1. International Forum on Remittances 2007 Washington D.C., 18-19 October 2007 Euro-Mediterranean remittances: Partnerships and Investments Pedro J. F. de Lima

2. Remittances in Mediterranean Partner Countries (MPC) and EIB support  Workers remittances to developing countries are private flows in excess of 200bn USD in 2006.  Remittances play an important economic role in many of those countries: mostly consumption, but also investment.  Can an institution like the EIB enhance the developmental impact of remittances?  Typically, the EIB -- the financial arm of the EU -- operates in countries outside the EU financing investment projects that promote economic development  strenghtening the private sector  deepening the financial sector

3. Remittances in Mediterranean Partner Countries (MPC) and EIB support  EIB has long standing relationship with Mediterranean countries  In Barcelona in 2002 the EIB received a new mandate (FEMIP) …  increase in finance (EUR2 billion per year), technical assistance, policy dialogue.  priority on private sector development

4.  … reinforced in 2004 with the introduction of a special FEMIP envelope to enhance private sector lending (extended risk-sharing operations) and the creation of a Trust Fund to support initiatives in priority sectors  For the 2007-2013 period, FEMIP mandate renewed at EUR 8.7 billion by the European Council to finance private sector, regional integration and socio-economic infrastructures. Remittances in Mediterranean Partner Countries (MPC) and EIB support

5. Considerable economic importance to MPCs: remittances larger than FDI and ODA combined

6. Considerable economic importance to MPCs, but not uniformly across the region  Remittances as % of GDP (2005), MPC countries

7. Considerable economic importance to MPCs, but not uniformly across the region  Remittances in dollars per head (2005), MPC countries 1600

8. Not as stable as in other parts of the world: oil dependence and renewed migration flows  Remittances in USD dollars (bn)

9. ...but little variation regarding use  Use of remittances in Mediterranean countries follows a pattern similar to that of other areas  Consumption is by far the largest item (50%)  Health and education are another important use (18%)  Housing investment has some significance (14%)  Business investment appears to be relatively limited in most countries. Egypt and Tunisia appear exceptional (15 to 18%)

10. Methodology

11. Remittances in MPC: diversity of sources …  In Algeria, Morocco, Tunisia and Turkey, remittances from the EU account for 85-90% of total  For Egypt, Jordan, Lebanon, and Syria, Golf countries are the main source (EU accounting for 5- 10% of remittances)

12. Improving the efficiency of workers ’ remittances in Mediterranean countries  Market imperfections and information deficiencies  Exclusivity contracts for MTOs in post offices  Lack of transparency on transfer costs (particularly as regards exchange rate fees);  Inadequate information regarding available transfer mechanisms and associated costs, speed and reliability;  Accessibility to banking accounts for emigrants residing in the EU is also limited and banking products are not sufficiently tailored for remitters, with few exceptions.  Inadequate payment systems and limited usage of bank accounts in Mediterranean countries.  Imperfections result in high transactions costs, which can exceed 16 percent of capital sent.

13. Costs and flows per migrant not too dissimilar across corridors … Spain- Morocco Germany- Turkey Germany- Lebanon France- Algeria Cost % 1-8.82.5-9.41.5-9.40.8-8.4 Total remittance $/migrant/year 3515185126882500

14. … but large differences as regards use of banking sector Spain- Morocco Germany- Turkey Germany- Lebanon France- Algeria Main formal channel Banks/MTOBanksMainly MTO % Informal 3419750 Cost % 1-8.82.5-9.41.5-9.40.8-8.4 Total remittance $ /migrant/year 3515185126882500 Total remittance $/migrant/year through banks 5621037376150  Relatively efficient GER-TK channel, much less GER-LE or FR-AL

15. The FEMIP-EIB contribution Promote efficiency and interconnection of payment systems Disseminate information, promote best practices Reduce transfer costs Channel remittances to formal sector; increase access to banking

16. Information dissemination and promotion of best practices

17. The FEMIP-EIB contribution Promote efficiency and interconnection of payment systems Disseminate information, promote best practices Reduce transfer costs Channel remittances to formal sector; increase access to banking

18. The FEMIP-EIB contribution Banking and financial sectors strengthening Remittances contributing to improve funding of financial institutions Financial development leading to economic growth

19. Securitization of remittances flows  Remittances as collateral for the issuance of bonds/notes (future flow securitization): banks transfer the foreign currency flows to an SPV set-up in an offshore financial centre. $ € Bank: Hard currency $ local currency €

20. Securitization of remittances flows  Remittances as collateral for the issuance of bonds/notes (future flow securitization): banks transfer the foreign currency flows to an SPV set-up in an offshore financial centre. $ € Bank: Can extend Finance at lower Costs $ local currency SPV: issues notes, Proceeds to bank

21. Securitization of remittances flows  Risk to international investors gets reduced:  Willingness to pay issues are settled  Transfer and convertibility issues are tackled  Particularly appealing for countries with sub-investment ratings  In 2005, five SPVs issued more than 4 billion USD in Turkey securitized by diversified payment rights (SWIFT transfers MT-100, MT-102, MT-102+, MT-103, MT-103+…, corresponding to transactions such as cash-against-goods, cash-against-document transactions, letter of credit transactions, cheques, as well as workers’ remittances)

22. EIB support to first remittance securitization operation in Lebanon  EIB’s role: catalyst as well as provider of TA  Lebanon: a good candidate.  Stable remittances  Economy with high T&C risk  Sophisticated financial sector and favorable regulatory environment (securitization law)  SPVs should deliver savings on funding commensurate with improved ratings

23.  First SPV operation: − EIB to buy notes, leading other (institutional) investors to participate − But also providing TA funds to support the setting up of the first SPV – a public good, easily replicable by subsequent SPVs EIB support to first remittance securitization operation in Lebanon