International Forum on Remittances International Forum on Remittances 20072007Washington D.C., 18-19 October 2007Washington D.C., 18-19 October 2007

Euro-Mediterranean remittances: Partnerships and Investments

Pedro J. F. de Lima

Remittances in Mediterranean Remittances in Mediterranean Partner Countries (MPC)Partner Countries (MPC)and EIB supportand 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

Remittances in Mediterranean Remittances in Mediterranean Partner Countries (MPC)Partner Countries (MPC)and EIB supportand 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

… 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 Remittances in Mediterranean Partner Countries (MPC)Partner Countries (MPC)and EIB supportand EIB support

The FEMIP-EIB contributionThe FEMIP-EIB contribution

Promote efficiency and interconnecti

on of payment systems

Disseminate information, promote best

practices

Reduce transfer costs

Channel remittances

to formal sector;

increase access to banking

Information dissemination Information dissemination and promotion of best and promotion of best practicespractices

Securitization of remittances flowsSecuritization 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

€

Securitization of remittances flowsSecuritization 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 lowerCosts

$

local currency

SPV: issues notes,Proceeds to bank

Securitization of remittances Securitization of remittances flowsflows

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)

EIB support to first remittance EIB support to first remittance securitization operation in securitization operation in LebanonLebanon 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

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 EIB support to first remittance securitization operation in securitization operation in

LebanonLebanon