Helping Remittances Go Further

How banks can use migrant remittances to attract customers and promote smart finance.
“Here is your remittance payment. Would you also like to open a bank account with us today?” It seems to make a lot of sense—banks that provide services to send money to migrants’ families back home automatically opening bank accounts for those that do not have them. Less than half of remittance senders and receivers own bank accounts, but banks can do much to help change that.Remittance-linked financial instruments would give financial institutions more liquidity, attract a greater number of clients, and could use the credit history of remittance recipients to evaluate potential customers. Senders and recipients benefit from lower transfer costs, greater security of transfers, the possibility of building assets through savings, and leveraging remittance funds into larger amounts via credit.Additionally, more youth would become “banked”. The typical profile of a migrant is a young man or woman who migrates from a developing or transitioning country to find opportunities that are lacking at home. In fact, the United Nations found that youth—in particular young women—comprise a growing number of migrants in the world. Dependent children and youth back home also benefit from educational, economic, and health gains due to the extra income. Monthly remittances allow the family members who receive them to pay for things like school fees, medical bills, and building a house.There is already a potential market for remittance-linked financial instruments. Remittances are big business—developing countries received $372 billion of the $483 billion of worldwide remittance flows in 2011. Remittances sent home by migrants to developing countries are three times the size of official development.Evidence from Inter-American Development Bank’s Multilateral Investment Fund (MIF) suggests that efforts to bank remittance recipients have a success rate of up to 30 percent. Project participants have also expressed interest in financial products such as saving accounts, business loans, life and health insurance, home mortgages, and education loans. Now a study of remittance recipients in El Salvador indicates that receiving remittances increases the likelihood of having an account by at least 11 percent.MIF researched a decade of innovative models from its portfolio of 18 remittance innovation projects. It developed a remittances and “banking the unbanked” model that promotes expanding remittance transfer activities, strengthening networks of financial institutions, and creating and marketing new products to appeal to remitters and recipients. Sales volumes and customer bases increased in each case. Here are several examples of remittance-linked financial services from MIF’s portfolio, which illustrate the kinds of changes the financial institutions actually made:Asociación Mexicana de Uniones de Crédito del Sector Social has combined associated micro banks and some additional rural financial institutions, into a common network, which gives them the volume and scale they need to negotiate reasonably priced contracts with remittance companies.World Council of Credit Unions partnered with the international money transfer operators VIGO Remittance Corp., Travelex, and MoneyGram to allow retail money transfer operators to expand the number of points of sales in Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico, Nicaragua, the Philippines, and Kenya.Salcajá Cooperative Guatemala rebranded itself as a remittance-friendly bank and introduced new financial products, including a children’s savings account, which is linked to reforestation activities by giving each child a tree to grow with their savings account and debit cards.The Rural Bankers Association of the Philippines network linked with cell phone company Globe Telecom to provide remittance transfer services, among other banking services.The Credit Union Federation of Honduras installed a web-based platform (UNIRED), which contains automated financial transactions that include remittances, loan payments, savings deposits, savings withdrawals, and balance consultations.Remittance flows to developing countries are large, to the benefit of billions of low-income households around the world. The MIF cases serve as proof that linking remittance participants to savings instruments is a commercially viable solution. Youth-savings proponents should look at ways to leverage existing channels where youth interact with financial intermediaries to increase youth financial inclusion. As a result of increased financial inclusion, millions of migrant youth might be able to break free of the cycle of intergenerational poverty.

Photo courtesy of Wiccked via Flickr