remittances

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Most practitioners agree that the income volatility experienced by many low-income households is a barrier to poverty alleviation, affecting everything from food security to asset building. In Latin America and the Caribbean, two common forms of resource transfers help to alleviate the problem of income volatility for poor families: government cash transfers and migrant remittances. Cash transfers are regular and predictable. Surveys suggest that remittance transfers are also predictable— in a 2013 MIF survey of Latin American migrants in the United States, respondents reported sending an average of $212 per transfer, making an average of 13 transfers per year. However, the average doesn’t tell you everything about this picture. Emerging qualitative research suggests that at a household level,  remittance transfers may actually be more volatile and lumpy than is reflected in the means derived from large-scale surveys. 

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Photo: Rebecca Rouse

When was the last time your bank let you know how much they valued your time? Better yet, when was the last time they proved it to you? For most of us, waiting in line is just a part of life. Applying for a loan? Get in line. Picking up a remittance? The line starts here. Right? Not necessarily.

Last week in the city of Luque, Paraguay, I had the chance to tour a new model of bank branch that is trying to reinvent the customer experience. That bank is Visión Banco, one of the beneficiaries of the MIF’s Remittances and Savings Program.  Visión Banco is rolling out updated branches all over the country that use physical space – and technology – to streamline transactions and make sure that clients get what they need, without the hassle.

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We talk about remittances as being the perfect on-ramp for savings, in part because recipients can choose to move part of their electronic funds to a savings account before the remittance becomes cash, creating opportunities to avoid impulse spending and automate behaviors (see my blog post on defaults from last spring).  But what happens to the equation when the remittance sender is only transacting in cash?

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Photo by Marcin Wichary / CC BY

According to our new report on the economic situation and remittance behavior of Latin American and Caribbean migrants in the United States, 60% of migrants hold a bank account in the U.S. Banking rates among migrants appear to have steadily increased in the last decade; for example, in 2005, 29% of Mexican migrants in the United States held bank accounts, and in 2013, that number had grown to 54%. That is good news. Financial institutions are clearly making inroads within remittance sending communities, though it’s hard to point to one specific reason this is happening.

Financial journalist Felix Salmon wrote a provocative piece for Reuters last month about how U.S. banks no longer see the same potential in remittance senders as they did ten years ago, and might be quietly pulling back from this market. However, employers and government entities are increasingly shifting to direct deposit for payroll, public benefits disbursements, and tax refunds, all of which might contribute to an increase in account ownership. Latin American governments have also made large pushes to provide secure identification to their citizens living in the United States, allowing them to meet the necessary requirements for bank account ownership.

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At first glance, a strip mall in East San Jose, California doesn’t seem to have anything to do with the MIF’s financial inclusion agenda in Latin America and the Caribbean. However, nestled between the storefronts and neon signs is Community Trust Prospera, a hybrid check casher/credit union model which may hold a key to promoting savings among remittance clients in Latin America.

Last year the FDIC reported that nearly 26% of California households are either unbanked or underbanked, with these populations relying heavily on check cashing stores to turn their checks into cash. The experience of a check cashing customer is similar to that of a remittance recipient: the client approaches a check cashing store with an ID and a check, and moments later walks out with cash - minus a small fee, of course. In both cases, these cash payouts do little to incentivize savings behaviors.

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According to the Multilateral Investment Fund’s (MIF) recent report, “Remittances to Latin America and the Caribbean 2012: Differing Behavior Across Subregions,” in 2012 an estimated USD$61,3 billion was sent to the region. Following the annual growth of 17% in the flow of remittances from 2002-2008 and its subsequent 15% decrease in 2009 due to the financial crisis, the flow of remittances has become stabilized in the past years.

The main countries sending remittances to Latin America and the Caribbean (LAC) include the United States and Spain, among others. Spain, which in recent years had become the main country of origin for remittances sent to Colombia and Ecuador, has experienced a decrease in participation due to the economic crisis that persists in the country and affects the migrants’ capacity to access employment opportunities and send remittances to their families. It is estimated that in the last four years, Spain’s participation in total remittances received in Bolivia, Ecuador, Paraguay, and Peru, has decreased 8,1%.

Intra-regional migration, between LAC countries including Nicaragua – Costa Rica, Haiti- Dominican Republic, Bolivia -Argentina, are only a few examples of remittance corridors that in time have come to take on a greater importance.

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