USAID Remittances Seminar

'After-Hours Seminar', May 17, 2007

- Submitted by Julia Blue


To highlight the growing opportunities for MFIs to tap into the roughly $200 billion per year sent by international migrant workers to their home countries, USAID's Microfinance After Hours Seminar series hosted the session "Linking Remittances and Access to Microfinance: Opportunities and Challenges" on May 17 in Washington, DC.

Speakers included David Grace of WOCCU , Manuel Orozco of Inter-American Dialogue , and Kai Schmitz of Microfinance International Corporation

According to Manuel Orozco, a typical bank in a major recipient country now derives around 20% of its income from remittances. The resulting linkages with international financial institutions are modernizing the money transfer system and regulatory environment in recipient countries, and demand for financial intermediation is increasing as remittance recipients generally have a higher propensity to save than non-recipients. MFIs are often better placed than banks to offer money transfer services to remittance recipients, especially for clients in rural areas.

Mr. Orozco described several business models adopted by MFIs that offer remittance services:

  • proprietary models, in which an MFI opens a bank account in a remitting country to collect and transfer remittance payments to its clients;
  • partnerships with a single money transfer company such as Western Union;
  • the diversified partnership model involving simultaneous partnerships with a variety of money transfer companies;
  • the umbrella model in which one money transfer company acts as a processor for many MFIs operating in its region; and
  • partnerships with banks, which may be the only legal option in countries where non-bank financial institutions are not allowed to process foreign currency transactions.

    The diversified partnership model has perhaps been the most successful option, because the ability to attract more clients by offering a variety of familiar remittance-transfer services generally outweighs the cost of fees charged by the money transfer companies.

    While offering remittance transfer services is a promising way for MFIs to diversify their revenue base and attract new clients to their traditional lending services, Kai Schmitz warned that processing remittances is not easy - it requires an ample cash base and a sophisticated transaction monitoring system for regulatory compliance.

    Many MFIs that attempt to launch remittance services never get sufficient volume to cover their costs, because their brand name is unknown in immigrant communities and as demand-driven loan services, they tend to lack experience with outreach marketing. In order to induce remittance senders to switch to their service, MFIs need to offer incentives such as price discounts, gifts, and marketing events. Microfinance International Corporation works with MFIs to establish remittance services, providing technical advice on marketing and regulatory compliance as well as an online platform that allows MFIs in recipient countries to process remittance transfers from US financial institutions.

    David Grace explained that Woccu_logo "credit unions are also a great vehicle for remittance services, as there are over 42,000 credit unions worldwide and they tend to operate in rural areas, have networked structures and experience managing liquidity." In 2005, WOCCU published the first in-depth survey of users of its International Remittance Network (IR/net/), a partnership with VIGO Remittance Corporation that enables credit unions in the US to transfer remittances to recipient countries. The survey, undertaken in Guatemala, found that most remittance recipients come from low-income backgrounds - 60% of remittance recipients earned less than a dollar a day - and that a large percentage (between 10% and 50%) of those that receive their remittances from credit unions end up becoming members. WOCCU is now partnering with USAID to research market demand for various remittance-linked financial service products. Client surveys and focus groups undertaken for this study have revealed a high demand for housing and business loans backed by remittance income streams, weaker demand for indirect deposit remittances, and little interest in remittance-backed travel loans.

    For further info see also :

  • FIELD-Support LWA: The Financial Integration, Economic Leveraging, Broad-Based Dissemination Leader with Associates. USAID.

  • Jennifer Isern, William Donges and Jeremy Smith; "Making Money Transfers Work for Microfinance: A Technical Guide to Developing and Delivering Money Transfers." CGAP, December 2006.

  • "Making the Most of Family Remittances." Second Report of the Inter-American Dialogue Task Force on Remittances, May 2007.

  • Manuel Orozco, Katy Jacob, and Jennifer Tescher; "Card-Based Remittances: A Closer Look at Supply and Demand." The Center for Financial Services Innovation, February 2007.

  • "A Technical Guide to Mainstreaming: The Credit Union Perspective." World Council of Credit Unions, Inc.