Maximising the developmental impact of remittances – Private Sector Services

Vincent E. OKELE,President, African Axis (Belgium)

Global Forum on Remittances

Tunis, 22 – 23 October 2009

2

Agenda

Definitions

Rationale

The challenge

Addressing the challenge

Private sector services

Example: The DiasporaLink Initiative

3

Definitions

DIASPORA INFLOW: Monetary transfers made by the diaspora into their country of origin. As private transfers or as funds invested, deposited or donated.

REMITTANCES: Monies sent from individuals or households to other individuals or households residing in their country of origin.

DIASPORA INVESTMENTS: in a start-up, in an existing enterprise or in a business being privatised (Community Sector and Private sector investments)

FORMAL: bank transfers or money transfers via intermediaries (Western Union)

INFORMAL : carrying money (self-friends-relatives) or informal services (retail shop, currency dealer). No documentation.

4

Remittances

Financial Development

Economic developme

nt& Growth

Investments

Rationale:Diaspora inflow and development

Economic Gowth

&Developmen

t

PovertyReduction

Entrepreneur-ship

Diaspora Investments

5

Rationale:Diaspora inflow and development

REMITTANCES Help reduce the level of poverty and have a greater

influence on its severity (in rural areas) Are associated with improved schooling outcomes for

children (by helping to relax household constraints) and better access to health services for recipients

Promote entrepreneurship as the extra source of income could be put in new income generating activities

Help promote economic growth in less financially developed countries by positively impacting financial development

6

Diaspora inflow into the region:The Challenge

1. The SSA region attracts relatively low volume of remittances through the formal channels

1. The SSA region attracts relatively low volume of remittances through the formal channels

Recorded remittances in developing countries: comparative review

0.00

50.00

100.00

150.00

200.00

250.00

1990 2000 2006

Developing countries

Latin America and the Carribean

East Asia nd the Pacif ic

Middle East and North Africa

Sub-saharan Africa

Source: World Bank

At approx. US$ 3.2 billion this represented less than 5% of total remittances to developing countries (US$240 billion)

Top 3: China, India, Mexico

Only Nigeria in the top 25 - Bengladesh, India & Pakistan

11

7

Diaspora inflow into the region:The Challenge

The SSA region channels a limited proportion of remittance inflow into private sector investment

The SSA region channels a limited proportion of remittance inflow into private sector investment

The SSA region attracts less diaspora private sector investment The SSA region attracts less diaspora private sector investment

Less than 10% of received remittances are channeled to income and employment generating activities

CELTEL (Sudan), Databank (Ghana), Teylium (Senegal), Geometric Power Limited (Nigeria) etc..

Compared to the large number of technology firms by the Indian and Chinese diaspora

22

33

8

Diaspora inflow into the region:The Challenge

Increase % of R channelled to

Savings & income generating activities

IncreaseVolume of Diaspora

Investment (Community & Private)

IncreaseVolume of R through

formal channels

DiasporaInflow

11 22

33

9

Addressing the Challenge

10

Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community

Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community

Diaspora inflow to the region:Addressing the Challenge

11

Addressing the challenge: Origin country level

Increase volume of official inflow of remittances & channelling into productive sector

Framework allowing for introduction of innovative financial instruments by domestic financial institutions to capture remittances

Address the underlying structural weaknesses of the financial system. Ex: Establishment of Deposit insurance (guarantee) scheme

Repatriable foreign exchange accounts with premium interest rates (and maybe premium FX rates)

Diaspora bonds (debt instrument issued to raise financing from the diaspora - long term in nature)

Provide banks and MFIs with refinancing credit lines enabling them to open a lending window to specially target the diaspora

Establish programs to improve recipient financial literacy Information on financial instruments – financial services documentation

distributed at the same time

Encourage competition by allowing market entry of non-bank financial institutions into the market (MFIs, Credit Unions, savings & loan)

Remittances securitization Borrow on international capital market against future remittaces (can

potentially raise US$ 17 billion)

12

Addressing the challenge: Origin country level

Facilitate diaspora-led investments Establishing specific tax/sectoral/export/tariff incentives

Preferential tax rates (5yr corporate tax amnesty for startups) Concessional rates of duty on imported capital goods Creation of a one-window clearance system for diaspora investments. Preferential access to capital goods and raw materials import

Provide business advisory services information on available investment opportunities, saving schemes,

financial support, business start-up procedures

Use MFIs to directly support diaspora-led investments Grant MFIs the license to take deposits and grant loans

13

Addressing the challenge: Host country level

Engage with diaspora groups (HTAs) Informal relationships and social capital should be preserved and

supported Co-development initiatives encouraged Strengthen formally constituted institutions

Work with origin countries on technical, regulatory and oversight matters to ensure transparency in the remittances market.

Facilitate increased access to the financial system by migrants Establish technical and financial assistance programs providing

support to diaspora entrepreneurs (Ex: Co-development initiatives in France)

Involve the diaspora in economic missions to home countries

Make provisions for short term work placements

14

Addressing the challenge : Multilateral institutions – Policy issues

Role played by migrants should be recognised and reinforced

ADI should become an integral part of global, regional and national strategies for poverty reduction

Measures to encourage the transfer and investment of remittances should be combined with strategic policies that are conducive to good governance and economic growth

Work with origin/host country public authorities to address diaspora investment with more consistent strategies, policies and legislations including:

nationality, commercial and financial law, tax law, international family and family property relations, international legal cooperation and litigation

15

Addressing the challenge : Multilateral institutions – Initiatives/Mechanisms

Community sector investments Linking up with and supporting diaspora group initiatives Encourage diaspora groups to become involved in international-

funded local development projects

Private Sector Investments Initiate and support schemes designed to support diaspora-led private

sector investments - DMADE (world bank), ADM (USAID) Facilitate the involvement of diasporas in existing initiatives and

financing program Support origin countries’ investment climate improvement efforts Support initiatives designed to leveraging remittances for contribution

to the origin countries’ economies Support initiatives that foster competition on the Remittances market

Ex: Provide complete data related to international money transfer, including points of service, partners, fees, foreign exchange information and delivery time (DFID, AFD, etc..)

16

Addressing the challenge : Diaspora Community

Origin country level Engage with the authorities at local, national and regional

levels Contribute to promoting good governance and in improving

the enabling environment for private sector development

Host country level Actively engage with host country business promotion

institutions Foster trading links with origin countries. Make contributions that will foster a positive image of Africa

in host country.

17

Private Sector Services

18

Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community + Private Sector

Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community + Private Sector

Private Sector Services:Addressing the Challenge

PrivateSector

PrivateSector

(RSPs, MTOs, MNOsBanks, NB financialInstitutions)

19

Private Sector Services: Required actions

Analyze client base to gain better understanding of socioeconomic profiles of remittance senders and recipients

Offer value-added financial services to existing and potential clients

Deploy appropriate technologies and methodologies to bring unbanked recipients into the financial mainstream

Build partnerships to increase visibility and marketing of remittances

Improve financial literacy of existing clients, communicating actively to determine appropriate financial services

Expand on role of intermediation and consolidation of remittance flows

Private Sector Services: Instruments for leveraging remittances

Remittances Services Providers (MTOs + MNOs) Internet-based remittance platforms Mobile Money transfer : Zap, MPESA, WIZZIT, Mobile Money,

Celpay (outreach to local community)

Financial services providers (Banks, MFIs, Credit Unions, Savings & Loans)

Senders: savings, pension, investment, education financing, insurance, mortgage

certificates of deposit, equity and debt funds, mortgage bonds

Receivers: health insurance, education benefits, small business loans or consumer finance, bill payment

20

21

Private Sector Services: Instruments for leveraging remittances - Examples

Zenith Bank

Nigeria Zenith Diaspora Account

combination of current and savings and loan accounts

Connected foreign currency accounts in USD, Euro and GBP

Negotiable interest rate balances accounts

Nigeria Diaspora-focused Accounts & other services

Diaspora Target account (savings accts – can be used as a collateral for loans)

Diaspora Investment Account (savings and fixed deposit)

PHB Easy Remit (remit funds from UK, Canada and USA)

Ghana Homecoming Account

hybrid account which invests in various mutual funds and financial instruments in Ghana and other regulated markets in Africa.

Sankofa account (1yr), Gye Nyame account (2yrs) and EpacK (3yrs)

Credit Foncier du Cameroon

Cameroon Diaspora-focused Housing loans

Programme to attract Cameroon diaspora investment in real estate

Uganda, Kenya & Tanzania

Zap (Mobile Money transfer)

Customers can receive funds from any bank account in the world into their mobile handset as well as send funds directly to their accounts

22

The DiasporaLink Initiative

23

The DiasporaLink Initiative:Objectives

Provide a low-cost, secure and regulatory compliant remittances transfer service

Involve the diaspora community & MFIs as key players in the remittances transfer market

Provide an integrated set of services to encourage and support diaspora-led investments

Information and documentation (investment opportunities, sources of finance, national regulations & incentives, etc..)

Technical assistance - development of bankable project proposals, facilitating of access to finance

Make available financing facility that would benefit the diaspora entrepreneur (Fund)

Provide financing support to existing and green-field diaspora-initiated businesses

24

The DiasporaLink Initiative:Services

Diaspora Investment

Facility

Diaspora Investment

Fund

Remittances-Linked

Financial Products

Seed capital for DIF

• Internet-based P2P remittance

service• Operating on

the VISA platform

R-linked savings account

• Information: Investment opportunities sources of finance

• TA to project owners

25

The DiasporaLink Initiative:Partnerships

Diaspora Investment

Facility

Diaspora Investment

Fund

Remittances-Linked

Financial Products

DiasporaOrganisations(UK, Germany,

Sweden, Belgium)

Private Sector

(Banks, MFIs, Credit Unions,

MNOs)

Multilateral finance

institution

Private Sector

Remit. Services Provider

(DiasporaLink AB)

The DiasporaLink Initiative:Benefits

26

Economic Development

27

Contacts

116, Avenue du Prince Héritier

1200, Brussels, Belgium

Tel: +3222533008

vinokele@africanaxis.org

www.africanaxis.org

www.diasporalink.euwww.diasporalink.net