1. Inter-American Development Bank Multilateral Investment Fund Sending Money Home Remittances As a Development Tool in Latin America and the Caribbean May, 2007

2. The MIF was created in 1992 with the goal of promoting and strengthening the private sector in LAC. The MIF provides grants for Technical Assistance in the following areas: Regulatory Framework for the private sector Human Resources Development Micro-SMES enhancement MIF also invests in SMES through its investment Fund facility. Origin and Mission The Multilateral Investment Fund

3. Remittances as a Development Tool in LAC Background on Remittances 1 Challenges Ahead and MIF Strategy 2 MIF Projects and Initiatives 3

4. I - Background

5. It is estimated that annual worldwide remittance flows in 2006 reached $300 billion, primarily sent from the industrial to the developing world. Latin America is among the largest remittance markets in the world, receiving $US62.5 billion in 2006. 75% of remittances to LAC come from the United States. There are 20 million LAC born individuals in the U.S. An additional 20% come from Spain, Italy, Portugal, Japan, and other parts of Western Europe. Intra- regional flows account for the rest. Background: Volume of Remittances

8. If migration patterns continue at current levels, the importance of remittances to the region will also grow significantly. At current growth rates, the projected cumulative remittances to Latin America and the Caribbean for the decade (2001-2010) will approach US$ 500 billion Background: Volume of Remittances

9. Total Money Sent

10. Market Failure? Undocumented status of a significant percentage of migrants Market dominance by a few large companies and limited information and transparency Economic, legal, and technical barriers to entry in the remittance market, both in the sender and recipient countries Low negotiating power among fragmented migrant communities Limited formal banking and/or microfinance institutions in recipient countries A less developed banking culture in the migrant community Background: Market Context

11. In recent years, the remittance industry has become more transparent and competitive. As a result, transfer costs continue to decline. In May 2005, the average cost was 5.6 percent or $11 for sending $200, compared with 15.6% five years ago.This reduced cost is mostly due to the fact that charges have decreased with greater competition and use of technology. However, not all remittance corridors or countries in the region have seen large drops in remittance cost. Cost of Transfer

14. Wire transfer companies such as Western Union or Money Gram remain by far the most common means of dispatching remittances with 63% of senders reporting that they use such firms. This is down from 70% in 2004. Background: Transfer Mechanisms

15. Background: Payment of Transfers Remittance payers by type

16. II. Challenges Ahead and MIF Strategy

17. 12 Lower transaction costs by promoting competition, and encouraging innovative technologies; 3 Leverage the development impact of remittances, once received Document the increasing importance of remittances to the Region Because of the recent growth of remittances to LAC, the MIF of the IDB began four years ago to commission studies, sponsor conferences, and finance projects in order to help: Challenges Ahead and MIF Strategy

18. Increase Financial Resources for Remittances Recipients reduce the costs of transferring remittances mobilize savings through involvement of formal financial institutions increase and ease accessibility of transmission channel migrant capital into productive investment Challenges Ahead and MIF Strategy

19. Investment Financial Inclusion Cost Data Surveys and Conferences Projects promoting inclusion of microfinace Studies, Conferences and innovative solutions Projects: Productive investment, Housing, securitization Strengthen data collection for private sector Promote competition and best practices Financial Intermediation and banking for the unbaked Provide more option for senders and recipients Levels of activities Challenges Ahead and MIF Strategy

20. IMPROVE TRANSPARENCY PROMOTE FAIR COMPETITION AND PRICING SEEK PARTNERSHIPS AND ALLIANCES IMPROVE DATA ENCOURAGE FINANCIAL INTERMEDIATION PROMOTE FINANCIAL LITERACY APPLY APPROPRIATE TECHNOLOGY LEVERAGE DEVELOPMENT IMPACT SUPPORT SOCIAL AND FINANCIAL INCLUSION DO NO HARM EXPAND FINANCIAL SERVICES MIF Core Recommendations

21. Governments, International organizations and other institutions must design their programs in order to develop and support policies and programs to help increase the multiplier effect of remittances. However one central principle should be in mind: “It’s their money”. If these efforts are successful, transnational families will have more money available for their own purposes, and they will be empowered with more options in using those resources. Challenges Ahead and MIF Strategy

22. III. MIF Projects and Initiatives

23. Ratings of Financial Products Financial ProductSenders’ score Recipients’ score Insurance Investments 9.18.9 Banking Investments 8.39.0 Housing Investments 8.08.6 Educational Investments 7.38.4 Microfinance Institution Loans 6.08.0 Direct Payments 7.76.2 Agriculture Credits 4.46.2

24. To date MIF has implemented 23 projects for a total of US$225 million (US$62 in Technical assistance). Projects are classified in 3 categories. MIF Projects and Initiatives 12 Financial Intermediation / Banking & Housing AR- DR – EC – GU – JA – ME – PE Reg. Programs 3 Productive Investment of migrant Capital Brazil Peru Mexico Regulatory Framework (Public Sector) Regional Initiatives

25. Regional Program Improvement of Remittance Data Objective: Standardize remittance data collection and reporting in the region. Partner: Center for Latin American Monetary Studies (CEMLA) Activities: Examine best practices for data collection in the region. Harmonize regional practices. Provide recommendations to Central Banks for improvements in data collection. MIF Projects: Examples

26. Regional Program Implementation of the WB/BIS General Principles for International Remittance Services Objective: Analyze the remittance market and payment system in individual countries in the region. Implement the general principles. Partner: World Bank and the Center for Latin American Monetary Studies (CEMLA) Activities: Fund missions to examine the remittance market in countries. Evaluate the degree of compliance with the General Principles. Provide recommendations to further implement the principles. MIF Projects: Examples

27. Regional Program Strengthening Microfinance Institutions through Remittance Transfers Objective: link remittances sent from the U.S. with microfinance institutions in LAC. Partner: Centro Acción / Acción Internacional Activities: promote the participation of microfinance institutions (MFIs) in the delivery of remittances as a way to reduce transfer costs and increase the access of recipient household to financial services. MIF Projects: Examples

28. Ecuador Promoting Migrant Remittances from Spain Objective: Support Banco Solidario, a leading regulated microfinance institution that entered the remittances market, to receive remittances from Spanish Credit Unions. Partners: Banco Solidario (Ecuador) CECA (SPAIN) Activities: finance technical infrastructure, training and marketing support needed to establish partnership with Spanish Credit Unions. MIF Projects: Examples

29. Brazil Venture Capital Fund for Returning Entrepreneurs from Japan Objective: Creation of the Brazilian Remittance Fund project to promote entrepreneurial activities by those Brazilian temporary workers overseas – or dekassegui - who desire to start businesses upon their return to Brazil. Partner: SEBRAE – Banco do Brasil MIF Projects: Examples

30. Mexico Working with Hometown Associations to Promote Investment of Remittances Objective: Promote productive activities of mostly agribusiness-related economic groups established primarily by female workforce in the migration-affected rural areas of Mexico Partner: Fundación de Productividad en el Campo (FDPC) Activities: Address the lack of business skills, market and information access, and critical seed capital financing in rural communities in the states of Guerrero, Oaxaca, and Michoacán. MIF Projects: Examples

31.  New Frontiers: Housing  Mi Casita, Perú. Help increase access to martgage financing for middle to lower income households and help promote, in the long run, a secondary mortgage market through securitization of mortgage loans.  Su Casita, México. Help develop US dollar based mortgage loans and enhance the development of workers’remittances from the US to México by enabling remittance flows to be used to purchase houses.

32. Housing projects  Sociedad Hipotecaria Federal (SHF), México. Help increase the efficiency of the Mexican mortgage system and facilitate its expansion in the medium income segment of the population, particularly in areas affected by migration.  Caja de Compensación Familiar de Antioquia, COMFAMA, Colombia. Aims at channeling remittances to investment in low-income housing through several strategic alliances with banks, developers, “ferias de la construcción” and migrants’ organizations.

33. Housing projects  Banco Agrícola, El Salvador. Create a housing finance market for transnational families, through transnational mortgage loan for the purchase of homes in El Salvador and to leverage the development impact of remittance flows from US to El Salvador.

34. Housing projects  Our pipeline:  Mutualista Pichincha, Ecuador. Channel remittances to medium-low income housing.  CIPAE, Paraguay. Housing microfinance for community based housing cooperatives.  FUPROVI, Costa Rica. Development of Economic Indicators for Hosuing projects.  PRODEL, Nicaragua. Facilitate the access of medium and long term financing to low income families, through loan and Technical Cooperation.

35. Inter-American Development Bank Multilateral Investment Fund Inter-American Development Bank Gregory Watson Remittance Program Coordinator (202) 942-8112 Gregoryw@iadb.org