The Diaspora Dividend: Leveraging Immigrant Remittances

1

THE Diaspora DIVIDENDleveraging immigrant remittances

2

Globalization is accelerating

international migration. Spurred by

persistent income disparities, below-

replacement fertility and population

aging, international migration has

taken on increased significance;

In 1965, only 75 million people lived

outside of their country of birth. By

2000, that figure had more than

doubled (175 million people) by

2000. Today over 3% of the world’s

population lives abroad (United

Nations, 2002);

As more people moved out of their

home countries, remittances

increased. This trend is likely to

increase since international migration

I - Remittances in the Context of Globalization:

Remittances are the cross-country movement of money as a consequence of the cross-country

movement of labor or immigrant workers, that is, international remittances are monies that migrants

earn abroad and send back to their home countries. While each remittance is small, remittances are a

major component of the international flow of funds because of the large number of remitters and the

frequency with which they send monies;

For developing countries, remittance flows represent a major source of international finance - in many

cases, larger than total foreign aid and second only to foreign direct investment;

is projected to remain high trough the 21st century;

Source: The Migration Policy Institute, www. migrationinformation.org

http://www.migrationinformation.org/

3

Compared with profit-induced capital flows, remittances are more stable and less cyclical. Foreign

direct investment (FDI), portfolio investment and bank credit tend to rise when the host country is

doing well. Remittances, on the other hand, tend to be steady and increases during periods of

economic crisis or natural disasters. Finally, unlike foreign aid, remittances are well targeted and go

directly to the people who need them;

While financial flows, trade in goods and services, and various other forms of technology transfer are

widely monitored, documented, reported and studied in great detail, the issue of remittances has not

attracted adequate attention and interest among policy makers and the business community;


The World Bank reports that

$126 billion in remittances

changed hands worldwide in

2004, up from less than $2

billion in 1970 and $70 billion in

1995.

The World Bank last estimated

that about $232 billion was

remitted through formal

channels in 2005, more than

70% of which ($167 billion)

went to developing countries;

In 2002, remittances to developing countries exceeded both official development aid (ODA) and

private debt and equity flows; (International Monetary Fund, IMF, 2002);


4

There are several ways to

examine remittances besides

its total value. The two most

common are remittances as a

percentage of the GDP and

remittances per capita. The

ratio of remittances to

merchandise exports are also

used;

In 2001 Mexico, France, and

India were the largest

recipients of remittances, with

inflows of $9.9 billion, $9.2

billion, and 19.1 billion

respectively;

While Mexico is the country

with the highest total

remittances received, Lesotho

has the highest remittances

received as a percentage of

GDP; and Luxembourg has the


highest remittances received per capita;

Researchers estimate that Latin America is the largest recipient of U.S. remittances. According to the

Inter-American development Bank (IDB), the United States sent $28.5 billion in remittances to Latin

America and the Caribbean in 2003, accounting for 75% of remittances to this area ( Inter-American

Development Bank, 2004);


5

Foreign Born and Global Remittance Flows by World Region

41m

6m

16m

31m

20m

25m

30m

6m

Source: Foreign Born, United Nations, 2002;

$3

$13

$8

$99

$70

$3

$64

$57

$6

$112

$113

$42

6

In 2003, approximately $31

billion in remittances was

sent from immigrant

workers in the U.S. to their

families and communities in

Latin America;

Within Latin America,

Mexico, El Salvador, and

Dominican Republic were

the top three countries to

receive remittances from

the U.S. remitters in 2001

( Manuel Orozco, 2002);

According to a 2003

national survey of Latin

American households, 6

I I- The Latin American Remittance Market:

million Latin American immigrants, or 42%, send remittances on a regular

Most remittances worldwide, 31%, are sent to the Latin America and Caribbean (LAC) region. The

vast majority, nearly 82%, of the LAC total is sent from the U.S.;

Remittances are significant when compared to other capital flows to the region. Official development

assistance (ODA), is dwarfed by remittances in every region within LAC, and remittances exceed

foreign direct investment (FDI) in Central America and the Caribbean. Furthermore, remittances

comprise 24% of Nicaragua’s GDP, 14% of El Salvador’s GDP and 35% of Haiti’s GDP;

Basis, and 2/3 of these send money at least once a month;

7

The value of the average remittance sent to Latin America is $240. However, this figure varies by the

immigrant’s country of origin. Mexican and Brazilian immigrants tend to send larger amounts - on

average about $350 a month. By contrast, immigrants from the Dominican Republic and El Salvador

send closer to $225 a month, while Nicaraguan immigrants send only $150 a month ( Manuel

Orozco, 2002);

Current options for remitters to transfer funds abroad fall, in general, into three categories: informal

channels, wire transfers by money transfer companies, and remittance services at regulated financial

institutions;

Approximately 17% of U.S.

remittances to Latin

America are made via

informal channels, with mail

and hand delivery being the

most common of these

conduits;

The vast majority of

remitters rely on the

services of money transfer

companies (MTC). While

there hundreds of local

MTCs, Western Union and Money Gram are two of the largest and most well-known in the U.S.;

In the U.S., MTCs have a strong presence in immigrant communities and are often located in grocery

stores and other convenient places. Most are open evenings and weekends, and many provide one-

stop shopping by offering other financial services such as check cashing and money orders

8

While quick and convenient, MTCs charge the highest prices for remitting funds. First, a service charge

is levied - in most cases, a flat fee, resulting in a regressive pricing model that enacts a sizable charge

on small remittances. A second charge is assessed via the foreign exchange rate;

The cost of transferring money can represent a significant loss to immigrants and their families. Latin

American immigrants in particular pay a high percentage of their remittances in the form of fixed, pre-

transfer fees because they tend to remit frequently and send small amounts in each transfer. For

example, in a survey of 100 institutions, the cost of remitting $200 to Latin America ranged from $5 to

$37.37 (Manuel Orozco, 2002);

World Bank estimates suggest that for every 10% increase remittances to developing countries, the

number of people living in poverty is reduced by 1.2% (Global Policy forum, 2004). Another study found

that for every dollar received in remittances, Mexico’s GNP increases by $2.69 for urban households

and $3.17 for rural households (Adelman and Taylor, 1990);

In their report, Billions in Motion, Suro and his colleagues estimate that close to $1 billion a year could

be saved by U.S. and Central American households if remittance fees were lowered to 5% of the

transaction cost;

According to surveys conducted by the Inter-American development Bank’s Multi-lateral Investment

Fund (IDB-MIF), the majority of remittances in Latin America are spent on basic household needs such

as food, health, housing and utilities. Other expenditures include education, real estate, savings and

investments;

Some evidence suggests that remittances declines steadily as immigrants acculturate, although the

amount those remitting send home will increase as employment earnings rise. Complete family units

are particularly important in determining whether money is sent abroad;

For temporary immigrants, however, the dynamics are unlikely to be the same. Those who have arrived

recently are the most likely to send remittances, largely because of their strong ties to their home

countries;

9

20%

31%

49%

0% 20% 40% 60%

More than $30,000

Between $20,000

and $30,000

Less than $20,000

4%

6%6%

6%9%

10%59%

0% 10% 20% 30% 40% 50% 60%

Other Central America

Dominican Republic

El Salvador

Mexico

Annual Income Country of Birth

6%

12%

30%

34%

15%

0% 20% 40% 60%

65+

35-49

18-24

Age

10%

7%

35%

46%

0% 20% 40% 60%

College graduate

Some College

High school diploma

No HS diploma

Education

5%

20%

23%

52%

0% 20% 40% 60%

Less than 1 year

1-5 years

5-10 years

More than 10 years

Residency

20%

37%

38%

5%

Citizen

Legal resident

Undocumented Immigrant

No answer

Legal Status

Who are the Latin American Remittance Senders in the U.S.?

Source: Understanding Remittances to Latin America, Sergio Bendixen, Joint Conference on Remittances, ADB, 2005

?

10

The Remittance Sending and Receiving Process:

Average amount sent: $240

Frequency of remittance: 12.6 per year

1%

2%

7%

11%

79%

0% 20% 40% 60% 80%

Credit union

Mail

Bank

Person traveling

IMT Company*

*IMT Company = International Money Transfer Company

How do you usually send money?

Dominican Republic 38%

El Salvador 28%

Guatemala 24%

Mexico 18%

Honduras 16%

Colombia 16%

Ecuador 14%

Brazil 2%

Remittance Recipients in Latin America:

Where the money comes from?

0%

1%

17%

0%

30%

9%

2%

4%

21%

31%

31%

58%

76%

5%

50%

38%

0% 20% 40% 60% 80%

Dominican

Republic

Colombia

Brazil

Ecuador

Japan Latin America Europe U.S.

Source: Understanding Remittances to Latin America, Sergio Bendixen, Joint Conference on Remittances, ADB, 2005

11

Profile of the Brazilian Remitter and Receiver:

Profile of the Brazilian Remitter:

Remittances come from the U.S.

(50%), EC (31%) and Japan (17%);

Has an annual income below $30,000;

Has basic education below high

school (70%);

Average of 9.7 remittances a year;

Average amount sent of $428;

42% send less than $200;

44% send money at least once a

month;

35% once a year;

62% send money in the first 3 years;

Over 1 million Brazilians live in the

U.S. and nearly 280,000 in Japan

(2004).

Source: Banco do Brasil, Ministry of Foreign affairs, Bendixen e Associates, 2004

Profile of the Brazilian Receiver:

65% are women;

63% hold banking account;

53% are received through a bank;

29% via money transfer companies;

33% are brother or sister;

Only 8% receive more than $1,000;

85% originated in the U.S. and EC are

less than $500;

53% originated in Japan are less than

$500.

12

Major Players in the Remittance Business to Brazil:

Source: Banco do Brasil, Ministry of Foreign Affairs, Bendixen e Associates, 2004; Caixa Economica Federal, 2006.

8%

10%

29%

53%

0% 10% 20% 30% 40% 50% 60%

Credit Union

Fast Delivery/Mail/Others

Foreign Remittance Company

Banks

13

Major Players in the Remittances Business to Brazil:

Source: Banco do Brasil, Ministry of Foreign Affairs, Bendixen e Associates, 2004; Caixa Economica Federal, 2006.

SWIFT* and regular bank transfers;

Western Union with Banco do Brasil:

BCP with Caixa Economica Federal:

Private remittances companies.

*Society for Worldwide Interbank Financial Telecommunication supplies secure messaging services and interface software to wholesale financial entities.

SENDER BENEFICIARY

SENDER

EXCHANGE US$/R$

EXCHANGE US$/R$

BENEFICIARY

EXCHANGE US$/R$

14

III – Leveraging the Economic Power of Immigrant Remittances

Remittances touch the lives of over 500 million people around the world. Conservative estimates put the

number of people receiving some form of economic benefit from remittances at 1 billion - almost 1/6th

of the planet’s population (Joint Conference on Remittances, Manila, Philippines, 2005);

The remittance “economy” is an interesting example of globalization at the bottom of the pyramid (BOP)

- a kind of “transnational BOP” linking developed and developing countries:

Brazilian immigrants

(99.693% pop. - mostly low-income workers)*

Employees of Brazilian embassies & consulates

Employees of Brazilian companies with branches or offices abroad

Employees of multinational companies

Brazilian Population Living in the U.S. Remittances sent to Brazil

Globalization at the Bottom of the Pyramid – Brazilian Example in the U.S.

80% of remittances from Brazilians living in the U.S. are sent to low-income Brazilians

(0.3% pop.)*

Students

(0.007% pop.)*

Source: UC Davis, Immigration Data, 1999; Institute of International education, 2005. Analysis by Alvaro Lima and Peter Plastrik, 2006.* Percent of the total Brazilian population living in the U.S..

15

Remittances are the initial point into the world of financial services for many local economies and poor

individuals/families. Once they are sending/receiving remittances, they have joined the global financial

service system;

The challenge is to move them through the “value chain” of financial services - savings, investment,

credit, insurance, etc.. The difficult is that in one hand, mainstream financial institutions are at odds with

the financial needs of the low-income segment of the Diaspora and on the other, non-financial

institutions (money transfer companies, check cashing, etc.) by law cannot provide deposit-based

products:

Savings & Loans

Deposit Accounts

Small Savings

Borrowing ( short term loans, e.g. payday loans)

Sending Money to Families

Paying Bills

Cashing Checks

Mainstream Financial Institutions

Financial Needs of Low-income Immigrant

Bills Payment

Check Cashing

Money Transfer

Non- Financial Institutions

Low-income Immigrant Needs Versus Financial Offerings

Source: Alvaro Lima and Peter Plastrik, 2005.

16

At the household level, remittances enhance the well-being and economic security of the poor by

providing critical resources for spending on immediate subsistence needs, such as food and housing as

well as improved health care and education. Remittances also provide resources for investment,

savings and entrepreneurial activities which in turn have a stimulating effect on local and national

economies;

Harnessing the development impact of immigration calls for policies that aim at improving the

structures underlying the remittance process in order to bring the “unbanked immigrant” into the

conventional financial world. This should be a major goal of the community development field;

Do not have enough money;

Do not write enough checks to make it worthwhile;

Prefer dealing with humans (“high touch”);

Do not trust or do not like dealing with banks;

Privacy and Legal RiskUndocumented immigrants are afraid to enter

branches with security guards or that a bank

record may reveal their identifies to the INS;

Fear that their unfavorable credit histories will be

Revealed;

Products and Services Services charges are too high;

Period for cashing checks is too long;

No “one-stop” shopping experience;

Minimum balance requirements are too high;

Few Financial Assets

Level of Comfort


No bank has convenient hours or location;

Cannot manage or balance a checking account

Bringing “unbanked

immigrants” into the

conventional financial world is

an important step towards

building individual and

community assets to help

sustain the economy in the

primarily low- and moderate-

income areas where many

“unbanked immigrants” live;

However, few financial assets,

level of comfort, privacy, and

lack of appropriated products

and services drive low-income

immigrant consumers away

from banks and to alternative

providers;

17

In order to maximize the

benefits of remitting through

formal channels, partnerships

between the financial sector,

government and non-

governmental organizations

should enhance outreach to

migrants, ease constraints and

restrictions and educate

migrants on good banking

habits;

However, in order to serve this

market effectively, mainstream

financial institutions, non-profit

financial providers, etc. need

to undergo a strategic shift

towards a more customer-

driven, life-cycle, bundled

products and services;

Banks

Check Cashers

Bodegas

Grocery Stores

Western Union orsimilar Institution

Government

Loan Sharks

Liquor Stores

Informal SavingsMechanisms

Cookie Jars

Pawn Shops

Key:

Receiving

Income

Cashing

ChecksPaying Bills

Sending

money to

families

Building

savings

Borrowing

Money (short-

term loans,

e.g., payday

loans)

Buy convenience

items

(stamps, pre-

paid calling

cards, etc.)

Welfare Dependent

New Immigrant

Working Poor

Bootstrapper

Emerging Middle

Class

Seniors

Routine financial needs

Financial Needs of Low-income Populations


Financial institutions might structure their portfolios to first meet the needs of low-income immigrant

consumers, then transition them to more mainstream services, ultimately building wealth creating

instruments:

18

• Check cashing and other services

provided by traditional checkcashers

• Low minimum balance deposit

account

RETAIN

Credit and loans

• Traditional savings accounts with

some non-traditional features, e.g.

Union Bank Nest Egg account

• IDA-like accounts, with more

flexibility

BUILD AND GROW

Insurance and Investments

CONVERT

Savings

A full-service portfolio structured to create wealth and serve the life-cycle

needs of low-income unbanked immigrant

WEALTH!!

ATTRACT AND ACQUIRE

Basic Services

•Health, life,

auto and

mortgageinsurance

•Savings bonds,

pensions,

other

investment

options

• High-risk, deposit

secured emergency

loans

• Loan guarantees

• Creative financing for

small businesses and

homes

INCOME


• Low cost money transfer

19

Finally, there three distinct opportunities to “leverage” the economic power of immigrant funds in ways

that will improve quality of life of immigrants in the U.S. and conditions “back home:”

Capital investment pools for back-home development - Portions of the remittance flows

that are not used to subsidize consumption by households in developing nations can be

“pooled” and invested more strategically in developing educational, community, and business

assets back home. The capital pools could take various forms: a community foundation, a set

of IDAs, a scholarship fund, a matching fund for local infrastructure, a business financing

fund, etc.

Investment pools for immigrant wealth creation - Portions of the remittance flows can be

pooled to invest in the economic development of immigrant groups in the U.S., they can

generate even more wealth that can be sent back home;

“Bundled” services to immigrants in the U.S. - The number of remittance-sending

immigrants in the U.S. is huge - and potentially an an untapped market for other product and

services. Banks and other organizations already are trying to attract some of this market to

other financial services;

Leveraging remittance flows are attractive for Banks and Remitters:

For Banks:

From a financial perspective, the fee revenue can be substantial. Moreover, the revenue stream is

highly stable;

Sending money every month, remitters tend to be loyal customers, sticking with a remittance

service and recommending it to others (Roberto Suro, 2002);

Additionally, remittance flows tend not to be adversely affected by economic downturns in either

the sending or the receiving countries;

20

A recent study of Mexican remitters found that 76% of respondents cited health expenses, food,

and daily maintenance primary reasons for remitting funds. With family members reliant on these

funds for basic needs, a majority of remitters make sending money a top priority regardless of other

financial pressures;

Remittance programs can also generate a new customer base for a bank’s other products.

Remittance programs can help banks capture these individuals by bringing them in the door and

introducing them to the institution. Cross-sell averages for remittance program participants tend to

be higher than those of other bank customers. In the Wells Fargo program, remitters use an

average of 5.7 of the bank’s products, compared with only 4.3 for all other customers;

Aside from the unbanked, remittance programs can bring in more customers by improving the

institution’s image in the community;

Finally, remittance programs may help fulfil regulatory requirements, specifically the community

development test of the Community Reinvestment Act (CRA);

For Remitters:

By offering remittance programs banks provide a valuable service to remitting customers, who

benefit significantly from both cost savings and financial skill building opportunities;

Bank programs in general have lower fees (on average 35% less than money transfer companies)

which benefits tremendously the low income customer. The Pew Hispanic center has estimated

that if the price of sending a remittance to Latin America was reduced to 5% of the transaction,

remitters and their families would save over $1 billion a year;

bank remittance programs also offer an introduction to the banking industry to new and unbanked

immigrants facilitating access to financial products and services that allow them to build wealth,

establish credit, and obtain reasonable loans (some banks offer financial education programs);

21

IV- Innovative Practices for Leveraging Remittances

Most innovative approaches to leveraging remittances can be divided in four practices:

Forced Capture - Governments worldwide attempt to capture portions of the remittance flow. Few

countries have attempted to mandate that a certain percentage of the earnings of their workers

abroad be deposited into a national fund to be used partially for development. Only South Korea

has succeeded, while mandatory earmarking of remittances has failed in the Philippines, Pakistan,

Thailand, and Bangladesh. The Korean case however is part of a “package system”since the

Korean workers are employed by Korean companies, which are assisted by the government in

winning contracts, and these companies deposit worker’s earnings directly (Puri and Ritzema,

1999);

Other ways government tried to capture part of the flow of remittances were through taxation since

such money usually comes from earnings. Justification depends, of course, on the extent to which

the workers benefit from the taxes if they live primarily outside their country. In practical terms, it

has been difficult to identify the source of unilateral transfers , and the threat of taxes could simply

drive the money off the books;

Financially-induced Capture - Mexican banks several years ago began offering “remittance

bonds” backed by money send from immigrant laborers in the U.S.. Banco Cusctlan, in El

Salvador, handles at least one-third of the country’s $1.2 billion in remittances and in 1998 offered

$50 million in remittance bonds;

Other countries offer migrants foreign-currency accounts in domestic banks that are not subject to

foreign-exchange regulations (Puri and Ritzema, 1999). In Asian countries such as India and

Pakistan, interest rates are higher than those on domestic deposits. Premium exchange rates may

be offered;

22

Another set of practices aims to influence the use of remittances for production instead of

consumption. Incentives such as reduced tariffs for the importation of machinery and equipment to

establish micro-enterprises by migrants abroad or returning immigrants (Puri and Ritzema, 1999);

Matching programs in partnership with hometown associations are increasingly being used. The

Mexican state government of Zacatecas began in 1992 a formal tripartite two-for-one “matching

fund” project - that is, for every dollar donated by immigrants, the federal and state governments

each contributed an additional dollar. A three-for-one program now exists that include the

municipal government - Tres por Uno program;

Hometown associations consist of members from the same town or state in the migrant-sending

country that pull their remittances or raise funds collectively to finance projects in their home

countries. Although the Mexican experience has proved to be the most successful to date,

Salvadoran, Dominican, and Guatemalan groups have being encouraged by their governments to

for organizations.;

The Fox Administration expanded in 2002 the Mexican program “Adopta una Comunidad” to

encompass the 90 Mexican regions with the highest migration rates. The program is now called

“Padrino Program” and it is geared towards successful Mexican-American businesspeople, who

are encouraged to invest in one or more of the over 1000 projects identified by the Presidential

Office for Mexicans Abroad in consultation with local communities;

USAID has provided funding to the Transnational Development Fund administered by the Pan

America Development Foundation (PADF). The Fund leverages collective remittances from

Diaspora groups such as Home town associations through matching grants awarded on a

competitive basis;

In some cases, private sector players have contributed to these ventures as is the case of

CEMEX….;

23

Bank-to-Bank partnerships - Several U.S. financial institutions have created low-priced

remittance services by establishing a relationship with one or more foreign banks. Remittances are

made by transferring funds directly between accounts at partnering banks. By employing financial

institutions on both sides, these programs carry little risk for senders, recipients, and partner

banks;

To date, Citizens Bank offers New England’s Cape Verdean population low-cost remittance service

in partnership with two Cape Verdean banks. Wells Fargo Bank’s remittance program allows

remitters to send up to $3,000 a day to Mexico. The program, Intercuenta Express, is a

partnership with three Mexican banks: Bancomer, Banorte, and HSBC Mexico. Banco of America

created the SafeSend program to provide a low-cost way to send remittances to Mexico. New

England’s Sovereign Bank in partnership with America Express, offers American Express

TravelFunds Card. Though originally designed for travelers, Sovereign Bank also offers this

product to remitters. Remitters can load the card at Sovereign and sent it to a recipient abroad .

The card can then be used worldwide at ATMs and retailers that accept America Express (see also

Banco do Brasil and Caixa examples, slide 13;

Because of the account-to-account nature of funds transfer, bank partnership remittance programs

have have encountered all the hurdles referred before (see slides 15 and 16);

Rather than foreign banks, some major U.S. banks and credit unions are turning to ATMs to

provide the necessary distribution network for their remittance services. In an ATM remittance

program, a customer creates a dedicated remittance account at the U.S. bank that can be

accessed by two ATM cards - one of which is kept by the sender and one which is sent to the

recipient abroad;

Diaspora Transnational Philanthropy- There are a few small foundations helping on diverse

causes around the world. However, Diaspora philanthropy is a very undeveloped field with few

donors aware of its possibilities;

24

25

26

27

28

29

30

V - Thinking Beyond Remittances:

Recru

itmen

t

Remittances

Rep

resen

tatio

n

Returns

POLICIES TOWARD REMITTANCES:

• Possible taxation;

• Decrease competition of money transfers (e.g. Mexico);

• laws with mandatory remittances (e.g. Eritrea)

• Financial incentive programs

• Entrepreneurial Support (in Japan, the new project “Dekassegui*

Entrepreneur” launched by IDB through its MIF (Multilateral

Investment Fund) to be implemented by SEBRAE (Brazilian

service to Support Small and Medium-size Companies) and ADB

will provide financial and informational support for those who

want to invest their money in the home country).

POLICIES TOWARD RECRUITMENT:

• Countries have bilateral agreements;

POLICIES ENCOURAGING RETURNS:

• Indian Investment Centre;

• Networks and Associations (e.g. Silicon Valley’s connections with

Taiwan, India, China);

• Quotas, immigration restrictions;

REPRESENTATION:

• Protection and intervention while abroad (e.g. Filipino consulates

are active in defend Filipinos abroad against human and labor

rights abuse);

• Extending citizenship rights abroad (e.g. members of the Eritrean

Diaspora voted for independence in the 1993 referendum, and

many participated in the drafting of the new Constitution);

• Welfare services (e.g. Philippine Overseas Workers Welfare

Administration);

• Potential influence on foreign policy of receiving country ( e.g.

lobbies in the U.S.).

4Rs & D

THE FOUR R’s OF EMIGRATION

(4Rs & Development):

* Dekassegui Brazilians living in Japan mostly of whom

Japanese decent.

31

Web sites:

www.sendmoneyhome.org

http://www.delapaz-ewf.org/

http://www.lindenfund.org/

http://www.africaDiaspora.com

http://www.migrationinformation.org

http://migration.ucdavis.edu

http://www.transcomm.ox.ac.uk

http://www.cis.org/

http://www.ercomer.org/

http://www.iom.int/

http://www.international.metropolis.net

www.migrationpolicy.org

http://www.sendmoneyhome.org/

http://www.delapaz-ewf.org/

http://www.lindenfund.org/

http://www.africadiaspora.com/


http://migration.ucdavis.edu/

http://www.transcomm.ox.ac.uk/

http://www.cis.org/

http://www.ercomer.org/

http://www.iom.int/

http://www.international.metropolis.net/

http://www.migrationpolicy.org/

32

DEFINITIONS AND DATA:

The understanding of Diaspora in this presentation is very similar to the definition

offered by G. Scheffer: “Modern Diasporas are ethnic minority groups of migrant origins

residing and acting in host countries but maintaining strong sentimental and material

links with their countries of origin - their homelands.” (A New Filed of Study: Modern

Diasporas in International Politics, G. Scheffer);

The unbanked are individuals who do not have a transaction account with a traditional

financial institution, like a commercial bank, thrift institution, credit union, or securities

operation. Transaction accounts form a comprehensive category comprising checking,

savings, and money market deposit accounts, as well as money market mutual funds

and call accounts at brokerage firms;

The only major source of comparative statistics on remittances is the Balance of

Payments Statistics Yearbook published yearly by the IMF. The data used in the

publication is two years old - if it was published in 2002 it uses 2000 data. There are

three variables needed to calculate total remittances: workers’ remittances,

compensation of employees, and migrant transfers. Workers'’ remittances are the value

of monetary transfers sent home from immigrants working abroad for more than a year.

Compensation of employees is the gross earnings of foreigners residing abroad for less

than 12 months. Migrant transfers are the net worth of migrants who move from one

country to another;

33

EXTRA SLIDES

34

Network Externalities

The value to customers is in the fullrange, life-cycle value proposition

Increasedmarket size

IncreasedattractivenessIncreased value

and reduced risk

Increased sales

Integrated Product Lines

Switching costs increase due toinvestment in offering,

learning and use

Increased customerinvestment andcommitment toproduct/service

Increased value tocustomer ofproduct/service

Increased loyalty fromincreased switching costs anddecreased value of competitors’product/service

Leverage Education and Technology

Technology development and financialeducation reduce operating, fixed, and

distribution costs

High-volume salesdrive down fixed-cost component

Lowerprices andmarketingcosts

Highmargin

In order to serve the financial needs of low-income residents effectivelyand profitably, financial institutions need to develop new retail bankingmodels, integrate product lines, and leverage education and technology

Three Strategic Adjustments

New Retail Banking Models

35

These three key strategic adjustments should follow these general characteristics...

Integrated Product Lines:

• Adjust products and services offerings to match low-income consumer needs

• Integrate products to profitably serve low-income consumers over their life cycle

• Offer full service product line spanning from basic services to asset-building instruments

• Create migration mechanisms to move consumers from basic services to wealth building

New Retail Banking Models:

• Redesign branches to match full service - life cycle character (one-stop-shop)

• Redesign branches to reduce investment costs (light structures; mail box etc. style)

• Explore co-location of “express” branches (supermarkets, etc.)

• Mix high touch with technology (bricks and clicks) to reduce operating costs

1

2

Leverage Education and Technology:

• Design financial literacy, credit counseling, investment advisory programs to educate consumers

and enable them to migrate from basic services to wealth building

• Leverage relationships trough partnerships with non-profit organizations to deliver training and

counseling

3

36

Basic

Services

Wealth Creating

Strategies

Insurance

&

Investments

Credit

&

Loans

Savings

Product/Service

bundle

Product/Service

bundle

Product/Service

bundle

Product/Service

bundle

Product and service bundles may be designed to move low-income immigrant costumer relationship

further along the life-cycle:


37

“FIRST MILE PROBLEM” “LAST MILE PROBLEM”

Access to banking services in sending

countries is a serious constraint on the

volume of remittances in formal channels

and on banks ability to influence prices;

The most cost effective means to remit

money cross-border is by electronic transfer

between financial intra-bank accounts;

The “first mile problem” explains in some

degree the robust growth of Western Union

and informal channels despite their high

costs - the failure of banks in sending

countries to provide access to affordable,

simple remittance products;

Migration to other financial and wealth-

building products such as interest-bearing

deposit and savings accounts, etc.

The limited market knowledge of the

“unbaked”households in the receiving

countries;

Households without deposit accounts in the

formal system are economically

“disenfranchised” because they can neither

send nor receive deposit money throughout the

banking system;

The exclusion of the poor from the formal

financial system limits their ability to efficiently

manage their resources, save and establish

sound financial habits. This, in turn, reinforces

their poverty and makes it less likely they can

use credit effectively;

The failure of the banking system

to develop economically viable

means to bank the “unbaked

immigrant” is a market failure in

both developed and developing

economies, where banks are

narrowly focus on the affluent,

corporate and real estate

markets;

Safe

•

Fast

•

Convenient

•

Reliable

•

with Plenty of

Choice

ISSUES AND CONSTRAINTS IN SENDING AND RECEIVING COUNTRIES

Government & Nonprofit

The Diaspora Dividend: Leveraging Immigrant Remittances