Latin American and Caribbean microfinance institutions need to get involved in the remittances business, so they will provide financial services to millions of new low-income clients, said several experts on the eve of the opening of the Inter-American Microenterprise Forum in Cartagena, Colombia.
Donald F. Terry, manager of the IDB´s Multilateral Investment Fund, pointed out that commercial banks are already entering this market, which has traditionally been dominated by money transfer companies. Major banks, he added, are also starting to take an interest in microfinance as a potential business line.
“The future is in linking microfinance and remittances,” Terry said in a seminar held by the MIF. “That’s why I’m suggesting, I’m challenging you and I’m begging you to get involved in this business, because if not, the big banks are going to do it. And that’s fine, but they should be your clients.”
Latin America and the Caribbean will probably receive more than $40 billion in remittances this year, according to MIF estimates. Most of the money is being sent by migrants living in North America and Europe. For many Latin American countries, remittances have become the single biggest source of foreign income, surpassing their traditional exports, foreign direct investment and foreign aid.
A few Latin American microfinance institutions are already actively involved in remittances. Nancy Barry, president of the Women’s World Banking network, mentioned the case of Banco Solidario of Ecuador, which in just a few years has come to distribute around 10 percent of the money sent home by Ecuadorians living in Spain.
Banco Solidario, which caters to microenterprises and small businesses, has struck deals with large credit unions in Spain in order to provide more affordable remittances services. It has also tailored products to the needs of the people who send and receive remittances. One is a housing loan that allows Ecuadorians living in Spain to buy property in their home country without having to title it under someone else’s name.
There are success stories in Bolivia, El Salvador, Haiti and Mexico, but Latin America has not developed the link between remittances and microfinance as much as India or the Philippines. Only a tiny percentage of remittances to Latin America are handled by financial institutions. As a consequence, Barry observed, countless opportunities are being lost to give millions of people access to services such as savings accounts, bank cards, microcredit and home loans.
Survey on remittances
In the same seminar, pollster Sergio Bendixen presented a study commissioned by the MIF on remittances to Colombia. According to the results of the poll, around 4 million Colombians receive remittances regularly. This year, the country stands to receive some $4.5 billion, a total that exceeds Colombian oil exports.
In contrast to migrants from other Latin American countries, Colombians tend to leave their country without plans to send money back and only begin to make remittances once they have settled in their host countries. There are also higher percentages of people with a college education and bank accounts among those who receive remittances in Colombia, compared with the rest of the region.
Among the featured guests at the Inter-American Microenterprise Forum are Colombian President Alvaro Uribe and IDB President Enrique V. Iglesias. They will hand out the IDB’s annual awards for institutions that support microenterprise development in the region.