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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 13 / June 2005 |
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Going beyond Remittances:
WSBI and MIF Conference Highlights Socially Committed Banks and Financial Inclusion By Norbert Bielefeld, Deputy Director, and Angela Arévalo, Adviser, World Savings Banks Institute 
The conference "Remittances and Financial Inclusion: Cross-Regional Perspectives," jointly organised by the World Savings Banks Institute (WSBI) and the Multilateral Investment Fund (MIF) of the Inter-American Development Bank on 19-20 May, 2005 in Brussels, concentrated on the objective of facilitating money transfers by migrants and leveraging their positive impact on recipient economies. Remittances represent one of the microfinance products most desired by modest clients, besides savings, credit and insurance. As remittances represent private money sent person-to-person, they contribute directly to alleviating income shortages in recipient households. These financial flows, which according to WSBI estimates amount to circa US$200 billion per year, are an extremely important contribution to economic growth and development. They play a crucial role in the wider debate on access to finance (or the lack thereof) for both migrants and their relatives and communities in their home countries. The challenge for policymakers and the financial sector is to encourage flows via the formal financial system thereby fostering economic development and bringing access to a larger number of people to complementary banking services. The economic role of remittances is undeniable: they represent a formidable source of finance for development and investment that may generate sustained growth. They can represent a significant part of a country's gross national product; they may directly influence the structure and growth of imports and exports, and the speed of urban or rural development. They affect demographic patterns, education, health and social security issues. From the opening session of the conference, it was clear that remittances are not just about money transfers, but about "the people's money". Donald Terry, Manager of the MIF, mentioned that the large amounts of funds transmitted unfortunately reflect poor economic conditions in receiver countries; people are forced to leave these countries to look for work that is often more difficult, in places far away from home. Therefore the question is: how can remittances be safely channelled to productive activities, creating more economic opportunities for both senders (who wish to build assets in their home countries) and receivers (who can use these funds to build a safety net through savings and investments)? During the conference the following issues and avenues for solution where identified. Building General PrinciplesThe World Bank and the Bank for International Settlements are working with central banks, international and other development organisations to develop 'General Principles for International Remittances', in an effort to create global service standards and principles for consumer protection, transparency and market behaviour. Data and Market KnowledgeParticipants in the conference underlined both the need for greater and better data, and the difficulties in measuring remittance flows, agreeing that the best way to collect this - although expensive - is through household surveys. By understanding better the nature, origin, destination and amounts of flows, proper public policies and market incentives can be put in place. The need for better figures from Africa and Asia was stressed. It has been roughly estimated that there are more than 175 million migrants (not counting domestic migrants) in the world today, who could be supporting more than 500 million people. To include these people in the financial sector would mean opening the financial systems of the world on a scale we have never seen before. Involvement of BanksBringing migrants into the financial system does not mean exclusively integrating them into the financial market, it means integrating them into society, so that they can make more informed decisions about their future, allowing them to choose financial services in a more transparent and fair environment. Historicially, banks have been somewhat reluctant to enter the remittances market, but this has been changing rapidly in the last few years. As an example, the Spanish savings bank 'La Caixa' (Barcelona) has built its remittance programme on the belief that offering remittance services is just the beginning of a broader client relation with migrants. Remittances are just the entry point: the goal is to move migrant customers up the financial value chain, adapting products and applying cutting edge banking technology to satisfy their needs. WSBI member savings and retail banks presented their practical experiences in providing remittance services during the conference. Their main message was that remittances the first point of entry to a relationship with new custumers that are usually left outside the financial sector. The importance of building alliances in order to leverage local expertise, maximize distribution networks and to use cost-effective operations was also underlined. Lloyds TSB's (United Kingdom) alliance with ICICI Bank India; Caixa Economica Federal (Brazil) with BCP Bank (US-Portugal) and the "Bravo" brand of CECA (Spanish Savings Banks Conferederation) and BANSEFI's "Red de la Gente" (Mexico) were presented as examples of this kind of successful partnership. For these savings and retail banks the challenge is clear: the business is beyond remittances. By taking into account demographic trends they look to enlarge their client base as well as renew it: CECA recognizes that almost 10% of the Spanish population is composed of migrants, Lloyds TSB acknowledges that the Indian community in the UK is expanding six times faster than other immigrant communities, and Caixa Economica Federal is targeting the more than five million Brazilians that live abroad. Speakers also shared the problems they have encountered in implementing their programmes. Two main challenges were identified: first, how to address the particular needs of each migrant community, taking into account their diversity - which ranges from Moroccans, to Colombians to Chinese people in the case of CECA. The second challenges is how to overcome the regulatory and compliance hurdles when working with multinational platforms. Remittances and MicrofinanceBanking with migrants requires understanding their special needs. Microfinance institutions are often well placed to offer personalised services to their clients and this constitutes one of their main comparative advantages in the industry. Working to build financial literacy among clients is also important. When serving lower end clientele, financial institutions need to start building trust in the system. Poor people expect convenience, respect, proximity and product diversity. They are eager to save and invest in assets that are important to them, such as housing and education. Remittance funds could be well channelled to these, as speakers from BANSEFI and BCP Bank demonstrated. Convergence between Public and Private InterestsParticipants identified some points of convergence between policy and business interests: both public and private players are working towards lower charges and lower costs. They are both in favour of increased competition and the increased use of formal channels. Moreover, they are both interested in building a fair market, securing providers and therefore building trust. Speakers agreed on the following key issues that need to be tackled by both the public and private sector:
ConclusionTo conclude, Chris De Noose, Chairman of the Management Committee, WSBI, suggested thinking about the theme of remittances and financial inclusion in terms of three words: place, space, and pace. Place: Through collective actions such as this conference, over the past three years, remittances have been put at the top of the agendas of policymakers, and are more visible to the business community. There is definitely a place for remittances in visions, strategies and plans at the policy and business levels. Space: Remittance space has been much better defined. Indeed, remittances are not only about the mere transfer operation between a remitter and his family in her/his home country. Very clearly, remittances are about including people, and including service providers in the financial community. This is the space for this topic. Pace: Market participants and policymakers should commit to working at a greater pace in transforming remittances into an effective development tool. For further information, including the presentations and speeches delivered at the conference, please visit: www.savings-banks-events.org/remittances/programme%20proceedings.htm |