access to clients receiving remittances, while seeking to mobilize savings into the productive sector. The result of this effort has been successful overall. The federation has encouraged cooperatives to offer membership into their base and in turn offer a range of financial services. They have not only pursued an effort to increase deposits but have also tried to understand the demographic, socioeconomic, and financial profile of recipients. The federation has conducted surveys on its remittance recipient popula-

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tion, offered training to the staff to offer membership into the cooperatives, and strengthened its technology platform and staff in order to have an effective money transfer system. The effort to get people into the institutions has yielded important results. FEDECACES estimates that at least one-quarter of remittance recipients have joined the membership (at least 5,000 people in four years). Data collected for ACACCIBA, the cooperative operating in Ciudad Barrios and nearby rural areas of San Miguel, show that 34 percent of members are recipients of remittances. More importantly, the number of deposits into that cooperative is 80 percent of all deposits in the area and 16 percent of all credits. The lower percent in credits may reflect important features relating to remittance recipients as well as the local credit market. In the first case, surveys of remittance recipients show that less than 10 percent of people invest or borrow for some economic activity. Second, although access to credit is generally small in developing countries, the presence of microfinance institutions may represent an alternative to credit unions in borrowing among remittance-recipient households interested in microloans relating to small economic activities, such as house improvement, acquisition of durable goods, or some small business. The statistic they have captured reflects those recipients, 856, who have converted into the cooperative’s membership as a ratio to all members. The use of such a metric to assess the conversion is an important one, as it reflects the performance of financial inclusion within the community. FEDECACES has also identified that its value-added is stronger in rural El Salvador, perhaps because they have more presence and prominence than commercial banks in those areas. Still, FEDECACES competes often with some MFIs—hence the lower credit size of its portfolios among recipients. Nevertheless, for a cooperative in a semirural community, ACACYPAC, located in Chalatenango and near San Salvador, shows interesting results. Specifically, 10 percent of all members are remittance recipients (people who withdraw within the FEDECACES system), and their participation in deposits is much lower than in the other cooperative. Although Asociación Cooperativa de Ahorro Crédito y Producción Agropecuaria Comunal de Nueva Concepción de Responsabilidad Limitada (ACACYPAC) is doing half the volume that Asociación Cooperativa de Ahorro y Crédito de Ciudad Barrios is doing, its level of bancarization among clients is dra-

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matically lower. The reasons for this difference stem in part from the number of recipients relative to the population, their income, and more presence of banks and institutions from which to choose. FEDECACES is perhaps the most successful SCI in terms of gradually and systematically expanding its financial services to remittance recipients. Nevertheless, the senior management also recognizes that they need to improve their growth in money transfers and their strategies to deepen financial access. Staff operating in communities where remittances are a more active aspect of life are able to recognize the value of the flows as a tool to provide other financial services. Cross-selling is still incipient, despite the efforts of bancarization, partly because personnel who are truly dedicated to offering services are still lacking in many places. Moreover, management and staff agree that performing direct financial education with clients is an essential step. In particular, management observes that the transition from remittance client to cooperative member can be lengthy without strategic interventions to reach out to the community. Instead, many may not join at any point in time. However, educational efforts have succeeded whenever management and staff reach out and work with those recipient clients. Still, the systematic effort attached to a methodology on financial practices is an integral part of the intervention. FAMA adopted a concrete approach to financial intermediation for remittance recipients by providing home improvement loans. Through technical assistance from Accion International, FAMA conducted fieldwork research to identify areas of interest for remittance clients and found home improvement loans as a cross-sale product. FAMA prepared the product and designed basic marketing brochures to be distributed throughout the institution’s branches. Two products were created: “Mejora de vivienda de corto plazo” and “Hipoteca de largo plazo.” In the first one, FAMA sold 224 short-term house improvement loans for a total of 3 million cordobas (US$160,000). In the second one, the number of mortgages amounted to nineteen for a total of 982,000 cordobas (US$52,000). Both loans are relatively small with an average of US$700 and US$2,700, respectively. The bank executives see this product underperforming and would like to increase it. The product, however, is minimally promoted through the distribution of brochures and teller advertisement at the window. As the bank restructures, they would like to offer other products they believe would have more traction.

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Expanding Financial Access Among Remittance Recipients Expanding financial access among remittance recipients requires attention to both the supply and the demand side. On the supply side, MFI staff need to prioritize this clientele and proactively develop products and related marketing. On the demand side, remittance recipients can benefit from financial education about the merits of savings and budgeting. The Supply Side The awareness of MFI staff about the value of remittances as a key ingredient of finance and development is a critically important issue. The bank’s staff is the link between the supply and demand of financial services and often can strengthen an institution even when the leadership is not fully committed or engaged. In most MFIs around the world, however, staff are not fully trained or aware of the financial significance of remittances. While they understand the role of these flows in the overall context of migration, their understanding is more sociological than financial. This reality poses a challenge regarding the ability of the financial institutions to work on money transfers and financial intermediation. Sixty percent of MFIs claim that they have invested in marketing to increase competitiveness, and that since offering money transfers, their business has improved (see Table 6.6). Among the reasons given are increases in client deposits and appreciation for client services. In fact, over one-third indicated that remittance clients are

Table 6.6

Selected Latin American MFIs and Institutional Investment (in percentages)

Have you invested resources to compete in money transfers? Have your MFI businesses improved since offering money transfers? Source: Orozco 2008b.

L@Red de la Gente

Members of Forolacrl

59

57

65

63

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using other financial services (see Table 6.7). Overall, executives at MFIs think one-quarter of their typical clients receive remittances, and one-quarter of these use the MFI to receive funds. However, the percentage is relatively small considering the already low number of transfers the institutions are conducting and the number of clients they usually have (averaging 15,000). The following cases of Caja Popular Mexicana, the Guatemalan Federation of Credit Unions, the Dominican microfinance Asociación Dominicana para el Desarrollo de la Mujer (ADOPEM), and the association of rural banks in Mexico, AMUCSS, illustrate a middleof-the-road approach. That is, financial institutions such as credit unions or MFIs may understand the importance of remittances within the spectrum of financial intermediation, but are yet to reach substantive success, partly because they lack a systematization tool to measure the impact of their policies or because they are yet to reach economies of scale. Caja Popular Mexicana’s remittances service is available to clients and nonclients and has been used as a tool to attract new clients to the credit union, though statistical indicators tracking the number of new clients from this service do not exist. Meanwhile, the Caja has yet to provide an effective strategy and approach to cross-sell other financial services. Their focus has consisted so far in raising their volume and providing the service to clients in the areas where they are operating. In places where there is some volume transferred (that is, above ten transactions a day), the staff is generally aware of the number of clients that come to the Caja Table 6.7

MFI Clients and Remittances (in percentages)

MFI clients who receive remittancesa MFI clients who receive remittances through the MFI Remittance clients who are using other financial services

L@Red de la Gente

Forolacrl

26 30

22 20

52

35

Source: Orozco 2008b. Note: a. The difference between the first two responses is that the first question asked who among the MFI clients receives remittances, regardless of the MTO system and agent they use. The second asked if any of the typical MFI clients who receive remittances cash the money through them. Many MFI clients receive remittances but do not withdraw the money at the MFI and instead use another agent.

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to withdraw their remittance and are often familiar with their needs and background. However, they do not offer financial products. Interviews with remittance clients withdrawing the money confirmed their interest to have some other financial relationship, be it a savings account or a small credit for production (Orozco 2008c). One client expressed that she would happily put money aside during the transfer into a savings account, whereas another client suggested that she would apply for a loan to expand her husband’s cattle business to acquire more cows (Orozco 2008c). From the perspective of senior staff, one reason for the absence of a strategy is their focus on offering this financial service and letting consumers decide about other products. These executives, however, do not disagree that Caja could and should embark on a more systematic approach to financial intermediation. They recognize that greater awareness of the significance of the remittance-recipient market is needed to engage it into a business venture. In that regard, they identified some steps to enhance financial intermediation, as discussed below. The performance of Caja in money transfers and financial intermediation suggest that they are an underutilized institution that can offer greater volume in several Mexican states where they operate and that migration is important. When it comes to money transfers, Caja can double the number of transactions; at less than 30,000 for a strong institution, they are a formidable partner for several MTOs. Caja is similarly positioned to be a player similar to Banrural in Guatemala, which established payment agreements with more than ten MTOs and is a leading payer in the country (Orozco and Hamilton 2005a). From the financial services perspective, Caja also offers some important opportunities to incorporate a larger pool of remittance recipients independently of whether they withdraw remittances at their location. In those places where its branches have volumes of over twenty transfers a month and bank staff are familiar with the remittance client, they can approach the consumer and offer financial products. The staff at Caja use a feature in the platform to tell whether the remittance client is also a Caja member. The feature, however, does not have any data content or analytical purpose. Senior staff see the systematization of this feature as a step forward to identify the current financial profile of those remittance clients and to

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have at least a sense of the percentage of those who receive remittances and are also members. Another consideration found to be important among senior and branch management was financial literacy. The local management at the Cajas recognizes that a key component of maintaining a relationship with the client is to transmit basic knowledge of finances. The challenge they face, however, is how to transmit that information and knowledge as well as who can do this task. This latter point is relevant, because cashiers and tellers are those who have a better relationship with clients, but their attention time span may be limited to the actual transaction, which often is less than ten minutes. In Guatemala, the Federación Nacional de Cooperativas de Ahorro y Crédito de Guatemala (FENACOAC) is an institution comprising twenty-six member cooperatives and 104 branches. As of 2006 FENACOAC was making 30,000 transactions a month, totaling more than $150 million each year. It has three member institutions— Coosadeco, Guayacan, and SalCajá—which together manage over 12,000 transfers a month. Coosadeco has a savings promotion strategy that consists of matching 10 percent of the amount saved by a recipient household. Less than 5 percent of recipients currently have savings; however, the cooperative has had a 70 percent success rate in recruiting clients to become members. Guayacan Cooperative has three objectives with regard to its remittance services: (1) increase the volume (for increased profitability), (2) foment a savings culture and expand captured savings, and (3) increase cooperative membership. SalCajá Cooperative is an MFI that operates in rural Quetzaltenango and has a working group on “Microfinance, Sustainable Development, and Migration,” involving eight MFIs, two credit unions, two NGOs, a group of donors, and Latin American Faculty of Social Sciences (FLACSO). The group has designed a project that links remittances and development through microfinances in Guatemala’s highlands of Soconusco. SalCajá is also interested in working directly with clients to offer financial products that include pension funds, education scholarships, life insurance, medical insurance, small business credit, home equity funds, and savings packages. ADOPEM is one of the largest microfinance institutions in the Dominican Republic. It offers credit to 86,000 clients, and has 82,000 clients with savings accounts. The average credit loan is US$400, and their average savings account holds US$30. ADOPEM

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acts as a remittance receiver and payer (they have agreements with Quisqueyana—an MTO with a large presence in New York—and Banco Hipotecario—one of the largest commercial banks in the Dominican Republic—and in 2008 signed an agreement to pay remittances for Remesas Dominicanas). As of 2008, about 1,500 of its clients received remittances, representing 32 million pesos (US$74,000). ADOPEM has two projects in the area of remittances that are also aimed to bancarize their clients. In 2005 ADOPEM signed an agreement with the Inter-American Development Bank (IADB) to begin a remittance bancarization program (Proyecto Remesas y Desarrollo Rural). They also developed a savings program with the Spanish foundation Cooperación al Desarrollo y Promoción de Actividades Asistenciales (CODESPA) and a project of bancarization of remittances from Spain. ADOPEM has developed five products to meet its program objectives, including credit for business startup; credit for purchase or construction of a new home, or remodeling of an existing home; credit for schooling or vacation; affordable insurance (including accident insurance for five Dominican pesos and funeral insurance for ten Dominican pesos); and micropensions. Furthermore, ADOPEM clients receive technical assistance, training, and community development workshops designed to enhance their understanding of business administration, creation of new businesses, and vocational training. For example, ADOPEM offers several workshops, including “Savings,” “Administration of Remittances,” and “Financial Products Offered by ADOPEM.” The results of their financial literacy program suggest that about 3,600 of their clients who receive remittances have received financial education.27 About 10 percent of remittance clients who received training opened a bank account. However, this percentage includes people who received remittances through the bank but were not previous clients of the bank; thus, they did not have a relationship with the bank before the training. Of the remittance recipients who were already clients of the bank and attended the trainings, about 95 percent have bank accounts now. Bank officials stressed that the main difficulty facing them is to get people to come to the bank. To do this, they offer special deals and savings cards, and promote a welcoming atmosphere in their bank that does not intimidate new clients. In response to technology and software applications, most MFIs said they use software platforms provided by the MTOs, and half of

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those said that they have integrated the software into their own systems (Orozco 2008c). This type of system integration is predominantly used to reconcile MFI account payment systems with the transfer information provided by the MTO. Integration is on a transactional basis rather than customer basis, so MFIs are not able to develop client profiles and track these clients’ use of or demand for financial services. Ideally, an MFI would need a customer relationship management (CRM) application to enable this type of analysis. Few of these MFIs have developed this degree of integration in part because they have yet to figure a method to do so and justify the relevance of doing it. AMUCSS is perhaps one of the first MFIs in Latin America and the Caribbean to clearly underscore the significance of financial intermediation to recipients. Its commitment to increasing and mobilizing savings in rural Mexico has been informed in part from the realities of the lack of financial access and from the observation of their clients’ savings and investments associated with the inflow of remittances. Moreover, the association has interpreted the mobilization of remittance savings according to a reality that reflects patterns in the local communities. This mobilization includes what they call “forced savings,” which are savings that people put in lieu of investment opportunities in the local economy, or “exclusive savings,” which apply to those who intentionally program their budget by setting aside some money. In addition, AMUCSS has developed several insurance products including body repatriation and remittance insurance that covers the recipient’s income for six to nine months in case of extreme emergencies. One of these insurance products is called “Tu Tierra en Tus Manos” in cooperation with SEP-USA, which will also sell life insurance in Mexico. One of the results of its offer of financial services, savings in particular, is that remittance clients have increasingly opened savings accounts. In 2007, the number of remittance-recipient clients who opened savings accounts rose in December to 43 percent. These percentages are perhaps the highest among all financial institutions paying remittances. The success in getting an increasing number of people into the rural banks is associated with several factors. First, many of those receiving remittances were already members. Second, the relationship that the bank has with the community builds trust and gives people motivation to seek to put their savings at the local bank. Third, the staff working at the bank is particularly

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familiar with most of its clients. Each bank has fewer than 2,000 members on average, and a staff of four to five individuals who manage the bank’s operations, including credit officers. These officers and other staff are relatively familiar with the clientele that visits them as well as with the conditions in the local economy. Bank offices and staff can introduce the product not only when they are visiting credit clients, but when a remittance client arrives to withdraw the remittances. Fourth, the percentage increases are also partly associated with the increase in transactions as the volume of transfers opens the door to market their other products. AMUCSS has also recognized the importance of financial literacy, discussed in the next section, and is studying a way to introduce the strategy to its clients during the remittance transaction process. The Demand Side: Financial Education A number of institutions around the world have recognized the importance of financial literacy as a key factor in promoting access to financial services among any underserved group, remittance recipients in particular. Microfinance institutions, due to their affinity with remittance-recipient clients, are uniquely positioned to conduct financial education interventions specifically to promote financial inclusion. A successful case study is Financiera El Comercio in Paraguay, which in 2010 provided one-on-one financial counseling with trained educators to over 10,614 clients, 90 percent of whom were remittance recipients living near seven rural and two urban branches. Since entering the remittances business in 2004, El Comercio’s growth in money transfers had been one of the most rapid of any MFI known in this field. Such growth, however, poses the challenge not of how to provide financial intermediation but how to offer services at a speed that can catch up with the growing number of remittance clients. This question is a strategic concern, particularly when the market is becoming more competitive and remittance recipients may change payers as more choices are available. Capturing these clients is thus an urgent priority that requires aggressive positioning for MFIs such as El Comercio. Thus, in 2009, the MFI used a financial education strategy I developed to bring more of its remittance recipients into the financial mainstream.

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The financial education that El Comercio provided consisted of counseling clients about budgeting, saving, investment, and credit, as well as financial security and insurance. Information collected from an intake form revealed that the majority of clients were already saving or investing in some manner, but they lacked significant financial knowledge as well as financial access. For example, 63 percent of people said they saved or invested, but only 39 percent said they used a budget to manage their income and expenses, and only 42 percent had any kind of formal financial product, such as a savings account or loan. The level of financial access was considerably lower among recipients who collected their remittances at rural branches rather than in urban ones. As a result of a six-month campaign to provide such one-on-one counseling when clients came in to pick up their remittances, 64 percent of the 10,614 clients who received education said they would start budgeting. Seventy percent said they would investigate their options to acquire a financial product. In practical terms, El Comercio found that 2,017 of the people who received counseling in fact did acquire a product at the microfinance institution (including savings accounts, loans, insurance products, and card-based products). Within a few months, the institution observed that most of the clients who had opened a savings account were making considerable deposits.

Conclusion Finance and access to financial resources are cornerstone components of material asset accumulation, which is a key element of economic development. Migrant remittance family transfers directly interplay with financial matters, further highlighting the importance of integrating these flows into formal financial activities. As shown through the country examples, a general demand for financial services exists among remittance recipients, partly because of recipients’ abilities to save and invest, thanks to these financial inflows. The demand for financial services, however, has yet to be met by a supply of these products from banking institutions. For example, research presented in this chapter shows that financial services are usually scarce in rural areas compared to urban locations, regardless of the fact that in many countries a significant portion of remittance

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recipients reside in the countryside. As a result, there is a lack of correspondence between the supply of and demand for financial services. Nevertheless, financial access is a key component of development, and the lack of such access therefore represents a clear challenge to development practitioners and policymakers. Many microfinance institutions have realized the importance of pushing their strategy by training their staff further and demonstrating greater commitment to provide financial services to recipients. However, the commitment ranges from the rhetorical to the proper allocation of resources and business intelligence to act on the moment. At a more structural level, most MFIs are not aware of the link between remittances, migration, and the global economy, and the implications of global-level shifts in labor mobility and economic growth. They need to internalize more their understanding of the reality of migration in order to appreciate the flows of money, not only as transactional activities, but also as part of a broader process of the value chain in economic development in the global context.

Notes 1. See http://www.bcr.co.rw/aboutbcr.htm. 2. See http://www.bcr.co.rw/per/diaspora.htm. 3. See http://www.chr.co.rw/english/vision.htm. 4. See http://www.brd.com.rw. 5. Interview with bank officials, Kigali, January 15, 2009. 6. Interviews with bank officials, 2008. 7. For more detailed information on the studies previously conducted related to microfinance, see Orozco 2008b; Orozco and Kabulova 2007. Chapter 7 also includes data from a survey of clients and their neighbors living near MFIs in twenty-five African countries conducted in 2009. 8. Data based on interviews conducted by the author in 2008 with executives of three microfinance networks (Inafi International, which is global; L@Red de la Gente in Mexico; and Forolacrl in Central and South America). These networks represent 166 institutions operating around the world. Much of the information in this chapter is based on information provided by senior management at these and other institutions. Questions were asked about the institutions’ financial profile, as well as their role in paying remittances and in offering financial services. Questions about remittances included information about amounts, volumes, length of time paying, and type of money transfer partners, among others. In addition, questions were

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asked about offering financial services to recipients, such as how they were offering products, their marketing approach, incentives to staff, and product design or adaptation of existing ones, among others. 9. Caja Popular Mexicana operates in 215 municipalities in twentytwo states. Forty percent of its branches are in rural or suburban areas where people often do not have access to other financial services. The credit union has grown since its inception in 1996, from 257 branches to 356 branches as of 2008. Consequently, its membership has grown from nearly 212,000 clients to over 1.2 million clients—an average annual growth rate of 18 percent. CPM’s main financial indicators have grown an annual average of 30 percent; in 2008 it had US$1.616 billion in total assets, US$1.357 billion in deposits, and a US$1.164 billion loan portfolio. According to the German Cooperative and Raiffeisen Confederation (DGRV) (2007), Caja Popular Mexicana was the largest credit union in Latin America in 2006. With US$1.312 billion in assets, CPM controlled 20.12 percent of all assets in Mexico and 4.43 percent in Latin America and the Caribbean in the credit union financial system. Its assets also constituted 0.55 percent of all assets in Mexico’s total financial system, including banks. According to the credit union’s own reporting, at the end of September 2007, CPM ranked fifteenth among all thirty-nine banks in Mexico in total assets. 10. El Comercio offers loans for micro, small, and medium enterprises; the rural and agricultural sector; personal expenditures; and home improvements, among others. Other services and products include credit and debit cards, certificates of deposit, transfers, and remittance services. The MFI’s mission is to operate via innovation and efficiency to help lower-income people and businesses access more and better financial services and thus reduce poverty. As of 2008, it had twenty-three branches and fifteen service centers, concentrated in the southern and eastern part of the country. It had 52,762 clients total: 34 percent in the urban areas and 66 percent in the rural areas; 23,719 were micro entrepreneurs and 12,058 had savings. The average loan to micro entrepreneurs is US$1,318 and for small and medium entrepreneurs is US$18,500. El Comercio’s total portfolio is US$37.2 million, with more than half (60 percent) made up of microenterprises and 11 percent made up of personal loans. Loans comprise one-fifth commerce, one-fifth agriculture, and one-sixth consumption loans. 11. FEDECACES, founded in 1966, supports thirty-two cooperative affiliates. It has fifty-five locations in fourteen departments in El Salvador and 95,000 clients nationwide. Membership increased by over 14 percent in 2007 year-on-year; as of November 2007, FEDECACES had 106,697 clients: 46,957 males and 53,528 females. FEDECACES has a combined credit portfolio of US$122.5 million distributed to 118,000 clients. Sixty percent of these credits are for consumption, 14 percent are for commerce, and 10 percent are for housing.

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12. Two other MFIs participate in Senegal’s remittances market, and they are as competitive as the banks for which they are subagents. The Credit and Savings Alliance for Production in Senegal (ACEP), working as a subagent of Banque Islamic du Senegal (BIS), pays out about 10,000 MoneyGram transfers per month. This added up to US$34.3 million in 2009. As Senegal’s second-largest microfinance institution, ACEP has thirteen branches and has been paying out remittances since 1996. The MFI also processed US$17.8 million in Ria Envia transfers in 2009, and US$8 million in Money Express transfers in 2009. ACEP’s monthly Money Express volume doubled in 2010 compared to 2009, according to the MFI’s remittances manager. Microfinance federation Pamecas has sixty-three MoneyGram payout locations as a subagent of banking giant CBAO. Pamecas, Senegal’s third-largest MFI, estimates it has 36 percent of MoneyGram’s market share in Senegal. The MFI has also been working with MoneyExpress since March 2009, with which it has developed a cash-to-account product for migrants in Italy. Pamecas saw a significant drop in remittances in 2009, a trend that managers said began in 2007. Much of the drop could be due to liquidity problems, managers explained. These three businesses hold approximately 85 percent of total assets in Senegal’s MFI sector. 13. AMUCSS’s mandate is to create and support financial intermediaries in indigenous rural areas of Mexico, where roughly 40 percent of remittances from abroad are received. For over ten years, it has been recognized for its creation of an innovative model of microbanks in rural regions throughout the country. These microbanks offer services including savings, credit, utility payments, life insurance, and cashing government checks. In 2008 AMUCSS had 22,000 clients, with about US$7 million in savings and US$5 million in loans. 14. Financiera FAMA is one of several MFIs that started in post–civil war Nicaragua. With the support of ACCION International, private entrepreneurs initiated FAMA’s operations in 1991 as a nonprofit organization under the name Fundación para el Apoyo a la Microempresa. In 2002 the InterAmerican Development Bank recognized FAMA for Excellence in MicroFinance for an Unregulated Institution. In 2005 FAMA started a second stage in its institutional development by updating its platform, remodeling its physical structures, and training its personnel in an effort to become a regulated entity under Nicaragua’s Superintendencia de Bancos y de Otras Instituciones Financieras (SIBOIF). In 2007 the institution became a regulated entity under the name Financiera FAMA. It currently operates in urban and rural areas through the country and is made up of twenty-six branches, including nine in Managua. FAMA has 409 employees; serves 42,918 active clients—microenterprises, small and medium-sized enterprises, salaried workers, and remittance recipients; and in 2008 held a US$31.4 million loan portfolio and US$33.9 million total assets.

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15. Their commission is relatively small, US$1.25. 16. While operating costs are low, the revenue per transaction (at US$1 or more) offers an incentive to stay an active payer. 17. In 2007, at least one small MFI signed on as a direct agent of an MTO, but upon learning that the law didn’t allow it, had to void its contract and start afresh with a bank as its agent. 18. For more references about the structure of SCAs, see Chirial 2003; Shapa 2004. 19. Interview with bank officials, Kigali, January 16, 2009. 20. Interview with representative of Vision Finance Company, Kigali, January 16, 2009. 21. Vision Finance meeting, Kigali, January 16, 2009. 22. See http://www.uomb.org/. 23. Interview with bank officials, Urwego Opportunity Bank, Kigali, January 15, 2009. 24. See http://www.peacebuildingportal.org/index.asp?pgid=9&org=2857. 25. Interview with bank officials, Kigali, January 16, 2009. 26. Interviews with FEDECACES officials conducted by the author, 2007. 27. Interview with ADOPEM bank officials, Santo Domingo, December 2008.

7 The 5 Ts of Transnationalism

The universal phenomenon of people moving across borders contributes to the growing complexity of the globalized world. Transnational social ties that span the globe are connecting an expanding marketplace for goods and services like never before. Remittance transfers are one aspect, albeit the most visible, of the growing intersection of the transnational human landscape within globalization. Transnationalism can be defined by how and to what degree groups of migrants participate in and maintain relations with fellow countrymen in both their host country and their country of origin (Orozco 2005d). Immigrants connect source and destination populations in a way that magnifies transnational exchange and plays a fundamental role in the social and economic aspects of globalization. Though the book has focused primarily on remittances, this chapter explores the dynamics of the 5 Ts in the broader context of transnational engagement, illustrating the complexities of migrant life in the global context. There are five key ways transnational engagement manifests itself in migrants’ day-to-day activity. I call these the 5 Ts of transnational engagement: transportation, tourism, telecommunications, transfer of money and capital (including remittances, investments, and community donations), and nostalgic trade. These activities enable migrants to stay connected with their homelands. The agents of the 5 Ts are individuals and groups that, as part of their need to 175

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link up to their communities, translate their symbolic desires into material practices. This chapter explores each of these 5 Ts and then delves further into the role of migrant organizations as vehicles for transnational engagement. Migrant organizations play a crucial role in expressing and promoting social, cultural, political, and economic ties to the homeland. In this sense, these organizations engage in all aspects of the 5 Ts of transnationalism. Most prominently, they engage in transfers of financial and human capital to promote development in their home countries and communities. An analysis of transnationalism through the lens of the 5 Ts shows that these migrant activities pose important policy and research questions about the relationship between transnationalism and development in the age of globalization.1 Specifically, these activities are as follows: 1. Transportation—air travel as a communication method among immigrants and their families 2. Tourism—economic activity of migrants when visiting their native country 3. Telecommunications—migrants living abroad calling family members in their home country 4. Transfer of money and capital—economic activity in the form of personal remittances, private investment, and community donations by migrant hometown associations 5. Nostalgic trade—enterprises in migrant communities that sell goods and services to migrants living away from their home country (Orozco 2005d) For the discussion of the first four Ts, this chapter draws primarily from the cases of Ghanaian and Latin American migrants. These migrants represent different regions, and their engagement is suggestive of migrants’ links in these Ts more generally. The discussion of nostalgic trade incorporates additional country and regional data as relevant and available using in particular the activities of migrants in the United States. This includes the activities of thirteen nationality groups from Latin America, Asia, and Africa living in the United States.2 Finally, the discussion of HTAs investigates the US–Latin America and Europe-Africa regional corridors.

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Transportation The opportunity to travel to the home country after migration depends on various factors, including legal status and economic possibilities. Ghanaians (particularly in the United States) are among the groups that travel home most often. While Latin Americans in the United States have less distance to travel, their transportation activities remain significant to home country economies. Transportation is not only significant to family ties, it is an economic activity with significance for the airline and other transportation industries. Ghanaians in the United States, the United Kingdom, and Germany As discussed in earlier chapters, there are over 1 million Ghanaians living abroad, approximately 300,000 of whom reside in the United States.3 The Ghanaian community in the United Kingdom is considered to be approximately the same size, or larger, than that of the US Census’s officially reported number of 60,000 in 2000. Meanwhile, Ghanaians are one of the most important African migrant groups in the Netherlands, though they are still a relatively small population overall. The majority of them (56 percent) have lived there for ten years or more. The Bureau of Statistics reports fewer than 20,000 officially registered migrants, which is less than 1 percent of all foreign-born people in the Netherlands. However, these figures do not include the large number of undocumented Ghanaians in the Netherlands, so the actual number is likely much higher. Similar to other diasporas, Ghanaian relationships extend beyond the sending and receiving of remittances (Orozco 2005a). Some 25 percent of Ghanaian remittance senders travel to Ghana at least once a year, and almost half travel once every two or three years. They spend on average $1,168.75 on airfare, typically bought through local travel agencies in Europe specializing in African destinations. In 2005, only 5 percent purchased tickets over the Internet. Ghanaian migrants in the United Kingdom and the United States, despite the latter’s great distance from Ghana, tend to visit their home country more often than their counterparts in Germany; 63 and 65 percent, respectively, of those in the United States and the United Kingdom visit home at least once a year. In the case of Ghanaians in Germany

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and the United Kingdom, only 14 percent very rarely visit their home country, while just over 4 percent of Ghanaians in the United States rarely travel home. Latin Americans in the United States More than one-fifth of Latin Americans in the United States return home at least once a year, and most return travel takes place after migrants have spent six years or more in the United States. This generates a substantial number of travelers in the home countries, and these migrants spend an average of over US$1,000 each trip. From New York’s John F. Kennedy International Airport alone, flights to Santo Domingo carry nearly 140,000 people each year. Another 95,000 migrants travel from Miami annually. Most of these travelers are Dominican tourists and businesspeople working with the Dominican Republic. The situation is similar in El Salvador. In 2008 there were 164 flights per week—about 22 flights a day—from the United States to San Salvador (Orozco and Welle 2008). Grupo TACA, an airline that serves Central America, flies from the United States to El Salvador ten times a day. About 70 percent of its customers are Central Americans. Air travel to Central America has increased significantly, and the demand for flights has also spread throughout the United States, so now several US airlines, including American Airlines, Delta, and United, have daily flights to Central America. Approximately 30 percent of remittance-sending Latin American migrants travel to their home country at least once a year (Orozco and Welle 2008). Frequency of travel varies, with Ecuadorians, Dominicans, and Guyanese traveling more often than other immigrants. Ecuadorians are among the most frequent travelers home, with 12 percent traveling twice a year and almost 40 percent once a year. More than one in ten Dominicans travel three times a year, two in ten travel twice, and one in three travels once a year. Looking at gender differences in the frequency of travel, 21 percent of women travel to their home country at least once a year, while only 16 percent of men do so (Orozco and Welle 2008). The impact on the transportation industry, airlines in particular, is not negligible. On average in a given year, 12 million immigrant travelers visiting their home country spend roughly US$9 billion. Migrants who have not traveled back to their country tend to have lived in the United States for only a short time. More than 60

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percent of those who have lived in the United States less than six years have not traveled back to their home country. This finding is consistent with other research showing that recent immigrants tend to send home less money because they start out on lower incomes and have to spend more of their earnings settling into a new country.

Tourism Whether staying for a couple of weeks or a couple of months, migrants engage in entertainment and tourism activities when they travel to their home countries. Figures of total tourism done by nationals living abroad, and the economic contributions in some countries, are just as significant as those of remittances, proving the opportunities for the tourism industry to market to this population. Ghanaians in the United States, the United Kingdom, and Germany Unlike other diasporas, when Ghanaians visit their home country, they stay a long time—between one and two months.4 While visiting Ghana, half stay for less than two months (usually three weeks), and nearly half (45 percent) spend between US$1,250 and US$3,750 during their stay. Ghanaians traveling from Germany tend to stay even longer than their counterparts in the United Kingdom and the United States. Almost all (nearly 95 percent) of Ghanaian migrants in Germany stay in their home country for a month when visiting, compared to roughly two-thirds (63 percent) of Ghanaians traveling from the United States, and just over half (53 percent) of those traveling from the United Kingdom. Although Ghanaians in the United Kingdom and the United States tend to stay for less time than their counterparts in Germany, they travel home more frequently. Consistent with their longer stays, Ghanaians in Germany tend to spend more money; most spend more than US$3,000 during their stay in Ghana. Latin Americans in the United States Tourism in El Salvador and the Dominican Republic includes nationals living abroad. In 2005, for example, nationals residing outside of

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the Dominican Republic made up 16 percent of incoming tourism to the Dominican Republic, mainly from the United States. In 2008, most Dominican nonresidents stayed in the Dominican Republic for sixteen days or more and spent around US$46 per day. In the case of El Salvador, more than 40 percent of arrivals are Salvadorans. This community has produced a demand for new goods and services that local and international tourism companies supply by offering tour packages, trips, and real estate in coastal regions; a similar pattern exists in Nicaragua and Honduras. Even the Jamaican economy, which relies heavily on international tourism, enjoys a significant demand for tourist services from Jamaicans returning for a visit. Although official figures say that 6 percent of Jamaican tourism is from the diaspora, government officials stress that that figure is too low, because Jamaicans who have acquired nationality elsewhere register on immigration forms not as Jamaican citizens but as foreign nationals, thus skewing the statistics. Visiting the home country entails more than staying with relatives. Migrants who return home to visit are also tourists who spend considerable amounts of money on entertainment with their families. These visits often take place on holidays such as Christmas, New Year’s, and Easter. Other migrants take special trips home for weddings, birthdays, deaths, or emergencies. Immigrants typically spend at least US$1,000 per stay. Ecuadorians are notable because they not only travel more often than migrants of other nationalities, but also spend the most money while doing so. Guyanese migrants visiting their home country spend on average US$1,000 a stay, and with 25,000 visiting home each year, this adds up to at least US$25 million left in the country. Thus, these contributions to the economy may be almost as important as remittances, which are estimated at more than US$100 million (Orozco 2004).

Telecommunications The number of calls is both symbolic and material. First, it reflects the extent of the effort migrants make to stay in touch and communicate with each other. Second, this way of maintaining and nurturing emotional ties translates into an important business for the two countries hosting the conversations.

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Ghanaians in the United States, the United Kingdom, and Germany Aside from personal visits home, Ghanaians maintain contact with their relatives in Ghana through regular phone calls. 5 Ghanaian migrants in the United Kingdom and the United States call home more often than their counterparts in Germany: 88 percent of Ghanaians in the United States and 73 percent of Ghanaians in the United Kingdom call their family in Ghana once a week or more, compared with 43 percent of Ghanaians in Germany. Ghanaian responses are typical of other diasporas who at the very least have some phone communication with their home country. Migrants often also make good use of the free one- to three-minute phone call that many remittance companies offer to notify the relative that their funds have been sent. This perk gives the sender a chance to at least greet the relative. While Ghanaians in the United Kingdom and the United States call home more frequently than their counterparts in Germany, their conversations tend to be shorter. Roughly half of Ghanaians in the United Kingdom (52 percent) and the United States (46 percent) speak with their relatives no more than twenty minutes each time they call. The vast majority (71 percent) of Ghanaian migrants in Germany, on the other hand, speak with their relatives for between twenty and thirty minutes. These phone calls, which average between eighty and one hundred minutes a month, generate important revenues in transnational corridors. In 2003, for example, calls from the United States to Ghana totaled 300 million minutes, three times as many as in 2002. These phone calls yielded important revenues of more than US$50 million to US carriers, with shared payments to Ghanaian providers. A call to Ghana from the United States costs between 10 and 50 cents a minute, but in 2003 produced revenue of 0.17 cents per minute on average. Ghanaians placed the vast majority of these phone calls. While revenue has remained the same, in 2010 the number of minutes had dropped to nearly 200 million with an increase of 32 million text messages. Text messages have constituted a cost-effective, convenient communication method and a preferred way to connect with relatives (FCC 2012: tab A1).

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Ghanaians in the Netherlands Ghanaians in the Netherlands call their family often: in 2008, 36 percent called twice a week or more, 16 percent called once a week, and 28 percent called once every two weeks. More than half spoke to their family members for over twenty minutes, with nearly a third of total respondents (28 percent) speaking for more than thirty minutes. On average, however, a typical remittance sender spent 132 minutes a month calling home. In practical terms, this exchange of phone calls, mostly by mobile phone, amounts to at least 20 million minutes a year, which can add up to $5 million in revenue from phone calls. The frequency of home-country calls has increased tremendously with the growth in the telecommunication market, which has increased access and lowered mobile phone prices and call rates. Indeed, the growing number of telecommunication providers and the emergence of prepaid telephone cards have increased competition and greatly reduced tariffs. Ghanaians at home have growing access to mobile phones, and as tariffs from the host country to Ghana are often cheaper than the other way around, family members frequently send a text message to the migrant requesting a call back. Technology not only influences how often migrants call home, but also has a large impact on the volume of money sent. In most cases, the more a migrant calls home, the more they send money to family. The frequency of migrant contacts with home influences the volume of remittances, as requests for help are more frequent compared to migrants who maintain less contact with Ghana. Migrants who call at least once a week send money more frequently than migrants who call once a month or very rarely. However, calling infrequently does not always mean less money is sent. Some migrants do not call frequently but do send a fixed amount of money every year. In particular this amount may increase as a result of a death or sickness in the migrant’s family. Overall, regular contact with the home country influences migrants’ engagement in activities in Ghana. Migrants with regular contacts in Ghana also tend to be those who have one or more business activities back home. Latin Americans in the United States As with the case of traveling back to the home country, more women regularly call than men, with 41 percent of women calling their rela-

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tives at least once a week, while only 35 percent of men do so (Orozco and Welle 2008). Phone calls from Latin American migrants in the United States total on average over 120 minutes each month, generating at least 60 percent of all international phone calls to Latin America. Moreover, the volume of calls to Central America and the Caribbean has increased with improvements in connectivity, opening up opportunities for business expansion and investment in cellular telephony, the Internet, and cable transmission. Companies such as AT&T, Bell South, and Motorola have set up economic infrastructure to facilitate communication between members of the diaspora and their homelands, which has also benefited local businesses. Home-tohome phone calls may be responsible for most of the revenue generated in international long-distance telecommunications. In the Caribbean and Central America, these calls may amount to at least 50 percent of the total revenue in international long distance calls. Central Americans living in the United States maintain significant contact with their home countries, and telephone calls are an important form of transnational family contact. More than 60 percent of Central Americans call home at least once a week and spend at least thirty minutes a week on the phone with relatives abroad, about 120 minutes a month. Immigrant contacts account for a substantial share of telephone companies’ revenues for services between the United States and Latin America. Half of the call minutes from the United States to Central America and the Dominican Republic, for example, are household-to-household.

Nostalgic Trade An important feature of contemporary migration is consumption of home-country goods. Migrants have become a new market for exports from their home country. Purchasing nostalgic goods6 is a way of maintaining cultural traditions from the home country, which at the same time generates revenue for the home country.7 The demand for and acquisition of nostalgic goods is a manifestation and expression of three realities that shape immigrant life: community, identity, and transnationalism—each of which has very direct implications on economic development for both the United States and the homeland. First, these goods are instruments or com-

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ponents of global villages, where migrants live and form communities of fellow minorities or ethnic neighborhoods that include convenience stores and businesses that service migrant labor. Migrants, as the primary but not exclusive consumer of these goods, rely on a network of ethnic stores that supply their needs. Second, nostalgic goods are a material representation of cultural and national identity that affirms two fundamental realities: a national attachment and belonging, often manifesting in a diasporized definition of self, and a permanent reminder of forming the “other-as-migrant” in the host society, recalling with nostalgia, saudade, the place they come from. As such, the motivations and rationales that explain their demands are primarily those of nurturing their identity. Third, these goods are in the most material and practical sense another component of the transnational economic links formed by migrants that help integrate countries into the global economy. They are associated with hometown associations, remittances, and transnational families, which, in turn, constitute important building blocks of economic transactions and relationships. The analysis of this section relies on data from a sample of 1,300 migrants living in the United States, and Ghanaians in Europe.8 Most, if not all, migrants (91 percent) consume a wide variety of home-country commodities, but mainly food products purchased near their communities. Mexicans and Indians consume a larger list of reported products compared to other nationalities, but on average, immigrants buy three or four different home-country foodstuffs— from cheese, rice, and cereals to spices (Orozco and Welle 2008). There is no well-defined type of product that everyone buys, but rather an extensive selection of products. Except in the case of Ethiopians, even the most preferred products they buy are generally less than 30 percent of all the products they buy. While everyone may buy tortillas or curry, it is one of many products—and not among their top group, but a popular one. Meanwhile, virtually all Ghanaians in the United States purchase Ghanaian-made goods, while nearly 90 percent of Ghanaians in Germany, over 80 percent in the United Kingdom,9 and 79 percent in the Netherlands follow suit (62 percent of these purchases are food). 10 These goods include spices, fresh and salted fish, shrimp, and peppers. Seafood and spices are popular with migrants in all three countries. Most Latino immigrants in the United States also purchase goods from home, primarily rum, cigars, tamales, bread, tea, and cheese. In

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the case of El Salvador, for example, these purchases amount to as much as 10 percent of the country’s exports. The ongoing consumption of home products demonstrates the same commitment to home shown by migrants when it comes to remitting. Latino immigrants, 25 percent of who live in poverty, remit on average US$2,500 annually—about 15 percent of their income. Migrants usually shop for these items in retail supermarket chains or small ethnic stores. Few still use informal mechanisms to buy or bring in home-country goods, partly due to the emergence of a network of importers and distributors. Note, however, that some nationalities, such as Ethiopians and Indians, rely more on local (predominantly ethnic) stores, while Latin Americans frequent supermarket chains. This may be due to the geographic concentration of particular nationalities or the mainstreaming of Hispanic products in supermarkets. Ethiopian and Indian migrants may also have closerknit communities, with stronger ties to local stores than other groups. According to those interviewed, migrants buy both familiar home-country brands (46 percent) and unfamiliar brands that they trust because they are from the home country (31 percent). While branding is important, some people rely on origin alone when shopping, a trait especially noticeable among Bolivians, Salvadorans, and Filipinos. In addition, most nostalgic food items can all be found in the same store, so very few people (8 percent) have to go to more than one store. Practically all migrants (85 percent) say it is not difficult to find the products they need to buy. Supermarkets and the ethnic stores of the global village satisfy their basic needs. Nostalgic foods are bought regularly and are an important component of the household budget. Migrants buy on average three items a week. These purchases average US$6 per unit bought (pound, liter, etc.), adding up to just over US$700 a year. These figures are a baseline for one unit of each product, but could easily amount to more. A person buying two units would be spending over US$1,500 a year. Nationals of some countries spend more than others. Regardless of these differences, however, the economic significance of these acquisitions is both global and local; it is “glocal.”11 Local ethnic stores survive on the sales of these products, and home-country producers originate a global-trade chain of nostalgic goods to supply the demand generated by migrants of all nationalities. These purchases are significant. An annual expense of nearly US$1,000 by 90 percent of migrants buying home-country goods

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represents a market in the billions of dollars.12 More importantly, despite the wide range of products demanded, they are paradoxically nontraditional exports from these countries to the United States, and so are genuinely new markets for new entrants into the export business in the home countries. These nontraditional exports may represent only a small portion of exports to the United States, but they are the products most in demand by their own diaspora. The volume of commodities purchased is important relative to total home-country exports of that commodity.13 Moreover, the export volume of some of these commodities has grown over the past few years—for example, beer from El Salvador. The factors above have a greater or lesser effect on the consumption of goods. The statistical determinants of acquiring home-country goods were tested against variables such as demographic, transnational, product acquisition related, or other rationales for consuming these goods. The results show that in the case of buying goods and justifying their purchase, statistically significant factors were the number of stores where the purchase is made and the percentage of daily consumption that they comprise. Making purchases in one store and occasionally in more than one store shows that people are more likely to buy more than three items. The higher the percentage of daily consumption constituted by the items, the more likely it is that the number of purchases will exceed three. Moreover, more items are bought when they are high quality and less expensive than similar US-made items. Among transnational and demographically related factors, statistically significant factors are length of time living abroad, citizenship, gender, age, and income level. The longer the migrant lives in the host country and the higher his or her income is, the less likely he or she is to buy more than three items. However, those who have obtained citizenship and also older people are more likely to buy home-country products.

Transfer of Capital and Donations: Migrant Organizations As noted above, most of this book concerns this final T, transfer of capital and donations. This section more closely examines migrant organizations as a specific vehicle for this transfer. Migrant organiza-

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tions are significant transnational actors, linking migrants first among themselves, and then, collectively, to their places of origin. As these groups have accumulated experience and evolved over time, their efforts have shifted from an exclusive focus on short-term construction projects (e.g., soccer fields and church renovation) to development activities that seek to expand local economies and create jobs. This trajectory and its promise for the future justify a more intensive examination, separate from the more generally considered transfer: remittances. Immigrants organize themselves for various reasons. Some organizations are geared toward supporting members of the diaspora and improving their condition through advocacy, education, and social programs. Other organizations are primarily social, creating a space for migrants to build relationships with other members of their diaspora and express their ethnic identity. Finally, some migrant organizations are oriented toward improving conditions in their home country through philanthropy, investment, and development efforts. Migrants also organize themselves according to different identity groups, such as profession, nationality, religion, or place of origin. With regard to the latter, immigrants have formed what is known as hometown associations. A hometown association (HTA) comprises migrants from the same town or state in their home country. Through HTAs, migrants can transfer money and resources to their home community, while establishing roots and social connections in their new host communities. The activities of migrant HTAs are an important feature of the 5 Ts, and I discuss their expanded role as development players through an analysis of studies I conducted in various world regions.14 The research looks at the philanthropic and development activities of HTAs and presents a set of criteria to evaluate migrants’ role as development players. The total number of HTAs worldwide is unknown, as these associations change in number every year. Estimates from 2007 suggest that Mexican HTAs number somewhere around 3,000 and Filipino groups may amount to 1,000, whereas there are about 500 Ghanaian organizations worldwide (Orozco 2007d). According to a survey conducted in 2008 of migrants from different world regions living in the United States, HTA membership differs among immigrant groups. Among Latin Americans living in the United States, for example, Paraguayans have among the highest membership at 38 percent, whereas only 6 percent of Bolivians and 4 percent of Salvadorans

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belong to an HTA. African migrants exhibit high rates of HTA membership in the United States: 57 percent of Ethiopians, 23 percent of Ghanaians, and 22 percent of Nigerians. Additionally, 13 percent of Indians living in the United States belong to a hometown association. Notably, the host country or region does impact participation in HTAs. In the case of Ghanaians abroad the percentage of migrants who are active in an HTA is relatively higher among migrants living in Europe compared to those in the United States (Orozco 2005a). While 23 percent contribute to an HTA in the United States, 52 percent do so in the Netherlands, 28 percent in the United Kingdom, and 37 percent in Germany. This trend is also seen in the Southeast Asian region, suggesting that diaspora communities may be more organized in certain places than in others. For example, while more than a quarter of Malaysians living in Japan contribute to an HTA, only 4 percent of their counterparts in Singapore do. It is difficult to pinpoint the factors that may lead certain groups of people to participate in an HTA, but they may have to do with political culture, family links, material circumstances such as opportunities for funding, cultural identity, and levels of integration (Orozco 2006b). The example of the Filipino diaspora highlights the way migrants’ personal and cultural circumstances may impact their tendency to donate to an HTA. Filipino migrants can be found throughout the world and on nearly every continent. There may be a relationship between the length of time that the migrant has been abroad and his or her likelihood of participating in an HTA: the longer the time abroad, the more likely is HTA membership. This suggests that migrants may develop a need to strengthen their cultural identity through time as a way to maintain their ties to their homeland, while simultaneously becoming more rooted in their host country. Moreover, the data suggest that those who are engaged in other activities that allow them to stay connected to their homeland, like owning a business in the Philippines or remitting to one’s family back home, are more likely to be involved in an HTA. Overall, a link is possible between overall engagement in activities that allow migrants to stay connected to the homeland and the propensity of migrants to participate in a hometown association. As described earlier, of the five types of transnational activities that migrants engage in to stay connected to their homelands, one is the transfer of money or capital, in which the investment or donation of

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money for projects in their home countries through an HTA is included. Findings from a 2008 survey of 1,300 migrants from different nationalities living in the United States suggest that the more connected a migrant is to the home country, the more likely the migrant is to belong to an HTA (Orozco and Welle 2008). For example, migrants who remit are more likely to participate in an HTA. Specifically, among those who send remittances back home, 18 percent of them belong to an HTA versus 13 percent who do not. Similarly, those who purchase nostalgic goods regularly, travel to their home country frequently, and call their families on a weekly basis are more likely to belong to an HTA in their host country. In order to further examine the link between migrant engagement as a whole and HTA participation, I created an index of engagement based on the 5 Ts. Specifically, 0 corresponds to participation in none of the activities that constitute the 5 Ts, while 4 indicates participation in four activities. Thus, the more positive the value on the index, the higher the level of engagement. Table 7.1 shows the positive relationship between HTA membership and other transnational engagement, suggesting that one type of engagement may go hand in hand with another type. Also, migrants may sometimes reconcile their connectedness with their country of origin with their newly acquired rootedness in the host country through activities that allow them to connect with both their host and home communities. Hometown associations are usually led by a board of directors or elected officers and are completely voluntary. While the activities of

Table 7.1

Level of Engagement and HTA Participation (in percentages)

Index of Engagement

Belongs to an HTA

0 1 2 3 4

1 13 17 43 26

Does Not Belong to an HTA

Source: Survey administered by author; see Orozco and Welle 2008.

4 16 30.5 38 11

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HTAs in the diaspora are diverse, these groups have largely attracted attention in the development community for the work they do in their countries and communities of origin. A development player seeks solutions to human needs and alternative ways to promote selfsustainability. The work of migrant HTAs typically targets the most vulnerable populations, such as children and the elderly, and although HTAs are primarily philanthropic in nature, they often overlap with economic development activities. One of the primary activities of hometown associations is fund-raising. HTAs bring together local migrants to raise funds for ongoing activities or special needs, such as redevelopment or new development in the home country in response to a natural disaster. These types of projects are significant because of the potential they have to promote equity, an important component of development philosophy. Indeed, HTAs have the potential to improve the quality of life of all households in a hometown, not just those that receive remittances, by facilitating projects that might otherwise be impossible for those communities to implement and provide aid in communities where the capacity of the local government has fallen short. The case of Mexico is striking in this respect. In Mexican hometowns with fewer than 3,000 people, HTA donations are equal to more than 50 percent of the municipal public works budgets. In towns with populations less than 1,000 people, HTA donations can amount to up to seven times the public works budget (Orozco 2007e). The activities carried out by HTAs in their new adopted communities not only serve as fund-raisers for projects in the migrants’ home countries, but also promote culture and solidarity in the host communities. Many HTAs have also started to develop projects and services for immigrants themselves, such as assisting with voter registration, providing legal and social services, or teaching a native language or culture to the children of immigrants. For example, the Fante Benevolent Society of Chicago, a Ghanaian HTA in the United States, has made it its mission to promote Ghanaian traditions and values in the diaspora by helping with the “neighboring and outdooring ceremonies” when a child is born (Orozco 2005a). In the Netherlands, Ghanaian HTA activities often focus on burial traditions (Mazzucato et al. 2006). However, due to the voluntary nature of the group and the working-class profiles of their members, the amount of time that

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members and leaders are able to devote to the activities of their group is often limited. Groups have varying levels of success in fund-raising, but as a rule these groups operate with limited resources and usually raise less than US$20,000 a year. To overcome some of the hurdles inherent in the structure and operations of HTAs, migrant associations often liaise with local organizations in the home and host communities in order to implement their projects. For example, the group Comite Ixchiguan in Delaware reached out to local media in the aftermath of Hurricane Stan in 2005 to collect donations for affected families in Guatemala. Groups are also often able to secure corporate sponsorship for their activities, including sponsorship by immigrant businesses. In Guyana the most common local partners are local nonprofits and churches. In Mexico, 80 percent of HTAs report approaching municipal leaders to discuss their projects, coordinate efforts, and distribute resources (Orozco 2005b). Nevertheless, while the work of HTAs sometimes overlaps with development, this is not always the case. Even though HTA donations are channeled primarily to the poor, these resources alone do not constitute a solution to the structural constraints of the poor. What’s more, they often fail to create financial security for households or sustainable development in a community. Common HTA projects such as charitable aid or the construction of religious and recreational facilities do not necessarily constitute wealth-generating projects. While migrant HTAs are undoubtedly improving quality of life in the communities they serve, their influence is further limited by funding and organizational restraints. Groups are for the most part led by volunteers who are not necessarily trained or experienced in the organization, implementation, or evaluation of development projects, and the majority of HTAs operate with less than $20,000 annually. Table 7.2 identifies a series of criteria that can be used to evaluate the effectiveness of a migrant HTA as a development player. The following sections provide a snapshot of the characteristics of different migrant populations around the world by looking at Latin American groups in the United States, Guyanese in the United States, and Ghanaians in the United States and Europe—specifically at the level and the type of involvement by migrants in hometown associations.

192 Table 7.2

Migrant Remittances and Development Development Potential of an HTA

Ownership

Correspondence

Sustainability

Replicability

Community members participate in decisionmaking; community members participate in implementation; community members have control of project after completion

Project meets basic needs; needs met are a development priority; implementation occurs in association or coordination with other institutions

Project enables development goals, does not constitute a burden or entail added costs, and has a long life cycle

Resources for project are available in other communities, as well as institutional environment facilitating implementation

Source: Orozco 2005b.

Latin American Groups in the United States Mexicans in the United States As of 2003, there were some 600 Mexican HTAs based in over thirty US cities, most existing for at least eleven years (Orozco 2003). Their organizational nature is relatively cohesive, with a close-knit membership that follows basic rules of group discussion and decisionmaking. Mexican HTAs identify community needs and projects in several ways: through liaisons in the hometown, based on preferences of HTA members; in response to natural disasters in the hometown; and in partnerships with other institutions. Usually an HTA member visits the community, returns with a list of identified needs, and proposes that the association work on three or four activities while concentrating efforts on one large project. On average, the amount that Mexican HTAs raise for a project is less than US$10,000. Members donate their resources to a project and avoid intermediation costs by having a counterpart in the hometown, usually a relative or other community member, volunteer to oversee the project. HTAs typically collaborate with other institutions in the home and host countries. Nearly 80 percent have approached municipal leaders to discuss their projects, coordinate efforts, and distribute resources.

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In the case of Mexican HTAs, the role of the federal government in partnerships is notable. The range of formal and informal relationships between the two entities culminated in the Three-for-One Program, in which half of all Mexican HTAs participate (Orozco 2003). This program matches donations the clubs make to community development projects in their hometowns with funds from the three levels of the Mexican government (federal, state, and municipal). The government officially implemented this program on a national level in 2002, after HTAs demanded partnerships in projects that benefit their communities of origin.15 In 2003, the projects connected with the Three-for-One Program totaled US$36 million, one-quarter of which came from the contributions of HTAs (Orozco 2003). Nearly twothirds of the national total allotment for the program was apportioned to four states: Zacatecas, Guanajuato, Jalisco, and Michoacán, the combined source of about 30 percent of Mexican migration to the United States. Mexican HTAs are having a direct effect on communities by providing goods and services that benefit collective needs in health, education, and economic infrastructure. The aggregate volume of annual HTA donations to Mexico reached US$30 million in 2003. Funds are channeled primarily to localities with basic development problems, which are also the places that have high emigration rates. Mexican HTAs donate to localities with populations as small as 1,000 people—representing a US$7 donation per inhabitant. In many communities, the donations represent as much as the amount the local municipality allocates for public works. Three-for-One Program contributions average US$23,000 and represent 20 percent of the municipal budget allocated for public works (Orozco 2003). In addition to the Three-for-One program in the municipality of Jerez, since January 2009, the Federation of Zacatecan Clubs in Southern California has been focusing its efforts on their program of Productive Projects, geared to promote economic development through projects that foster job creation in Zacatecas, Mexico. Their main sponsor for this program has been the Mexican foundation Rostros y Voces de Mexico. The government contributes one dollar for every dollar donated by the HTA to support Productive Projects. Despite their successes so far, however, they have faced challenges in carrying out projects. Initially, their lack of knowledge of the specific guidelines that the government would use to contribute money to the projects limited their ability to implement projects. In

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2008, however, the Federation of Zacatecan Clubs worked with the government to specify these guidelines, and in January 2009 the rules for the Three-for-One Program as it applies to their Productive Projects program were published in the Federation’s official newspaper in Mexico. An obstacle they are currently facing is the lack of funding during times of economic recession. The recession has affected the capacity of HTA members in the United States to contribute to the Federation’s ongoing projects, and the instability in Mexico has also hampered the ability to implement programs in a timely manner there. Central Americans in the United States A significant number of Central American civil society groups exist in the United States, most of which are not hometown associations, but whose members are in relationship with some of the HTAs. In September 2004 the State Department organized a historic event bringing together more than 100 Central American associations, including old standing groups like Carecen, Chambers of Commerce, and HTAs such as CUS, the United Salvadoran Communities of Maryland; Washington, DC; and Virginia. The participation of these associations reflected some level of organization and an interest to work on home-country affairs. This section looks at the experience and practices of Central American hometown associations and focuses on the membership structure of the organizations—their projects as well as their fund-raising efforts. It is based on interviews with more than thirty association leaders (Orozco 2006b). Salvadoran HTAs According to the Salvadoran Ministry of Foreign Affairs, there are 200 Salvadoran HTAs distributed throughout various parts of the United States. Most Salvadoran HTAs have a well-defined structure, involving a board and a few active members, numbering around ten.16 They often work with a parallel board in their home community. This group, typically consisting of the relatives of HTA members, sends ideas for projects and oversees the disbursement of funds. These HTAs form around a disaster, such as Hurricane Mitch, and around a cause, such as lack of a high school, or at the urging of a prominent member of their home community, such as their pastor.

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Efforts to raise funds translate into various kinds of activities, including raffles, pageants, and dinners arranged for the migrant communities. Donations in kind are also commonplace to support these activities. Many have a community base of 50 to over 100 people who participate in their fund-raising events. Most groups raise less than US$15,000 a year for projects, but a few raise more. Even when the total is greater, it does not necessarily all go to El Salvador; instead, the money is used for activities supporting Salvadoran culture in the United States. As noted earlier, hometown associations have established partnerships with various organizations. These groups include the municipality, churches, other nonprofits, businesses, and the Salvadoran national government, often in the form of the national development agency, the Social Investment and Local Development Fund (FISDL). Depending on HTA political affiliations (or lack thereof), local mayors and the FISDL are among the top liaisons for project implementation. Unlike the absence of initiatives on remittance transfers, the Salvadoran government has worked closely in forging partnerships with HTAs to work on a range of development projects in rural El Salvador. Additionally, some Salvadoran HTAs are closely connected with other Salvadoran organizations, such as El Rescate and Carecen, or through umbrella HTA groups such as Comunidades Unidas Salvadoreñas, and have been essential to the lobbying power of the HTAs on their home government. Salvadoran HTAs, on average, give 16 percent of the support, both in financial donations and in-kind support, but the percentage ranges from 1 percent in San Salvador to 57 percent in Usulutan. In the department of Cabañas, where HTAs have partnered with the FISDL on three projects, HTAs have put up US$99,000 (9 percent of total funds) to match the FISDL’s US$780,000 (69 percent of total funds). The average cost of each project in Cabañas has been US$380,000. Of the forty-five projects, seventeen deal with infrastructure, fourteen with recreation, and six with health. The Cuscatlan-origin HTAs (SALA, L.A., and Asociación Adentro Cojutepeque) have sponsored two projects with FISDL. In Cojutepeque they worked to remodel and furnish a recreation area for the town. In Suchitoto, Cuscatlan, SALA worked with the FISDL to repair and install streetlights on an access road to the Port of San Juan. By June 2004 the associations had raised US$4.53 million. Under the administration of President Antonio Saca, a new program

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was inaugurated with a call for proposals that led to the approval of twelve new projects amounting to US$3.1 million, 60 percent of which was committed by the Salvadoran community living abroad.17 The government also established a Vice-Ministry of Foreign Affairs for relations with the diaspora. Meanwhile, newspapers like La Prensa Gráfica and Diario de Hoy have a section on Salvadoran diaspora news ranging from political events to social issues, including topics like crime and conditions of the community. La Prensa Gráfica’s section, “Departamento 15,” maintains a regular news section that also operates online.18 Guyanese HTAs Guyanese migrant associations are not necessarily organized to help one community in particular, but instead focus more on an issue or organization they wish to assist. In this sense, they differ from Mexican and Salvadoran associations, which work more with a specific geographic location. A large percentage of Guyanese migrants participate in migrant associations compared to other nationalities studied. Although these organizations are small in size, generally under twenty people, they receive contributions from more than 100 people, meaning that one-quarter of those donating (approximately 40,000 immigrants) have been involved with some Guyanese organization. Most Guyanese associations have a well-organized structure, involving a board and a few active members. Their funds depend on membership dues, as opposed to Mexican and Salvadoran associations, which rely solely on events and donations for their activities. Additionally, instead of being organized by community, members of Guyanese associations are organized by religious or professional affiliation (including nurses, lawyers, and former army members) or by cause (health, education). However, similar to groups in Latin America, the majority of projects focus on health and education. These include activities that support hospitals, AIDS awareness campaigns, and donation of medical equipment and medicine. Funds are also invested in scholarships and teacher training, as well as the donation of books, computers, and school supplies. In the United States, associations promote cultural, political, and religious identity through cultural events, scholarship awards, religious events, and sports and recreation. The deci-

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sion on project selection and implementation results from consultation with the board members. In some cases, the organizations report being approached by people and organizations in Guyana that lobby to work on specific projects. However, few Guyanese associations work directly with the embassy or consulate to identify projects. In addition, members make visits to Guyana and identify projects through their local contacts. With regard to partnerships, local associations (nonprofit organizations) and churches are among the top liaisons for project implementation. These organizations include Catholic charities and the Lions Club, as well as smaller entities. More importantly, Guyanese migrant associations are closely connected with other Guyanese organizations. Since many Guyanese HTAs have a pan-Caribbean vision, they can promote and organize events with other Caribbean groups and to support each others’ projects financially or by sharing volunteers. Over 80 percent are very interested in joint projects with international development associations, depending on the project and the resources demanded (Orozco 2004). Ghanaians in the United States, the United Kingdom, and Germany As previously discussed, among Ghanaian remittance senders in the United States, the United Kingdom, and Germany, 23 percent are involved in a hometown association, a figure relatively higher than that of other diasporas.19 Notably, while Ghanaian participation in the United States is lower compared to that of the United Kingdom or Germany, it is still higher than the participation rate of Latinos in the United States, which averages 6 percent. A third of Ghanaian HTAs are smaller than fifty members, while another third of Ghanaian associations claims to have between 50 and 100 individuals on their membership roster.20 Fund-raising efforts depend on the HTA and are varied. Fund-raising activities include concerts, pageants, trips, and raffles. In most cases, membership dues are paid to the association. These can range from US$7, US$10, or US$15 a month per member and often fund part of the development endeavors. Donations in kind are also common. Almost half of the Ghanaian HTAs studied collect less than US$5,000 annually, while a quarter of these collect between US$5,000 and US$10,000 to implement their activities.

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Ghanaian HTAs are involved in a range of activities carried out in both the migrants’ home and host countries; only one HTA interviewed in our survey does not carry out activities in its country of origin. Similar to HTAs discussed earlier, Ghanaian efforts are overwhelmingly oriented toward health and education activities (96 percent). A common project is “adopting” the children’s or ob-gyn ward (as happened in Kwahu, Ghana) in a hospital, or adopting a school to support. Meanwhile, roughly 14 percent of HTAs invest in infrastructure (including street construction and repair, water provision, electricity, and so on) and less than 4 percent contribute to church repair, construction, and decoration. In addition to these projects, over a third of HTA members also donate funds, clothing, and food to other, more specific initiatives. These include providing scholarships, supplying computers and backpacks, and raising awareness among civil society. HTAs tend to target project priorities through communication with chiefs, queen mothers, government ministers, and more often, family and friends back home. The Okuapeman Fekuw in New York, for instance, consults their village chief on town needs (such as a hospital refrigerator for medicines) when he periodically attends UN sessions. Few associations confine their activities to their hometowns. Okuapeman Fekuw has clothing drives for the homeless in New York, and many groups, such as the Fante Benevolent Society of Chicago, feel their purpose is to provide services to association members in the United States as well through organizing “naming and outdooring ceremonies” when a child is born or helping to repatriate family members back to Ghana for burial after a death. Many HTAs work with partners back home: chiefs, former school directors, or HTA members who have returned to Ghana. This helps smooth the coordination of activities, delivery of donations, and ostensibly the transparency of project implementation. Other groups work with host country partners: hospitals such as Howard University in Washington, DC (Wassa Association, Ga-Adangbe Association), universities such as Drew University (Okuapeman Fekuw, New York), or local churches (like the Wassa Association with a church in southeastern Washington, DC), which help provide supplies to their hometowns. Most HTAs are eager to pursue partnerships with the United States Agency for International Development (USAID) and other groups to leverage their projects, and many HTAs

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are looking to achieve tax-exempt status so that they can accept donations. Ghanaians in the Netherlands Nearly half of all Ghanaian migrants in the Netherlands (41 percent) live in the city of Amsterdam, followed by the city of The Hague (30 percent). Both cities have developed networks of Ghanaians. These networks usually take the form of associations offering community support and other services related to their daily livelihood. The main form of Ghanaian association in the Netherlands revolves around churches and ethnic associations that provide support to Ghanaian migrants. About 70 percent of migrants donate to religious or community groups. Networks between churches in Ghana and the Netherlands play a crucial contact role between Ghanaians abroad and communities back home. Development activities are promoted through these church initiatives. Ghanaians sometimes send secondhand clothes through their churches, while some church members in the Netherlands support less fortunate children by sponsoring transportation and school fees. Others provide funds to support daily meals for children at school. Over 50 percent of Ghanaians in the Netherlands belong to an HTA, higher than their counterparts in Germany, the United Kingdom, and the United States. These associations not only establish links to their communities in Ghana through development projects, but also within the Netherlands. For example, Recogin (the Representative Council of Ghanaian Organizations in the Netherlands) was set up by Ghanaian migrants in 1992 after the Bijlmer plane crash of October 1992 and has become an umbrella organization for about thirty-six self-help organizations and churches. Recogin organizes activities such as workshops, symposia, and conferences in order to update their fellow citizens about significant developments in the Netherlands and also to discuss issues relevant to their living in the Netherlands. Meanwhile, Ghanaian organizations are not only active in the Netherlands but have expanded to other European countries, including England, Spain, and Italy. Technology, such as the Internet and mobile phones, has played a crucial role in this expansion of communication between transnational Ghanaian communities by creating

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simple and convenient forms of contact. Ghanaians in the diaspora stay connected largely through Web-based radio stations. Online radio has become an important meeting point where Ghanaian migrants in Europe can exchange views and opinions about family or religious issues and situations in both Ghana and the Netherlands. Most of these Ghanaian websites are owned by Ghanaians from the diaspora. In the Netherlands, one of the most prominent migrant websites is www.ghanatoday.com.

Conclusion As globalization has intensified in recent decades, groups of people with shared origins and interests have become increasingly connected with each other across geographical boundaries. In this context of heightened global connectivity, it is important to take into account the transnational activities of migrants, both as individuals and as members of larger groups and organizations around the world. The analysis of transnationalism through the scope of the 5 Ts demonstrates that migrants are important development players in their home countries and make large contributions in the host countries. The private and public sectors have both responded to migrant transnationalism in a number of ways. They have increased flights to home countries, improved telephone services, imported nostalgic goods, and provided grant opportunities. However, these activities could be further leveraged. Additional activities could include broadening airline rewards programs to target the diaspora community, and strengthening the network of suppliers and distributors that are engaged in nostalgic trade to improve and expand the supply of home-country goods. Moreover, migrant organizations have great potential. International organizations, foundations, and governments have the potential to link their development priorities to the work of the diaspora, helping HTAs to define their goals and better operationalize their strategies. Contributions can be both material and human capital; states and other donors must work with migration organizations to develop a joint agenda that addresses issues of common concern. Opportunities for collaboration include organizational capacity building, technical assistance on community development needs, joint investment schemes in social and economic projects, and diaspora outreach ini-

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tiatives like confidence-building tools for migrants to recognize that governments are serious and committed to working with them.

Notes 1. Development economics has long considered foreign savings key to increasing a country’s capital-output ratio. Within that context, four factors have been considered: foreign direct investment, official development assistance, foreign trade, and the transfer of technology. Remittances are also foreign savings of significant magnitude. 2. Transfer of money and capital were analyzed in Chapter 6. 3. For the complete study, please refer to Orozco 2005a. 4. Ibid. 5. Ibid. 6. By referring to a home country or nostalgic product, I am referring only to those goods that are manufactured in the homeland, not to nostalgic products that are manufactured in the United States. For example, migrants may buy tortillas or tea made in the United States and in the homeland, but the question explicitly referred to only those products that were imported and manufactured in the home country. 7. The data presented here are based on studies I conducted for the Canadian Foundation for the Americas (FOCAL) in March 2003, titled “The Impact of Migration in the Caribbean and Central American Region.” 8. The analysis is based on a survey of thirteen nationalities across the United States and examines possible demographic, geographic, and cultural differences among migrants. Nationalities represented among the people studied included Mexico, El Salvador, Colombia, Bolivia, the Dominican Republic, Paraguay, Ethiopia, Nigeria, Ghana, the Philippines, Honduras, and India. 9. See Orozco 2005a. 10. See Orozco and Mohogu 2007. 11. The term was popularized by Roland Robertson, who explained “glocal” as “the simultaneity—the co-presence—of both universalizing and particularizing tendencies.” See groups such as www.glocalforum.org/. 12. Ninety percent of 38,196,740 migrants importing US$910 a year adds up to an estimated US$23,462,347,948. 13. A rough estimate based on prices reported at the local stores. 14. For more detailed information about the findings of these studies, see Orozco 2005b. Chapter 8 also employs data from a survey of 1,300 migrants from different nationalities living in the United States conducted by the author in 2008.

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15. When the program was created on a national level in 2002, it allowed any group of Mexican citizens to apply for government matching funds. The rules of operation changed in 2004 to require that all applications demonstrate having the support of a registered Mexican HTA. See www .sedesol.gob.mx. 16. I conducted interviews with the leaders of twenty associations based in Los Angeles and Washington, DC (Orozco 2006a). 17. Interview at Ministerio de Relaciones Exteriores de El Salvador, 2006. 18. See http://www.laprensagrafica.com/dpt15/. 19. This section explores the basic characteristics of Ghanaian HTAs and is based on interviews of members of thirty organizations in New York, Washington, DC, and Chicago, as well as with members of HTAs in the United Kingdom and in Germany (Orozco 2005a). 20. Twenty percent of the HTAs profiled in this survey have over 100 members (Orozco 2005a).

8 Deterritorializing Development Policy: Toward a Conclusion

Throughout this book I have analyzed the interplay of family remittances with people, institutions, and the processes that emerge, such as the various facets of development. These processes often show incomplete realities, unmet challenges, and pending tasks, reflecting a lack of connection between systematic development policies and transnationalism. I conclude with an observation about the imperative to introduce policy intervention based on an approach that is not bounded by nation-state configurations. The conclusion is an open reflection and an examination of the operational sides to the dynamics and processes that result from family remittances. The global nature of social, economic, and political interactions increasingly demands normative and policy changes to benefit people. It is possible to note a growing tension between the intermestic (simultaneous interaction of domestic and international affairs) and transnational nature of human relations, and nation-state-bound rules of conduct (Sassen 2001, 2006). In the context of international migration and the ensuing processes that emerge from the economic and social links forged by migrants, their families, and the institutions (public and private) with which they interact, the coexistence with various state entities is more visible. Global capitalism has increased international migration out of necessity, as global competition makes countries struggle to

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grow and properly tend to the welfare of their societies. Meanwhile, large and small businesses have increased their demand for lowpaid/low-cost foreign labor in order to raise global productivity and competitiveness. Moreover, the economic activities among migrants and their families have had direct implications for economic growth and development in a global context. Despite these patterns, a critical paradox is apparent: international cooperation for economic development is circumscribed within the territorial lines of nation-states. This paradox is a dangerous as well as a politically and morally indefensible reality, because the social, political, and economic conditions of people’s lives are not addressed transnationally but through piecemeal policies and rhetorical assessments of sovereignty and border controls. While migrants and their families strengthen economies, their productivity drops over time because their capacity to create wealth is constrained by neglect and indifference, which partly results from myopic understandings and risk-averse approaches to development. It is imperative to engage in development in a deterritorialized manner that allows for a more fluid approach to fulfilling human needs. Deterritorializing development policy uses people, migrants, and their families as units of analysis and targets populations rather than nation-states. A point of departure from this imperative is identifying processes that bind individuals and structures as units of analysis, and the definition of normative, empirical, and policy pathways to transnational development designs. The preceding chapters identified several processes showing how people are bound by trans national exchanges, such as money transfers. These processes include the methods by which sending and receiving of money takes place, the organic relationship that evolves between the transfers of money and asset building such as savings accumulation. But there exist other processes, such as the interchange along gender lines between male and female senders and female recipients, or the distribution of nostalgic goods, manifest in a mix between identity and its material representation through food and crafts. Each and every one of these processes has a direct relationship to development—that is, to the human condition, either through quality of life or the effect on the material circumstances of people and their communities.

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These processes can positively impact societies when policy pathways are set in motion. Defining these pathways results from observation of the lessons learned and from the practices that arise from the processes described above. The pathways are preliminary guidelines that help shape an organic deterritorialized development approach. The various relationships that immigrant communities have with their home countries show challenges and limitations: strategies are needed to reduce remittance transaction costs; leverage the capital potential of remittances through banking and financing; promote tourism, nostalgic trade, and investment; and establish a state policy that attends to a country’s diaspora. Applied research and fieldwork across countries have provided some important lessons and tools for understanding patterns and policy solutions. These experiences have helped identify problems, obstacles, and opportunities, and have contributed to crafting policy opportunities for migrants, diasporas, and their families. These strategies are associated with remittances, investments, or donations, but they need to be understood in a deterritorialized context. Solutions to some of these problems are varied and depend on conditions in the spaces where they are addressed; however, common to both these solutions are the rural and gender variables. These two realities cut across migration and underdevelopment, and need significant attention. Here, I identify several initiatives where policy can be critically important to promoting development by leveraging the processes and activities linked to migrants and diasporas (such as remittances, investments or donations through funds, and migrant capital management). The initiatives are not exhaustive, but they reflect the subjects of public policy debate and practice. These initiatives are neither arbitrary nor a capricious desire of policymakers and politicians, although some policy initiatives on remittances have proven to be just that. The initiatives function in relationship to five criteria that determine a successful approach to strengthening the link between remittances and development. These criteria refer to developing a systematic understanding of the policy problem, a perspective on the expected results emerging from a policy solution, a measure of the impact dimension of the results (or clarity about the extent of the policy effect on the population and of number of people benefited), an estimate of expected costs of the intervention, and a projection of risks resulting from the initiative.

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Reducing Informality, Improving Competition, and Reducing Costs The marketplace for money transfers is an area worthy of significant attention. Policy must address the money transfer market by reducing informality, improving competition, and reducing costs, as well as offering incentives to improve money transfer technology, both on inbound and outbound corridors. Informal networks often emerge in the absence of a significant number of competitors that can pay transfers in the most remote areas. Because governments stipulate that only banks are allowed to pay remittances, many rural areas are often neglected and, in turn, adopted by small informal entrepreneurs. Cost reduction in recent years has resulted largely from increased competition among MTOs. In the Russia and Central Asia region, for example, costs are relatively low and below international prices. Government initiatives in Russia dealing with preventing exclusivity agreements have been successful at reducing transaction costs that attended the price scheme gains that exclusivity contracts produced. However, more needs to be done in this area. Further efforts to decrease costs involve greater transparency, improving the environment for MTO competition (including monitoring businesses on full pricing and service-level disclosure), supporting small money transfer businesses’ participation in the market, and introducing alternative means to transfer money, such as prepaid cards or mobile phone technology. New technologies can allow for cheaper account-toaccount transactions, but all players in the market must learn how best to use these technologies. Recipients will require increased financial education in addition to adjusted behavior in the way money is collected. Moreover, banks’ small business clients also benefit from making remittance payouts, through increased access to both credit and remittance-receiving customers. Rates of saving can increase considerably, not only through direct deposits to savings accounts, but also by the reduction in the amount of cash in circulation and through the increased use of electronic transactions. Access to technology can be expensive for financial institutions or vendors; therefore, policy solutions such as tax breaks or incentives that encourage improved technology should be implemented.

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Accelerating Financial Intermediation Projects with Credit Unions and MFIs Another area where solutions can be found is in accelerating financial access through projects with microfinance institutions (MFIs), credit unions, and small banks. These alternative financial institutions have demonstrated a key role in banking the traditionally unbanked and in transforming remittance clients into clients of other financial services. Support for these financial institutions from governments and donor countries has been low, despite MFI efforts to reach out to remittance recipients. The financial assistance that has been granted has typically targeted financial product design, marketing, and technology. In Moldova, for example, the majority of flows go to families in rural areas where bank presence is more restricted but savings and credit associations (SCAs) have a deeper reach. However, SCAs are not allowed to offer remittance services and are not supported in reaching out to recipients and migrants. Increasing the support and participation of these small financial institutions is critically important to increasing access to financial services and improving financial literacy and assets. Types of assistance include financial product design and marketing, IT development, market research, and regulatory compliance. Another area of assistance is support for savings banks, MFIs, and credit unions in building networks that can allow positive negotiations with remittance transfer companies. In this light, linking banks in the originating countries to MFIs in the destination countries is also a winning proposition.

Engaging Banking Institutions to Provide Broad Financial Services In addition to incentivizing nonbanking financial institutions to reach out to remittance clients, governments and international institutions should engage banks that offer remittance services. Access to banking services remains low despite the very high percentage of payments that banks make and the revenues resulting from their services (remittance transfer earnings represent 20 percent or more of their total net income). Efforts should be made to increase opportunities for reinvestment in the community. Because of banks’ role in distrib-

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uting remittances, it is particularly important that they move beyond simple remittance payments and offer financial literacy programs aimed at remittance recipients, financial product design or marketing, and modernization of payment systems.

Supporting Projects to Improve Investment Opportunities at Home and Among the Diaspora Policy initiatives should also focus on improving opportunities for small-scale investment in the creation of new businesses, thereby responding to the desire of migrants and their families to invest. This means, for example, offering opportunities for remittance recipients to transform subsistence agriculture into commercial farming, and encouraging an environment favorable for migrants to invest. These enterprises in turn provide further opportunities by promoting migrant investment in tourism and nostalgic trade. Seasonal migrants visit their countries once a year, and many buy goods produced there, which contributes to the growth of small businesses. Governments in the host and home countries, development agencies, and the private sector could benefit by offering products or services from the country of origin in these businesses abroad. In reaching out to the diaspora, governments target a unique and important source of funds. Achievement of these goals is contingent on governments and the private sector continuing their work to create appropriate conditions for a positive investment climate in the country of origin. No effort to promote investment will succeed if the business climate is not investor-friendly.

Designing Products That Include Education and Health Services Education and health expenses are typical investments in remittancerecipient families. Nonetheless, adequate education and health services are often unavailable or not well publicized. One way to provide these services is through partnerships between banks, MFIs, and health and education providers that offer financing. For education, such partnerships could offer education funds (savings and loans), tutoring, extracurricular activities, and Internet lessons. These types

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of investments on the part of recipient families lead to higher educational achievement and continued investment from the person sending money from abroad.

Providing Technical Assistance on Financial and Remittance Literacy Educating people about finances is a critical step toward development and is important among remittance recipients. Financial and remittance literacy, as well as training in skills acquisition, can be established in cooperation with financial institutions for outreach to remittance recipients. This technical assistance should consider informing recipients about the financial value of the transfers as a mechanism for building credit and assets, and about the use of alternative payments through electronic instruments such as debit and credit cards.

Engaging Governments and the Private Sector as Environment Enablers One of the general policy recommendations, and perhaps one that should have major priority and that can be gleaned from the majority of these issues, is that governments need to understand their role as environment enablers. That is, they need to understand their role as promoters of policies that lead to increased access to the financial system and financial intermediation for remittance recipients. Moreover, an outreach policy toward the community residing abroad is key to any migrant-sending country’s economic strategy. Governments could gain significantly from such an approach, while empowering and legitimating migrants’ reality and hard work. A first step in this direction is the creation of a National Commission on Remittances and Development, composed of civil society organizations, migrant-based groups, MTOs, financial institutions, government officials, and donors. The experience of these types of exercises has been successful in the US–Latin American and Caribbean context. A second step involves the provision of technical assistance on financing for small business projects. Migrants and families of migrants have an interest in investing in a small business

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or in real estate. However, they lack the proper tools and incentives to work in that area.

Migrant Outreach Policies Establishing an outreach strategy that links with migrants through confidence-building measures is a key area of government policy. Confidence building is a necessary step in validating the reality of migration. To do that, however, it is important to improve the contacts and relationships with the diaspora and to establish a minimum outreach program that promotes participation among the migrant community. Governments need to develop confidence-building tools and initiatives that convince migrants that the governments are serious and committed to working with them. Confidence-building incentives should stress at least four components: dialogue with leaders, institutional resource investment for policy outreach, institutional communication mechanisms that ensure systematic and legitimate contact with diasporas, and the joint creation of a policy initiatives agenda that affects governments and migrants.

Leveraging Nostalgia Through Enhanced and Improved Foreign Trade The demand for home-country goods has important implications for development, both in the home country and in the host country and diaspora as well. The impact of nostalgic trade on development is demonstrated by the size of the demand and the volume of imports resulting from the consumption of (predominantly) foodstuffs, as well as by a significant, established network of suppliers and distributors. More importantly, these commodities are increasingly planting footprints in most cities in the United States. Development of opportunities to leverage nostalgic goods through strengthening trade ties can include the promotion of better product quality through trade capacity, whether through improved labeling or other attributes of trade quality. Development can also focus on improving market research, obtaining credit, and providing technical assistance for producers about how to meet the demand in the diaspora. Other contri-

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butions that leverage nostalgic trade for development include strengthening a country’s competitive capacity.

Diaspora Associations and Development Cooperation Options While diaspora associations’ philanthropy may be good, more potential remains for collaboration between HTAs and public and private donors. The development impact of HTA activities depends on the extent to which HTAs and local communities share a commitment to investing in high-quality projects. On this front, international organizations, foundations, and governments have the potential to link their development priorities to the work of the diaspora, helping HTAs to define their goals and better operationalize their strategies. Contributions can be material and human capital, and it is important for states and donors to work with migrant organizations to develop a joint agenda that will address issues of common concern. Opportunities for collaboration with HTAs also include organizational capacity building, technical assistance to identify community development needs, joint investment schemes in social and economic projects, and outreach between the diaspora and the government. Establishing a line of communication with migrant organizations is critical for creating effective development partnerships with dispersed peoples. Both HTAs and donors need to find a space for interaction and communication where they can bridge the divide that currently separates them—the fact that HTAs are predominantly volunteer organizations.

Recognizing Intellectual and Practical Limitations The fulfillment of a deterritorialized approach to development with migrants, who are in the equation as both agents and subjects, is not an easy task, as it faces substantive limitations and challenges. For one, the economic activities of diasporas are not the key development drivers. The roles of migrants, diasporas, their families, and policies in positively transforming social change can only add to support for solutions to the larger development problems faced by many developing countries. Poverty, inequality, and global asymmetric relations

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are structural trends that cannot be solved easily, but they can be mitigated through a strategy that looks into the subject of migrants and the processes that accompany them. Furthermore, the policy agenda is yet a work in progress, and further input is needed from various standpoints. There exist positive experiences pointing to the issues highlighted above, showing that policy targeting remittances can promote development. But the formulation of development policies depends on gaining a greater understanding of the links between migration and development, and on the ability of policymakers and policy communities to take on the risk of putting forward alternative agendas in a more systematic way.

Acronyms

ACACCIBA ACACYPAC

ACEP ADOPEM AML AMUCSS BANSEFI BAR System BCEAO BIMAO BIS BNI BOJ BSI centers BSP

Asociación Cooperativa de Ahorro y Crédito de Ciudad Barrios Asociación Cooperativa de Ahorro Crédito y Producción Agropecuaria Comunal de Nueva Concepción de Responsabilidad Limitada Credit and Savings Alliance for Production Asociación Dominicana para el Desarrollo de la Mujer anti–money laundering Asociación Mexicana de Uniones de Crédito del Sector Social Banco de Servicios Financieros Beneficiary Account Registration System Central Bank of West African States (Banque Centrale des États de l’Afrique de l’Ouest) Banque des Institutions Mutualistes d’Afrique de l’Ouest Banque Islamic du Senegal Bank Negara Indonesia Bank of Japan business, service, and information centers (Philippines) Bangko Sentral ng Pilipinas 213

214

CIS CMS CODESPA CONDUSEF

CPM CUS DTB ECLAC ECOWAS EIU EPFSF EU FATF FDI FEDECACES FENACOAC FinCEN FISDL FLACSO FSA GDP GMOD GNI HTA IADB IBA IOM KYC MAS MFI MOF

Acronyms

Commonwealth of Independent States Credit Mutuelle du Senegal Cooperación al Desarrollo y Promoción de Actividades Asistenciales Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (National Commission for the Protection and Defense of Users of Financial Services) Caja Popular Mexicana United Salvadoran Communities (Comunidades Unidas Salvadoreñas) Diamond Trust Bank (Uganda) Economic Commission for Latin America and the Caribbean Economic Community of West African States Economist Intelligence Unit European Parliamentary Financial Services Forum European Union Financial Action Task Force foreign direct investment Federation of Salvadoran Savings and Credit Cooperatives Federación Nacional de Cooperativas de Ahorro y Crédito de Guatemala Financial Crimes Enforcement Network Social Investment and Local Development Fund (El Salvador) Latin American Faculty of Social Sciences Financial Supervisory Agency (Japan) gross domestic product Global Migrant Origin Database gross national income hometown association Inter-American Development Bank International Bank of Azerbaijan International Organization for Migration Know Your Customer Monetary Authority (Singapore) microfinance institution Ministry of Finance (Japan)

Acronyms

MTO NBFI OECD OFAC PNB PPATK RBAP Recogin RFC RSP SCAs SCIs SIBOIF TRPI UEMOA UK UN UNDP UOB US USAID VFC WAMZ WOCCU

215

money transfer operator nonbank financial institution Organisation for Economic Co-Operation and Development Office of Foreign Assets Control Philippine National Bank Center for Reporting and Analysis of Financial Institutions (Philippines) Rural Bankers Association of the Philippines Representative Council of Ghanaian Organizations in the Netherlands Rural Financial Corporation remittance service provider savings and credit associations savings and credit institutions Superintendencia de Bancos y de Otras Instituciones Financieras Tomas Rivera Policy Institute West African Economic and Monetary Union (Union Economique et Monétaire Ouest Africaine) United Kingdom United Nations United Nations Development Programme Urwego Opportunity Bank of Rwanda United States United States Agency for International Development Vision Finance Company West African Monetary Zone World Council of Credit Unions

A Note on Research and Data Sources

This book is based primarily on research that I carried out in more than fifty countries worldwide. This fieldwork included interviews with experts, data collection on balance-of-payment statistics and remittance transfer pricing, and the collection of immigrant and household survey data (for a description of the various methodologies employed see Orozco and Millis 2007). Chapter 2 employs several surveys produced in Orozco and Castillo 2008; Orozco 2005d; Orozco and Fedewa 2005. The findings presented in this chapter are also based on a 2007 survey I conducted of recipients withdrawing remittances at bank account locations in three countries in the Caucasus. Two studies on Ghanaian diasporas were also included: Orozco 2005a, 2007c. Chapter 3 is based on intraregional research in Latin America and the Caribbean, Southeast Asia, and West Africa. Some of the survey results were originally produced in the following studies: Orozco 2005d; Orozco and Fedewa 2005; Orozco 2005a, 2006e, 2006d. The chapter also includes data from a survey of Latin Americans in the United States (Orozco 2008d). Chapter 4 relies on interviews with experts and local fieldwork in several world regions. Data from various reports were also incorporated into the chapter, including Orozco and Fedewa 2005; Orozco 2006e, 2006c, 2007d, 2007f. It also includes MTO tariff data I collected from desktop research and fieldwork in several countries, 217

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A Note on Research and Data Sources

including Russia (2007), fourteen Latin American countries (2007), Cuba (2009), twenty-five African countries (2009), and Spain (2009). The chapter includes an analysis of the impact of the recession on remittances published in 2010 based on surveys in four migrantreceiving countries (France, Italy, Spain, and the United States). Chapter 5 relies on interviews with experts and local fieldwork in Asia, Europe, Latin America, and Africa. Some of the data in this chapter are also produced in earlier reports, including Orozco and Fedewa 2005; Orozco 2005d, 2007a, 2008c. It also includes data from a survey of clients and their neighbors living near microfinance institutions (MFIs) in twenty-five African countries conducted in 2009. This chapter employs data from surveys of remittance senders from six different Latin American countries—Guyana, Mexico, El Salvador, Colombia, the Dominican Republic, and Bolivia—who send through formal institutions in the United States (Orozco 2008b). It also includes data from a survey I conducted in 2008 of migrants living in the United States from thirteen different countries from various regions of the world. Finally, the chapter findings on remittance recipients are based on data from a survey I conducted in 2008 in Nicaragua, Honduras, Cuba, Guatemala, and the Dominican Republic. Chapter 6 continues the subject of remittances and finance, and is also based on interviews and regional fieldwork, specifically with MFIs in various countries. Some of the findings presented in this chapter originally appeared in the following reports: Orozco 2008b; Orozco and Kabulova 2007. It also includes data from the survey of clients and their neighbors living near MFIs in twenty-five African countries conducted in 2009. Chapter 7 presents findings primarily from two reports—Orozco 2005d and 2008d—and also relies on the theoretical framework presented in Orozco 2005b. The chapter also employs data from a survey of 1,300 migrants from different nationalities living in the United States that I conducted in 2008. This chapter also draws partly from Brinkerhoff 2008.

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Index

ACACCIBA cooperative, 160 ACACYPAC cooperatives, 160 ACCION International, 161, 172(n14) Account-to-account transfers, 66, 71, 141, 157, 158–159, 206 ADOPEM (Asociación Dominicana para Desarrollo de la Mujer), 163, 165–166 Africa: distribution of the world’s migrants by region of origin in destination, 2(table); financial access, 118–121; geographic distribution of remittances, 12(table); global remittance volume, 11; hometown associations, 188; impact of economic recession on, 39–40; intraregional flows in Western Africa, 50–54; marketing financial products, 131–134; MFIs as remittance agents, 136, 138, 140–141; percentage of migrants who remit, 4; personal savings by country, 119(table); personal savings practices, 105–106; regulatory issues, 87–89; regulatory issues in East Africa, 94–95; regulatory issues in West Africa, 95–97; remittance marketplace, 89–93, 99–100(n20); remittance-sending among migrants in West Africa, 53(table); size and characteristics of MFIs that pay and do not pay

remittances, 137(table); Spain’s remittance marketplace, 82; women remitters, 7. See also specific countries Age: Ghanaian diaspora, 27, 28(table); Guatemalan recipients, 113; Haitian migrants in the Dominican Republic, 45–46; Latin American migrant profile, 13; Latin American recipient profile, 17; Nigerian migrant profile, 30 Agent payout services, 130–131 Agricultural loans, 152 Airfare, 177–178 Algeria: remittance marketplace, 90, 91, 92 Allure Money Transfer System, 76 Anelik, 75, 81 Anti-money laundering (AML) systems: Africa, 87, 88; Armenia, 77; Central Asia, 74–75; EU regulation, 80; international regulatory principles, 59–60, 98–99(n11), 99(n12); MFIs’ awareness of international compliance rules, 148(table); regulating international currency flows, 57–59; regulation of MFIs as remittance agents, 146, 148; Southeast Asia, 68–70 Argentina, Paraguayan migrants in, 48–50

229

230

Index

Armenia: demographic characteristics of remittance recipients, 24(table); income dependence on remittances, 25(table); migration and remittance behavior, 20–21; recipient profile, 23–25; regulatory issues, 77, 78; remittance frequency, 19; remittance marketplace, 76, 78–79 Asia: asset building behavior, 108–110; MFIs’ expansion into remittance payment, 136,138; size and characteristics of MFIs that pay and do not pay remittances, 137(table). See also South Asia; Southeast Asia; specific countries Asociación Mexicana de Uniones de Crédito del Sector Social (AMUCSS): characteristics of MFIs in the Latin American remittance market, 147(table); expanding financial access and literacy, 163, 167; financial intermediation among MFIs in the Latin American remittances market, 156(table); mandate, 172(n13); MFI capacity and profitability, 142–144; MTO-MFI partnerships, 146 Asset building: Asia, 108–110; Europe, 110–112; financial education and, 169; impact of remittance on, 105–108; methods among Latin American migrants and their families, 106(table); MFIs promoting, 126; migrationremittance-development link, 6; remittance recipients’ top economic activities, 109(table); women’s remitting behaviors, 7 Assets, defining, 123(n2) Associations, diaspora. See Hometown associations; Migrant organizations Asylum seekers, Armenian, 20 Australia: consumer protection regulation, 61 Azerbaijan: currency regulation, 77; financial access, 110–111; marketing financial products, 127–128; remittance marketplace, 76, 78–79 Azerdemiryol Bank (Azerbaijan), 127 BAC-Honduras SA Bank, 129–130 Banamex, 157 Banca Sociala (Moldova), 128

Bancarization, 40, 130–131, 134–135, 143, 160–161, 166–167 Banco de Servicios Financieros (BANSEFI; Mexico), 155, 157–159 Banco Hipotecario (Guatemala), 166 Banco Industrial (Guatemala), 129 Banco Popular (Dominican Republic), 130 Bancomer (Mexico), 157 Bangladesh: remittance costs, 74(box) Bank account ownership: Africa, 118; the Caucasus, 110–112; Central America, 129; Central Asia, 110; correlating with remittance amounts, 106; Dominican Republic, 117–118; expanding financial intermediation, 127; gender difference in Latin American remittances, 15; Guatemala, 113–114; Honduras, 115–117; Moldova, 112; Nicaragua, 114–115; Nigeria, 119–120; Southeast Asia, 108–109; Uganda, 120–121, 133 Bank Eskata (Tajikistan), 127 Bank of America, 84 Bank of Japan, 69–70 Bank Secrecy Act (US), 83, 84, 99(n13) Banks and banking systems: account-toaccount remittances, 66, 71, 141, 157, 158–159, 206; African countries’ regulations, 87–88; African remittance marketplace, 90–92; basic bank accounts, 80; broadening financial services, 207–208; education and health services, 208–209; EU currency flow regulation, 80–81; expanding financial access, 125–126; “Know Your Customer” policy, 68; Kyrgyzstan’s remittance marketplace, 75–76; lack of trust in, 116–117, 118, 155; Latin America’s remittance marketplace, 85; marketplace analysis of money transfer systems, 61–62; migrants’ lack of access to, 4; Moldova’s remittance marketplace, 81–82; MTO requirements, 99(n14); Nigeria’s remittance marketplace and regulation, 93(box); policy accelerating financial intermediation, 207; preferred remittance method among immigrants in Japan, 72(table); recipients’ and women’s remitting behaviors, 7; regulating foreign currency transfers,

Index 59, 69, 70; regulations on competition and consumer protection, 60; remittance intermediation in Southeast Asia, 70–71; rural-urban divide in financial access, 122–123, 167–168; savings and account ownership by remittance recipients, 105(table); South Caucasus countries’ regulatory issues, 77–78; South Caucasus remittance marketplace, 78–79; Southeast Asia’s remittance marketplace, 72; Spain’s remittance marketplace, 82; strengthening access to, 103; supply and demand of financial services, 107; Tajikistan’s remittance marketplace, 76; transfer payment process, 62–63; US remittance regulations, 83–84. See also Marketing financial products; Microfinance institutions; Savings, personal Bank-to-bank transfers, 92–93 Banque Atlantique, 142 Banque Comerciale du Rwanda, 132, 153 Banque de l’Habitat du Rwanda, 132–133 Banque Islamic du Senegal (BIS), 172(n12) Banrural (Guatemala), 129 BAR (Beneficiary Account Registration) system, 158 Barclays Bank (Uganda), 134 Basel Committee on Banking Regulations and Supervisory Practice, 68 Basic bank accounts, 80 Basic needs, 34 Benin: country of origin for migrants in Ghana, 54(table); personal savings, 119(table); savings practices, 118 BHD bank (Dominican Republic), 130, 131 Bijlmer plane crash, 199 Body repatriation, 129 Bolivia: hometown associations, 187–188; impact of the economic downturn on remitters, 37(table) Borrowing, 110. See also Loans Brain drain: Armenia, 20 Brazil: impact of the economic downturn on remitters, 37(table); Spain’s remittance marketplace, 82 Bumiputra-Commerce Bank (Malaysia), 71

231

Burial traditions, 190 Burkina Faso: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51, 53; personal savings, 105–106, 118, 119, 119(table); savings and account ownership by remittance recipients, 105(table) Burundi: bank account ownership, 118; personal savings, 119(table) Business ownership: Africa, 118; asset building behavior, 106–107; Dominican Republic, 117; Georgia, 112; Ghanaian and Nigerian migrants, 34; remittance recipients’ top economic activities, 109(table); technical assistance by Moldova’s SCAs, 152 Caja Popular Mexicana (CPM): characteristics of MFIs in the Latin American remittance market, 147(table); expanding financial access, 163–165, 164; financial intermediation among MFIs in the Latin American remittances market, 156(table); marketplace advantage, 140; MTOMFI partnerships, 146; rapid growth of, 138, 171(n9) Cameroon: bank account ownership, 118; foreign currency account regulation, 89; personal savings, 119(table) Canada: percentage of migrants who remit, 4 Capital-output ratio, 201(n1) Caribbean. See Latin America and Caribbean; specific countries CashMoney, 142 Caucasus: asset building, 110–112; financial product marketing, 127–128; regulatory issues, 77–78; remittance marketplace, 78–79; Russia-Central Asia and South Caucasus remittance corridor, 18–25. See also specific countries Celent Communications, 62, 98(n4) Centenary Bank (Uganda), 134 Central America: financial access, 112–118; hometown associations in the United States, 194; intraregional flows in Latin America and Caribbean, 44; marketing financial products,

232

Index

129–131; MFIs’ expansion into remittance payment, 136, 138; migrants in the United States communicating with relatives, 183. See also Latin America and Caribbean; specific countries Central Asia: asset building behavior, 109–110; cost reduction through competition, 206; distribution of the world’s migrants by region of origin in destination, 2(table); expanding financial intermediation, 126–127; geographic distribution of remittances, 12(table); Kyrgyzstan’s migration and remittance behavior, 21–22; percentage of migrants who remit, 4; profile of Central Asia and South Caucasus recipients, 19; regulatory issues, 74–75; remittance marketplace, 75–77; Russia-Central Asia and South Caucasus remittance corridor, 18–25; women remitters, 7. See also specific countries Central Bank (Russia), 76–77 Central Bank of West African States (BCEAO), 96 Chad: financial access, 118; foreign currency account regulation, 89; personal savings, 119(table) Charitable donations. See Philanthropy Children: Ghanaian hometown associations, 198 Citibank, 130 Citizenship: intraregional flows in Western Africa, 51–52 Civil society. See Hometown associations Colombia: impact of the economic downturn on remitters, 37(table); length of time receiving remittances in Latin America, 18(table); remittance costs, 86; Spain’s remittance marketplace, 82 Colonial period, 50–51 Comite Ixchiguan, 191 Commercial activities in Western Africa, 50–51 Communication, 3. See also Telecommunications Community: nostalgic trade, 183–184 Competition, marketplace: banks’ expansion of financial products, 129–130; Central Asia, 75–76; cost

reduction through, 206; impact on migration, 203–204; industry trends in remittance intermediation, 65–67; Moldova’s remittance marketplace, 82; regulating, 60; Southeast Asia’s remittance marketplace, 72 Consolidation Fund (Moldova), 149 Consumer protection regulation, 60–61 Consumption: impact on the public good, 9(n1); macroeconomic impact or remittances, 16; nostalgic trade, 183–186 Contact, 75 Cooperatives, 160 Corridors. See Transfer corridors Costa Rica: length of time remitting, 49(table); Nicaraguan migrants, 47–48; Nicaragua’s FAMA, 144 Costs, transaction: Africa, 92–93; Central Asia, 77; informal remittance transmitters, 81; Latin America, 86–87; Nigeria, 93(box); policy influencing, 205, 206; South Caucasus, 79; Southeast Asia, 73–74; Spain’s remittance marketplace, 82 Côte d’Ivoire: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51 Cotton industry, 23 Credit access. See Credit/debit cards; Loans Credit and Savings Alliance for Production (ACEP), 141, 172(n12) Credit Mutuelle du Senegal (CMS), 141 Credit unions: African regulations, 89; capacity and profitability, 143; expanding financial access, 163, 165; expansion into the remittance marketplace, 157–160; Latin American regulations, 85; MFIs in the remittance marketplace, 145; policy accelerating financial intermediation, 207; rapid growth of CPM, 138–139, 171(n9); RSPs, 61 Credit/debit cards: Dominican Republic, 118, 130–131; Guatemala, 129–130; Honduras, 117; Moldova, 128; Nicaragua, 115; Nigeria, 120; prepaid, 130–131; Tajikistan, 127 Crime: regulation of international currency flows, 58

Index Cross-selling financial products, 131, 133–136, 155, 161, 163 Cuba: family size of recipients, 17; impact of the economic downturn on remitters, 37(table); informal remittance practices, 85–86; length of time receiving remittances in Latin America, 18(table); remittance recipient profile, 16–17 Cultural traditions. See Nostalgic trade Customer service, 159 Daily expenses, 36, 38–39 Death expenses, 129 Destination, country of: distribution of the world’s migrants by region of origin in destination, 2(table); geographic distribution of remittances, 12(table); intraregional flows in Western Africa, 51; length of time migrants have lived abroad, 34(table); profile of Central Asia and South Caucasus recipients, 19; US-Latin American remittance corridor, 12–18 Deterritorialization of development policy, 204–205 Development: asset building and financial access, 102–103; cooperation options, 211; defining, 5, 101–102; hometown associations, 190; migration-remittances-development link, 5–6; paradox of transnationalism, 204; role of migrants in international development, 8–9 Development assistance, 201(n1) Diamond Trust Bank (Uganda), 133 Disaster relief, 47, 194 Domiciliary bank account, 119–120 Dominican Republic: effect of economic recession on, 35; family size of recipients, 17; financial access, 117–118; Haitian migrants in, 45–47, 55; impact of the economic downturn on remitters, 37(table); intraregional flows in Latin America and Caribbean, 44; length of time receiving remittances in Latin America, 18(table); marketing financial services, 130; MFIs expanding financial access among remittance recipients, 165–166; migrants’ home visits, 178; migrants in the United States communicating with

233

relatives, 183; migrants’ tourist travel, 179–180; remittance costs, 86–87; remittance frequency and amount, 14; remittance trends, 16; Spain’s remittance marketplace, 82 Donations, 186–192, 197–198 Duterimbere, 154 DynaMicrofinance, 142 Earthquake, 47 East Africa: regulatory issues, 94–95. See also Africa; specific countries East Asia and Pacific: distribution of the world’s migrants by region of origin in destination, 2(table); geographic distribution of remittances, 12(table); remittance costs, 66 Ecobank (Kyrgyzstan), 127 Economic activities: family remittances, 3–4; 5 Ts of transnationalism, 8–9; global economic growth and development, 204; impact of the economic downturn on remitters, 37(table); migrant organizations, 187–188; migrants in the United States communicating with relatives, 183; migrants’ increasing involvement in social and economic activities, 2–3; migration-remittances-development link, 5–6; nostalgic trade, 183–186; policy options, 9(n1); regulation of currency flows, 57–59; remittance recipients’ top economic activities, 109(table). See also Asset building; Savings, personal Economic Community of West African States (ECOWAS), 51–54, 95–96 Economic growth: Armenia, 21; asset building and financial access, 102–103; Kyrgyzstan, 22; migrant activities affecting, 204; remittances in relationship to macroeconomic indicators, 32; Russia-Kazakhstan remittance corridor, 18–19; Tajikistan, 23 Economic recession, impact on migrants and remittances, 35–39, 38(table) Ecuador: impact of the economic downturn on remitters, 37(table); length of time receiving remittances in Latin America, 18(table); migrants’ home visits, 178; poverty reduction

234

Index

through remittances, 6; remittance recipient profile, 16–17; Spain’s remittance marketplace, 82 Education, investment in: Africa, 118; Dominican Republic, 117; financial system partnerships fostering, 208–209; Guatemala, 113; West African migrants, 54 Education level: Armenian recipient profile, 23–24; bank account owners in Moldova, 112; demographic characteristics of Central Asia and South Caucasus remittance recipients, 24(table); Georgian recipients, 111–112; Ghanaian diaspora, 29, 29(table); Guatemalans, 113; members of Moldova’s SCAs, 150; MFIs providing financial education, 168–169; Nigerian migrants, 30–31; Nigerian recipients, 33 Egypt: regulation of transfers, 94 El Comercio. See Financiera El Comercio (Paraguay) El Salvador: cooperatives, 160–161; family size of recipients, 17; financial intermediation among MFIs in the Latin American remittances market, 156(table); hometown associations, 187–188, 194–196; impact of the economic downturn on remitters, 37(table); length of time receiving remittances in Latin America, 18(table); MFIs in the remittance marketplace, 139, 171–172(n11); migrants’ home visits, 178; migrants’ tourist travel, 179–180; nostalgic trade, 185, 186; remittance recipient profile, 16–17; remittance trends, 16; remittances as percentage of GDP, 16 Emergency expenses: Dominican Republic, 117–118; Guatemala, 113; Nigeria, 119–120; rural Mexico, 167 Endogenous relationships, 9(n1) EnergBank (Moldova), 128 Energo Bank (Kyrgyzstan), 126–127 Enforcement Compliance Officer, 83 Engagement, transnational, 189, 189(table) Ethiopia, 118, 119(table), 188 Europe: African remittance flows, 26–34; asset building, 110–112; distribution of the world’s migrants by region of

origin in destination, 2(table); EuropeAfrica remittance corridor, 31–34, 39; geographic distribution of remittances, 12(table); Ghanaian organizations, 199–200; global remittance volume, 11; hometown associations, 188; money sent after the economic downturn, 38(table); percentage of migrants who remit, 4; regulation of MFIs in the remittance marketplace, 79–81, 148–152; remittance costs, 66; remittance marketplace in Moldova and Spain, 81–82. See also specific countries European Parliamentary Financial Services Forum (EPFSF), 79–81 Exclusive agreements in currency transfer, 60, 87, 91–92, 93, 99(n17) FAMA. See Financiera Fama (Nicaragua) Family obligations, 3; between developing countries, 43; 5 Ts of transnationalism, 3–4; gender difference in Latin American remittances, 15; Ghanaian migrants, 26–27, 32, 34; Haitian migrants in the Dominican Republic, 45–47; impact on the public good, 9(n1); importance of non-remittance transnational activities, 8; Nigerian migrants, 30, 32; Paraguayan migrants in, 49–50; USLatin America transfers, 16–18; West African migrants, 52–53, 54; women’s remitting behaviors, 7 Family size, 17, 25 Fante Benevolent Society of Chicago, 190 Federación Nacional de Cooperativas de Ahorro y Crédito de Guatemala (FENACOAC), 165 Federation of Salvadoran Savings and Credit Cooperatives (FEDECACES): characteristics of MFIs in the Latin American remittance market, 147(table); financial intermediation among MFIs in the Latin American remittances market, 156(table); financial intermediation efforts, 159–160, 161; growth and reach of, 171–172(n11); MTO-MFI partnerships, 146; rapid growth of, 139–140

Index Federation of Zacatecan Clubs, 193–194 Feminization of labor, 6–7 Financial access: Africa, 118–121; banks broadening financial services, 207–208; Central America and the Caribbean, 112–118; Dominican Republic, 117–118; expanding financial intermediation, 126–127; geography as component of, 122; Guatemala, 113–114; Honduras, 115–117; increasing savings through, 206; institutional approaches to increasing, 125–126; measurement criteria, 107–108, 125; MFIs expanding access among remittance recipients, 162–168; microfinance institutions increasing Ugandans, 134–135; Moldova, 112; Nicaragua, 114–115; Nigeria, 119–120; Rwanda, 120; supply and demand of financial services, 107, 162–168; Uganda, 120–121, 133. See also Asset building; Credit/debit cards; Marketing financial products; Savings, personal Financial Action Task Force (FATF) on Money Laundering, 58–60, 80, 88 Financial Crimes Enforcement Network (FinCEN), 83 Financial institutions. See Banks and banking systems; Microfinance institutions (MFIs) Financial literacy: Caucasus, 128; Central America and the Caribbean, 129; credit unions and MFIs, 166; development and, 209; financial institutions’ role in, 126; international institutional role in, 168–169; MFIs expanding literacy in remittance recipients, 165–167; Moldova’s SCAs fostering, 151 Financial products, remittance-linked, 154–161 Financial sector: economic dependence on remittances, 103–105. See also Banks; Microfinance institutions Financial Services and Markets Act (2000; UK), 80 Financiera El Comercio (Paraguay): characteristics of MFIs in the Latin American remittance market, 147(table); financial education, 168–169; financial intermediation

235

among MFIs in Latin America, 156(table); MTO-MFI partnerships, 146; Paraguay-Argentina remittance flows, 49–50; rapid growth of, 138–140; services and products, 171(n10) Financiera Fama (Nicaragua), 142–146, 147(table), 156(table), 161, 172(n14) FinComBank (Moldova), 128 Finrural, 144 5 Ts of transnationalism, 3–4, 8–9, 175–177 Food products. See Nostalgic trade Foreign currency accounts, 88–89 Foreign direct investment, 201(n1) Foreign trade, 201(n1), 210–211 Formality of financial services, 108, 125 Forolacrl network, 170(n8) Foster mothers, 154 Fox, William, 99(n13) France: consumer protection regulation, 61; migrants in Europe, 38; regulatory issues, 80 Frequency, 36 Functional capacity of financial services, 108, 125 Fundraising by HTAs, 190–191, 195 Gambia: country of origin for migrants in Ghana, 54(table) Gas resources, 18 Gender: asset building behavior, 106; bank account ownership in Moldova, 112; demographic characteristics of Armenian and Tajik remittance recipients, 23–25; demographic characteristics of Central Asia and South Caucasus remittance recipients, 24(table); Dominicans’ financial access, 118; effect of economic crisis, 36; feminization of labor, 6–7; financial access and asset building, 103; financial access and asset building in Uganda, 121; financial access in Azerbaijan, 110–111; financial access in Nigeria, 120; Ghanaian diaspora, 27, 32–33; Guatemalans’ financial access, 113; Hondurans’ savings practices and financial access, 115–117; Latin American migrant profile, 13, 15; Latin American recipient profile, 17;

236

Index

members of Moldova’s SCAs, 150, 151; migration-remittancesdevelopment link, 5–6; Nicaraguans’ financial access, 114–115; Nigerian migrants, 30–33; Paraguayan migrants, 49–50; remittances informing and being informed by, 6–7; Rwanda’s Duterimbere project, 154 General Principles for International Remittance Services, 58–59, 60 Geography: financial access and, 122, 133; geographic distribution of remittances, 12(table); intraregional flows in Western Africa, 51 Georgia: bank account ownership, 111–112; marketing financial products, 128; regulatory issues, 77, 78; remittance marketplace, 79 Germany: consumer protection regulation, 61; currency regulations, 80; Ghanaian diaspora, 27, 28(table), 29, 32–33, 177–178; Ghanaian hometown associations, 197–198; Ghanaian immigrants’ telephone communications with relatives, 181; Ghanaians’ tourist travel, 179; hometown associations, 188; length of time migrants have lived abroad, 34(table); Nigerian diaspora, 32–33 Ghana and Ghanaian diaspora: community formation in the diaspora, 26; country of origin for migrants in Ghana, 54(table); diaspora characteristics, 26–29; 5 Ts of transnationalism, 176; home travel by migrants, 177; hometown associations, 187, 190, 197–199; intraregional flows in Western Africa, 51, 53–54; length of time migrants have lived abroad, 34(table); migrant associations in the Netherlands, 199; Nigerian migrants, 30; nostalgic trade, 184; regulation of transfers, 96; remittance recipients, 32–34; remittance-sending among migrants in West Africa, 53(table); telephone communications with relatives, 181–182; tourist travel by migrant population, 179 Gini coefficient, 6 Global capitalism, 203–204 Global Migrant Origin Database, 30

Globalization: heightening global connectivity among migrants, 200; migrants’ increasing involvement in social and economic activities, 2–3; transnationalism and development, 176 Glocal economics, 185, 201(n11) Government role as environment enabler, 209–210 Grupo TACA, 178 Guatemala: family size of recipients, 17; female recipients, 17; financial access, 113–114; fundraising by hometown associations, 191; impact of the economic downturn on remitters, 37(table); intraregional flows in Latin America and Caribbean, 44; length of time receiving remittances in Latin America, 18(table); marketing financial products, 129–131; MFI’s expanding financial access among remittance recipients, 165; poverty reduction through remittances, 6; remittance recipient profile, 17; restrictions on authorized payers, 85; savings and account ownership by remittance recipients, 105(table) Guatemalan Federation of Credit Unions, 163 Guinea: country of origin for migrants in Ghana, 54(table) Gulf countries: percentage of migrants who remit, 4 Guyana: hometown associations, 191, 196–197; intraregional flows in Latin America and Caribbean, 44; length of time receiving remittances in Latin America, 18(table); migrants’ home visits, 178; remittance recipient profile, 17 Haiti: effect of economic recession on, 35; female recipients, 17; Haitian migrants in the Dominican Republic, 45–47, 55; intraregional flows in Latin America and Caribbean, 44; Latin American migrant profile, 13–14; remittance frequency and amount, 14; remittances as percentage of GDP, 16; restrictions on authorized payers, 85 Hawala, 63, 72 Health, investment in: Africa, 118; asset building, 102; Dominican Republic,

Index 117; financial system partnerships fostering, 208–209; Ghanaian hometown associations, 198; Guatemala, 113; Mexican hometown associations in the United States, 193; Mexico, 158 Home improvement expenses, 109–110, 113, 160 Home visits, 177–178 Home-delivery services, 130–131 Hometown associations (HTA): characteristics and purpose of, 187; fundraising, 8; Ghanaians in the Netherlands, 199; Ghanaians in the US, UK, and Germany, 197–199; Guyanese, 196–197; level of engagement and HTA participation, 189(table); Mexicans in the United States, 192–194; nostalgic trade, 184; potential for migrant organizations, 200–201; public-private cooperation, 211; remittance and, 189–190 Honduras: financial access, 115–117; marketing financial services, 129–130; migrants’ tourist travel, 180; remittances as percentage of GDP, 16; restrictions on authorized payers, 85; savings and account ownership by remittance recipients, 105(table) Hong Kong: regulation of currency flows, 68–69; remittance costs, 73(box); remittance intermediation, 71 Housing loans. See Mortgages Hundi, 63, 65, 72 Hurricane Mitch, 194 Hurricane Stan, 191 Identity: driving remittance behavior, 3; Guyanese HTAs, 196–197; migrant organizations, 187; nostalgic trade, 183–184 Illegal migration, 20, 22, 51–52, 177 ImpexBank, 81 Income dependence, 25, 25(table) Income level: Ghanaian diaspora, 29; Guatemalan recipients, 113; Honduran recipients, 116; Latin America GDP and, 40; Latin American migrant remittances as a percentage of income, 14(table); MFI’s diversification of remittance-linked financial products, 155, 157; migrant remitters in Latin

237

America, 14–15; Moldova’s SCA members, 150–151; Nigerian migrants, 30; Nigerian recipients, 33; US-Latin American remittance behavior, 15–16; West African migrants’ remittance amounts, 52 India: hometown associations, 188; informal remittance transmitters, 63, 65, 72 Indonesia: asset building behavior, 108–109; geography and financial access, 122; preferred remittance method among immigrants in Japan, 72(table); regulating international currency flows, 68, 69, 70; remittance costs, 74(box); remittance intermediation, 71; remittance recipients’ top economic activities, 109(table) Industry trends in remittance intermediation, 65–67 Inflation, 6, 16 Informal financial institutions: borrowing, 110; defining, 98(n2); Dominican Republic, 117–118; Guatemalans’ use of, 113; Haitian migrants in the Dominican Republic, 45; Latin America, 85–86; Moldova, 81; policy initiatives affecting, 206; preferred remittance method among immigrants in Japan, 72(table); remittance transmitters, 63, 65; Russia, 76–77; South Caucasus, 79; Southeast Asia, 71–72 Insurance, 106(table), 129, 167 Inter-American Development Bank (IADB), 166, 172(n14) Intermex, 143, 144 International Organization for Migration (IOM), 21 Internet: expanding communication among transnational Ghanaian organizations, 200 Internet-based remittance systems, 66–67, 70, 98(n4) Intraregional flows: Paraguay-Argentina, 49–50 Intraregional migration, 43 Intraregional remittance flows: European and United States-Africa corridor, 31–32; Latin America and Caribbean, 44; remittance corridors studies,

238

Index

11–12; remittance costs, 66; RussiaCentral Asia and South Caucasus remittance corridor, 18–25; United States to Latin America, 12–18; USLatin American remittance corridor, 12–18; in Western Africa, 50–54 Investment, 8; Azerbaijan, 111; economic impact of foreign savings, 201(n1); gender difference in Latin American remittances, 15; Georgia, 112; Guatemala, 113; improving investment opportunities at home and among the diaspora, 208; migrant organizations, 187 Ireland: currency regulations, 80 Israel: regulation of transfers, 94 Italy: Ghanaian organizations, 199; Moldova’s remittance marketplace, 81 Jamaica: intraregional flows in Latin America and Caribbean, 44; migrants’ tourist travel, 180; remittances as percentage of GDP, 16 Japan: hometown associations, 188; informal remittance transmitters, 71–72; percentage of migrants who remit, 4; preferred remittance method among immigrants in, 72(table); regulation of currency flows, 68–69, 69–70; remittance costs, 66, 73(box); remittance intermediation, 70 Job growth: Armenia, 21 Jordan: regulation of transfers, 94 Kazakhstan: distribution of the world’s migrants by region of origin in destination, 2(table); Kyrgyzstan’s migration and remittance behavior, 22; Russia-Kazakhstan remittance corridor, 18–19 Kenya: personal savings practices, 106, 119, 119(table) Know Your Customer (KYC) policy, 68, 84, 99(n13), 148, 148(table) Kyrgyzstan, Republic of: anti-money laundering activities, 75; asset building behavior, 109; currency flow regulations, 58; demographic characteristics of remittance recipients, 24–25, 24(table); expanding financial intermediation, 126–127; income dependence on remittances, 25(table);

migration and remittance behavior, 21–22; remittance frequency, 19; remittance marketplace, 75–76 L@Red de la Gente (Mexico), 137(table), 144, 148(table), 157–158, 163(table), 170(n8) Labor, demand for, 204 Latin America and Caribbean: asset building methods among migrants and their families, 106(table); characteristics of MFIs in the Latin American remittance market, 147(table); comparison of length of time remitting and remittance amounts in Latin America, 14(table); distribution of the world’s migrants by region of origin in destination, 2(table); financial access, 112–118; financial intermediation among MFIs in the Latin American remittances market, 156(table); 5 Ts of transnationalism, 176; geographic distribution of remittances, 12(table); global remittance volume, 11; Haitian migrants in the Dominican Republic, 47; home visits by migrants in the United States, 178–179; hometown associations, 187–188, 192–194; impact of economic recession on, 35, 39; intraregional flows, 44–50; length of time receiving remittances in Latin America, 18(table); marketing financial products, 129–131; MFI regulation, 146, 148; MFIs’ expansion into remittance payment, 136, 138, 139; migrant profile, 13; migrants in the United States communicating with relatives, 182–183; migrants’ nostalgic trade, 184–185; migrants’ tourist travel, 179–180; percentage of migrants who remit, 4; policy opportunities for South-South migration, 50; regulatory issues, 84–85; remittance costs, 66; remittance marketplace, 85–87; selected MFIs and institutional investment, 162(table); size and characteristics of MFIs that pay and do not pay remittances, 137(table); Spain’s remittance marketplace, 82; US remittance recipients’ profile,

Index 16–18; US-Latin American remittance corridor, 12–18. See also specific countries Law of the Republic of Armenia Relating to Banks and Banking Activities, 78 Law on Combating the Legalization of Proceeds from Crime and Financing of Terrorism (Armenia), 77 Law on Currency Regulation and Currency Control (Armenia), 78 Law on Payment Systems and Payment Service Organizations (Armenia), 78 Lebanon: regulation of transfers, 94 Leveraging relationships, 9(n1); global connectivity, 200; nostalgia trade, 210–211; policy initiatives promoting development, 205 Liberia: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51 Loans: agricultural, 152; Central Asia, 109–110; cooperatives providing, 160; Moldova’s SCAs, 150; Nicaragua, 115; obstacles to, 103; Rwanda, 132–133 Macroeconomic trends and indicators: effect of economic recession on, 35; effect of remittances on financial institutions, 104–105; European and United States-Africa corridor, 31–32; migration-remittance-development link, 6; Russia-Central Asia and South Caucasus remittance corridor, 19–20; US-Latin American remittance behavior, 15–18 Malaysia: asset building behavior, 108–109; geography and financial access, 122; informal remittance transmitters, 72; preferred remittance method among immigrants in Japan, 72(table); regulation of currency flows, 68, 69, 70; remittance costs, 73–74(box); remittance intermediation, 71; remittance recipients’ top economic activities, 109(table) Mali: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51; regulation of transfers, 96; remittance-sending among migrants in West Africa, 53(table); transaction costs, 92–93

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Marketing financial products: Africa, 131–134; Caucasus, 127–128; Central America and Caribbean, 129–131; financial intermediation projects with credit unions and MFIs, 207; MFIS’ remittance-linked products, 154–161; microfinance institutions, 134–135; Moldova, 128; Uganda, 133–134 Marketplace, remittance: Africa, 89–93; Caja Popular Mexicana reach, 171(n9); Caucasus, 78–79; Central Asia, 75–77; El Comercio services and products, 171(n10); industry trends in remittance intermediation, 65–67; intermediaries in Southeast Asia, 70–74; Latin America and the Caribbean, 85–87; MFIs’ capacity and profitability in the remittance marketplace, 142–146; MFIs in El Salvador, 171–172(n11); MFIs in Rwanda, 152–154; MFIs in Senegal, 172(n12); MFIs in the Latin American remittance market, 147(table); MFIs Moldova and Spain, 81–82; Moldova’s SCAs, 148–152; Nicaragua, 172(n14); Nigeria, 93(box); policy initiatives influencing, 206; regulation and, 4–5, 97–98; transfer payment process, 62–63 Media: Salvadoran HTAs, 196 Mexico: Caja Popular Mexicana reach, 171(n9); consumer protection regulation, 61; El Comercio services and products, 171(n10); financial intermediation among MFIs in the Latin American remittances market, 156(table); fundraising by hometown associations, 191; hometown associations, 187, 190, 192–194; impact of the economic downturn on remitters, 37(table); increasing and mobilizing savings in rural areas, 167; MFIs expanding access among remittance recipients, 163–165; MFIs in the remittance marketplace, 138, 143, 172(n13); MFIs increasing remittance-linked financial products, 155, 157–159; migrant population in the US, 12; remittance frequency and amount, 14 Microfinance Bank (Azerbaijan), 127 Microfinance institutions (MFIs): access to, 103; African countries’ regulations,

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87, 89; African remittance marketplace, 89–90; awareness of international compliance rules, 148(table); bancarization efforts, 134–135; as bank subagents, 98(n3); boosting financial access, 7–8; capacity and profitability in the remittance marketplace, 142–146; Caucasus countries’ currency regulation, 78; characteristics of MFIs in the Latin American remittance market, 147(table); cooperatives competing with, 160; diversifying remittance-linked financial products, 154–161; education and health services, 208–209; El Comercio services and products, 171(n10); expanding financial access, 125–126; financial access in Africa, 118–119; financial education, 168–169; financial intermediation among MFIs in the Latin American remittances market, 156(table); financial intermediation projects with credit unions and, 207; global payments marketplace, 62; in Latin America’s remittance marketplace, 172(n14); in Mexico’s marketplace, 172(n13); mobilizing savings in Mexico’s rural areas, 171(n9); as MTOs, 136–142; Paraguayan migrants in, 49; regulatory compliance over money transfers, 146, 148–149; Rwanda’s expansion of services, 131–132; Rwanda’s regulation of transfers, 95, 100(n21); in Rwanda’s remittance marketplace, 152–154; selected Latin American MFIs and institutional investment, 162(table); in Senegal’s marketplace, 172(n12); size and characteristics of MFIs that pay and do not pay remittances, 137(table); supply side of remittances, 162–168 Middle East and North Africa: Algeria’s remittance marketplace, 90, 91, 92; distribution of the world’s migrants by region of origin in destination, 2(table); geographic distribution of remittances, 12(table); percentage of migrants who remit, 4; regulatory issues, 94 Migom, 76, 81

Migrant organizations: development and, 211; 5 Ts of transnationalism, 176; transfer of capital and donations, 186–192. See also Hometown associations Migrant outreach, 210 Mobias Bank (Moldova), 128 Mobile banking, 127 Moldova: financial access, 112; methods of saving, 150(table); policy accelerating financial intermediation through credit associations, 207; regulation of MFIs in the remittance marketplace, 148–152; remittance marketplace, 81–82; savings and account ownership by remittance recipients, 105(table) Monetary Authority (Singapore), 69 Monetary policy: ECOWAS, 95–96. See also Policy initiatives; Regulation Money Express, 142, 172(n12) Money laundering. See Anti-money laundering (AML) systems Money orders, 66 Money service business license, 98(n10) Money transfer operators (MTOs): African countries’ regulations, 87–88; African remittance marketplace, 89–90, 90–91; bank accounts, 99(n14); Central Asia, 75–76; cost reduction through competition, 206; EU regulation of, 80; global payments marketplace, 61–62; Latin American regulation, 84; licensing, 98(n10); MFIs as, 136–142; preferred remittance method among immigrants in Japan, 72(table); regulating competition, 60; regulating international currency flows, 58; sending instruments, 66; South Caucasus, 78–79; Southeast Asia, 70–71; Spain’s remittance marketplace, 82; transfer payment process, 62–63, 64(fig.); US regulation, 83–84 Money transfers: domestic rules on authorized transaction entities, 59–60; industry trends for intermediation, 65–67; informal remittance transmitters, 63, 65; international regulation, 57–59; marketplace analysis, 61–62; process in Southeast

Index Asia, 70–74; regulating fair competition and consumer protection, 60–61; regulation of currency flows, 57–59; sending instruments and products, 66–67; transfer payment process, 62–63 MoneyGram: Africa’s remittance marketplace, 90, 91; Caucasus, 79; Central America and the Caribbean, 130; Central Asia, 77; Europe, 82; MFI partnerships, 138, 142, 157; MFIs in Senegal’s remittances market, 172(n12); Nigeria’s remittance marketplace, 93; RSPs, 61; Southeast Asia, 70, 72; United States, 84 Monopolistic practices, 60 Morocco: regulation of transfers, 94 Mortgages, 37(table), 106(table), 109(table), 128, 130, 132–133, 161 Mulas (informal remittance entrepreneurs), 86 Natural resources, 18 Naturalization: Latin American migrant profile, 13–14 Neighboring and outdooring ceremonies, 190 Netherlands: consumer protection regulation, 61; Ghanaian and Nigerian migrants, 27, 28(table), 29, 32, 33, 177; Ghanaian immigrants’ telephone communications with relatives, 182; Ghanaian migrants’ associations, 199; Ghanaian nostalgic trade, 184; hometown associations, 188, 190; length of time migrants have lived abroad, 34(table) Nicaragua: effect of economic recession on, 35; family size of recipients, 17; financial access, 114–115; financial intermediation among MFIs in the Latin American remittances market, 156(table); length of time receiving remittances in Latin America, 18(table); length of time remitting, 49(table); MFIs in the remittance marketplace, 144–145, 172(n14); migrants’ tourist travel, 180; Nicaraguan migrants in Costa Rica, 47–48; regulatory issues, 85; remittances as percentage of GDP, 16;

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savings and account ownership by remittance recipients, 105(table) Niger: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51; remittancesending among migrants in West Africa, 53(table) Nigeria and Nigerian diaspora: asset building and financial access, 119–120; community formation in the diaspora, 26; country of origin for migrants in Ghana, 54(table); currency transfer regulations, 87; European and United States-Africa corridor, 31–32; gross national income, 41(n10); hometown associations, 188; intraregional flows in Western Africa, 51, 52, 53; length of time migrants have lived abroad, 34(table); migrant profile, 30–31; personal savings, 118, 119(table); regulation of transfers, 60, 96; remittance marketplace and regulation, 93(box), 100(n21); remittance recipients, 32–34; remittance-sending among migrants in West Africa, 53(table) Nonbank financial institutions (NBFIs): African regulatory environments, 89; African remittance marketplace, 90; Central Asian regulatory environments, 75; global payments marketplace, 61–62; sending instruments, 66; South Caucasus regulatory environments, 77–78; strengthening access to, 103; Uganda, 133; US regulatory environment, 83 North Africa. See Middle East and North Africa North America: distribution of the world’s migrants by region of origin in destination, 2(table); geographic distribution of remittances, 12(table); global remittance volume, 11; MFIs’ expansion into remittance payment, 136, 138 Nostalgic trade, 3, 107, 175–176, 183–186, 200, 201(n6), 210–211 Oceania: global remittance volume, 11 Office of Foreign Assets Control (OFAC), 83, 148 Oil resources, 18

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Index

Okuapeman Fekuw, 198 One Money transfer, 129 Openness of financial services, 108, 125 Orientbank (Tajikistan), 127 Origin, country of: distribution of the world’s migrants by region of origin in destination, 2(table); financial investment in, 8; geographic distribution of remittances, 12(table); intraregional flows in Western Africa, 51; Kyrgyzstan’s migration and remittance behavior, 21–22; migrant organizations, 187; migrants in Ghana, 54(table); nostalgic trade, 3, 107, 175–176, 183–184, 183–186, 200, 201(n6), 210–211; profile of Central Asia and South Caucasus recipients, 19; tourism by migrants, 179–180; US-Latin American remittance corridor, 12–18 Outreach policies, 210 Pakistan: informal remittance transmitters, 63; remittance costs, 74(box) Pamecas, 141, 172(n12) Paraguay: hometown associations, 187–188; intraregional flows in Latin America and Caribbean, 44; MFIs in the remittance marketplace, 138–139; savings and account ownership by remittance recipients, 105(table) Parmec law (1997), 145 Partnership for Prosperity program, 157 Personal savings. See Savings, personal Peru: Spain’s remittance marketplace, 82 Philanthropy: diaspora associations, 211; donations through HTAs, 186–192, 197–198; impact on the public good, 9(n1); migrants’ increasing involvement in economic and social activities, 3 Philippine National Bank (PNB), 71 Philippines: asset building behavior, 108–109; hometown associations, 187; informal remittance transmitters, 72; preferred remittance method among immigrants in Japan, 72(table); regulating international currency flows, 68, 69, 70; remittance intermediation, 70–71; remittance

recipients’ top economic activities, 109(table); rural banks, 122–123 Policy initiatives: affecting informality, competition, and costs, 206; banks broadening financial services, 207–208; deterritorialization of, 204–205; financial and remittance literacy, 209; government role as environment enabler, 209–210; improving investment opportunities, 208; migrant outreach, 210; SouthSouth migration in Latin America and the Caribbean, 50; transnationalism guiding, 203–204 Political transition in Ghana, 33 Population growth, 22 Portugal: consumer protection regulation, 61; currency regulations, 80 Post offices: Africa’s remittance marketplace, 90–92; global payments marketplace, 61–62; Moldova’s remittance marketplace, 81; preferred remittance method among immigrants in Japan, 72(table) Poverty: asset accumulation, 102; Haiti, 47; migration and remittance behavior, 21; migration-remittancesdevelopment link, 5–6; US-Latin American remittance behavior, 16 Prepaid credit/debit cards, 130–131 Private banks: Rwanda, 132 Private sector: as environment enabler, 209–210; response to transnationalism, 200 Property ownership, 8, 27, 34 Public good, 9(n1) Public sector: response to transnationalism, 200 Quisqueyana (Guatemala), 166 Quotas: Russian migration policy, 23 Racial tensions: Haitian migrants in the Dominican Republic, 45 Real estate investment in home country, 8 Recipient behavior: asset building methods among Latin American migrants and their families, 106(table); effect of economic crisis, 36; Ghana and Nigeria, 32–34; informal remittance transmitters, 63, 65; savings and account ownership by remittance

Index recipients, 105(table); transfer payment process, 62–63, 64(fig.); USLatin America transfers, 16–18; women’s remitting behaviors, 7. See also Savings, personal Recogin (Representative Council of Ghanaian Organizations in the Netherlands), 199 Regional migrations: distribution of the world’s migrants by region of origin in destination, 2(table); migrants’ increasing involvement in social and economic activities, 2–3; percentage of migrants who remit, 4; regional patterns in international currency flows, 67; regulation in West Africa, 95–97; remittance corridors’ studies, 11–12; Russia-Central Asia and South Caucasus remittance corridor, 18–25; US-Latin American remittance behavior, 15–18, 16–18 Registration: intraregional flows in Western Africa, 51–52 Regulation, 4–5; Africa, 87–89; Central Asia, 74–75; domestic rules on authorized transaction entities, 59–60; European Union, 79–81; fair competition and consumer protection, 60–61; importance of, 97–98; informal remittance transmitters, 63, 65; international currency flows, 57–59; Latin America, 84–85; MFIs’ awareness of international compliance rules, 148(table); MFIs in Nicaragua’s marketplace, 172(n14); MFIs in the remittance marketplace, 138, 145–146, 148–149, 148–152; MFIs promoting asset building, 126; Middle East and North Africa, 94; Nigeria, 93(box); remittance intermediaries, 61–62; South Caucasus countries, 77–78; Southeast Asia’s approach to remittance regulation, 67–70; transfer payment process, 64(fig.); United States, 83–84, 99(n13); West Africa, 95–97. See also Anti-money laundering (AML) systems Religious organizations, 191, 196–197 Remesas Dominicanas, 130–131, 166 Remittance Calculator, 61 Remittance marketplace. See Marketplace, remittance

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Remittance process. See Money transfers Remittance service providers (RSPs): marketplace analysis, 61–62; regulating competition, 60; Spain’s remittance marketplace, 82; transfer payment process, 62. See also Banks; Microfinance institutions; Money transfer operators; Post offices; Western Union Repatriation, 36 Respublika Bank (Azerbaijan), 127 Retail outlets as intermediaries, 62–63 Ria Envia (Senegal), 172(n12) Robertson, Roland, 201(n11) Rostros y Voces de Mexico, 193 Rural areas: demographic characteristics of Armenian and Tajik remittance recipients, 25; expanding savings in Mexico’s rural areas, 171(n9); financial access, 122–123; income dependence in Central Asia and Caucasus, 25(table); Mexico’s mobilization of savings in, 167; MFIs in Rwanda’s remittance marketplace, 152; MFIs in the remittance marketplace, 136, 140–141; microfinance institutions case studies, 7–8; Moldova’s SCAs penetrating to, 148–151; Nicaraguans’ financial access, 114; size and characteristics of MFIs that pay and do not pay remittances, 137(table); South-South migration in Latin America, 50; supply and demand of financial services, 107; Ugandans’ lack of financial access, 133 Rural Bankers Association of the Philippines (RBAP), 122 Rural Financial Corporation (RFC; Moldova), 149 RuralNet, 122–123 Russia: Armenian asylum seekers, 20; Armenia’s migration and remittances, 20–21; cost reduction through competition, 206; demographics of Tajik and Armenian remittance recipients, 23–24; distribution of the world’s migrants by region of origin in destination, 2(table); Kyrgyzstan’s migration and remittance behavior, 21–22; Moldova’s remittance marketplace, 81; per capita GDP, 20;

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percentage of migrants who remit, 4; profile of Central Asia and South Caucasus recipients, 19; regulatory norms on money transfers, 60; remittance behaviors, 19; remittance marketplace, 76; Russia-Central Asia and South Caucasus remittance corridor, 18–25; Tajikistan’s migration and remittance behavior, 22–23 Rwanda: financial access, 118, 120; financial system, 131–133; MFIs in the remittance marketplace, 152–154; personal savings, 119(table), 120; regulation of transfers, 95, 100(n21) Saca, Antonio, 195–196 Sandinista revolution, 47 Savings, personal, 36; access to financial systems, 103; ADOPEM projects, 166; Africa, 119; asset building methods among Latin American migrants and their families, 106(table); Central Asia, 109–110; effect of remittances on financial institutions, 104–105; expanding financial intermediation, 127; Guatemala, 113; Honduras, 115–117; increasing through improved access, 206; members of Moldova’s SCAs, 150–151, 150(table); MFIs expansion into remittance products, 163–164; national capital-output ratio, 201(n1); Nicaragua, 114–115; Nigeria, 119–120; personal savings by country (Africa), 119(table); recipients’ access to banks, 105; remittance recipients’ top economic activities, 109(table); Rwanda, 120; Rwanda’s expanding financial system, 132–133; savings and account ownership by remittance recipients, 105(table); Southeast Asian recipients, 108–109; US-Latin American remittance behavior, 16. See also Asset building; Marketing financial products Savings and Credit Associations (SCAs; Moldova), 148–152, 150(table), 207 Savings and Credit Institutions (SCIs), 157 Second jobs, 36, 38–39 Senegal: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51; MFIs in the

remittance marketplace, 141, 145, 172(n12); regulation of transfers, 96; remittance-sending among migrants in West Africa, 53(table); savings and account ownership by remittance recipients, 105(table); transaction costs, 92–93 September 11, 2001, 58, 80, 83–84, 99(n13) Servicash, 130 Services, demand for, 2–3, 6–7 Settlements and Savings Company (Kyrgyzstan), 127 Shuttle traders, 22, 23 Silk Road, 21 Singapore: hometown associations, 188; informal remittance transmitters, 72; regulation of currency flows, 68, 69; remittance intermediation, 70–71; transaction costs, 73–74(box) Small businesses, 206 Social activities: migrants’ increasing involvement in economic activities and, 2–3 Social Investment and Local Development Fund (FISDL), 195 Somalia: personal savings, 119(table); savings practices, 106, 119 South Africa: foreign currency account regulation, 89 South America. See Latin America and Caribbean; specific countries South Asia: distribution of the world’s migrants by region of origin in destination, 2(table); geographic distribution of remittances, 12(table). See also specific countries South Caucasus countries: migration and remittances in Armenia, 20–21; profile of Central Asia and South Caucasus recipients, 19. See also Caucasus Southeast Asia: asset building behavior, 108–110; distribution of the world’s migrants by region of origin in destination, 2(table); geography and financial access, 122; global remittance volume, 11; intermediation systems, 70–74; percentage of migrants who remit, 4; regulatory issues of currency flows, 67–70; remittance costs, 66; Spain’s

Index remittance marketplace, 82; women remitters, 7. See also specific countries Sovereignty: currency flow regulation, 59 Spain: consumer protection regulation, 61; Ghanaian organizations, 199; impact on migrants in Europe, 38; MFIs in the remittance marketplace, 139; Paraguayan migrants in, 48–49; remittance marketplace, 81–82 Stanbic Bank (Uganda), 133 Standard Bank (Georgia), 128 Standard of living, 101–102 State Department, US, 194 State Supervisory Board (Moldova), 149 Statistics and demographics: African remittance flows, 26–34; Armenian remittance flows, 21; Central Asia and South Caucasus recipient characteristics, 24(table); comparison of length of time remitting and remittance amounts in Latin America, 14(table); European and United StatesAfrica corridor, 31–32; Ghanaian diaspora, 27, 28(table), 177; Ghanaian immigrants’ telephone communications with relatives, 181; global remittance volume, 11, 40(n1); hometown associations, 187–188; international migrants, 1–2; Latin American migrant profile, 13; Latin American migrant remittances as a percentage of income, 14(table); migrants’ tourist travel, 179–180; nostalgic trade, 185–186; remittance flows in Central Asia and South Caucasus, 19; US-Latin American remittance corridor, 12–13; West African remittance amounts and frequencies, 53–54; women remitters and migrant gender distribution, 7 STB Express, 76 Stock purchases: Georgia, 112 Supply side of remittances, 162–168 Sweden: currency regulations, 80; regulatory issues, 80 SWIFT transfers, 134 Syria: regulation of transfers, 94 Tajikistan: asset building behavior, 109; demographic characteristics of remittance recipients, 24–25, 24(table); expanding financial intermediation,

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126; income dependence on remittances, 25(table); migration and remittance behavior, 22–23; money laundering and terrorism financing, 75; per capita GDP, 20; remittance frequency, 19; remittance marketplace, 76 Tanzania: personal savings, 118, 119(table) Taxation: macroeconomic impact of remittances, 16 TBC Georgia, 128 Technical assistance, 152 Technology: expanding communication among transnational Ghanaian organizations, 182, 199–200; financial and remittance literacy, 209; MFIs expanding financial literacy among remittance recipients, 166–167; reducing costs through use of, 206; Rwanda’s financial system, 152 Technology transfer, 201(n1) Telecommunications, 8; 5 Ts of transnationalism, 175–176; Ghanaian immigrants’ telephone communications with relatives, 181–182; impact of economic recession, 39; importance and frequency of home communications, 180–183; mobile banking, 127 Terrorism financing, 75, 80, 83–84, 98–99(n11). See also Anti-money laundering (AML) systems Third Money Laundering Directive, 80 Three-for-One Program (Mexico), 193 Tobacco industry, 22 Togo: country of origin for migrants in Ghana, 54(table); intraregional flows in Western Africa, 51 Tourism, 175–176, 179–180 Trade, 175–176. See also Nostalgic trade Trade deficit: Kyrgyzstan, 22 Transfer corridors: European and United States-Africa corridor, 31–32; global payments marketplace, 61–62; remittance corridors studies, 11–12; remittance costs, 66; Russia-Central Asia and South Caucasus remittance corridor, 18–25; United States to Latin America, 12–18; US-Latin American remittance corridor, 12–18

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Transfer methods. See Marketplace, remittance; Microfinance institutions; Money transfer operators Transfer of money and capital, 2–3, 175–176, 186–192 Transnationalism: defining, 175; deterritorialization of policy initiatives, 204–205; family remittances, 3–4; 5 Ts of, 3–4, 8–9, 175–177; Ghanaian diaspora, 27; globalization heightening global connectivity among migrants, 200; migration-remittancedevelopment link, 6; Nigerian communities, 30; policy initiatives addressing, 203–204 Transportation, 175–179 Travel, 177–178 Treasury Department, US, 83, 84 Trinidad and Tobago: intraregional flows in Latin America and Caribbean, 44 Trustworthiness of financial institutions, 155 Tunisia: regulation of transfers, 94 Uganda: financial access, 120–121, 133–134; personal savings, 118, 119(table); regulation of transfers, 94–95; savings and account ownership by remittance recipients, 105(table) U-IMCEC, 142 Ukraine, 78 UNACOIS, 142 Undocumented migration, 20, 22, 51–52, 177 Unemployment, 35–38, 37(table) Unistream, 75, 76, 79, 81 United Kingdom: consumer protection regulation, 61; currency regulations, 80–81; Ghanaian hometown associations, 197–198; Ghanaian immigrants’ telephone communications with relatives, 181; Ghanaian migrants, 27, 28(table), 29, 32–34, 177–178; Ghanaian nostalgic trade, 184; Ghanaian organizations, 199; Ghanaians’ tourist travel, 179; hometown associations, 188; length of time migrants have lived abroad, 34(table); Nigerian migrants, 30, 32–34; regulatory issues, 80 United Nations Development Programme (UNDP): defining development, 5

United States: anti-money laundering regulations, 99(n13); Armenian asylum seekers, 20; effect of economic recession on, 35; hometown associations, 188–189, 192–198; length of time migrants have lived abroad, 34(table); percentage of migrants who remit, 4; regulatory issues, 83–84; remittance costs, 66 United States, African migrants in: Ghanaian diaspora, 27, 28(table), 29, 32–34, 177–178; Ghanaian hometown associations, 197–198; Ghanaian immigrants’ telephone communications with relatives, 181; Ghanaians’ tourist travel, 179; Nigerian migrants, 30, 32–34; Nigeria’s remittance marketplace and regulation, 93(box); remittance flows, 26–34 United States, Latin American migrants in: Central American hometown associations, 194; Mexican hometown associations, 192–194; Mexico marketing remittance-linked financial products, 159; Mexico’s microbank connection, 143–144; Mexico’s Partnership for Prosperity program, 157; migrant profile, 13; migrants’ communications with relatives, 182–183; migrants’ home visits, 178–179; nostalgic trade, 184–185; recipients profile, 16–18; Salvadoran hometown associations, 194–196; tourist travel, 179–180; transfer costs, 86; US-Latin American remittance corridor, 12–18 United States Agency for International Development, 198–199 Urwego Opportunity Bank (Rwanda), 132 Urwego Opportunity Bank of Rwanda (UOB), 153–154 USA Patriot Act, 83, 84, 99(n13) Usability of financial services, 107–108, 125 Venezuela: remittance costs, 86 Victoria Bank (Moldova), 82 Vietnam: remittance costs, 74(box) Vigo, 61, 93, 138, 139, 144, 147(table), 157

Index Vimenca (Dominican Republic), 130, 131 Visa International, 130–131 Vision Finance Company (VFC), 123(n6), 132, 153 Volunteer organizations, 190–191 West African Economic and Monetary Union (UEMOA), 92–93 West African Monetary Zone (WAMZ), 96 Western Union: Africa’s regulatory issues, 87–88; Africa’s remittance marketplace, 90, 91; Central Asia’s remittance marketplace, 75, 76, 77; characteristics of MFIs in the Latin American remittance market, 147(table); increasing Africans’ financial access, 133, 134; marketing in Moldova, 128; MFI sectors, 141; MFIs in Rwanda’s remittance

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marketplace, 152; Moldova and Spain, 81, 82; Nigeria’s remittance marketplace, 93(box); Paraguayan migrants in Argentina, 49–50; Southeast Asia’s MTOs, 71, 74(box); transfer payment process, 62; United States, 84 World Bank: economic impact of remittances, 6; SCA project, 148 World Council of Credit Unions (WOCCU), 139 World Savings Banks Institute, 103 World Vision International, 153 Xoom, 66 Zambia: personal savings, 119(table) Zimbabwe: foreign currency account regulation, 89; personal savings, 119(table)

About the Book

Manuel Orozco moves beyond the numbers to provide a uniquely comprehensive, historically informed overview and analysis of the complex role of migrant remittances in the global economy. How do patterns of migration and remittances differ across regions? What kinds of regulatory and institutional frameworks best support the contributions of remittances to local development? What has been the impact of remittances on migrants and their families? Drawing on empirical data from five continents and firmly grounded in theory, Orozco’s work reflects the evolution of our understanding about the importance of migrant remittances and the policies that govern them. Manuel Orozco is senior associate and director of the Remittances and Development Program at the Inter-American Dialogue and also senior associate at the Institute for the Study of International Migration, Georgetown University.

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