Document outlining the remittance market, its structure and leverage possibilities

1. 1
THE Diaspora DIVIDEND
leveraging immigrant remittances

2. 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

3. 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;
Source: The Migration Policy Institute, www. migrationinformation.org
 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. 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
Source: The Migration Policy Institute, www. migrationinformation.org
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. 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

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 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;

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 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

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 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. 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. 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

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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.

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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. 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. 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. 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. 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 Risk
Undocumented 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
Source: Alvaro Lima and Peter Plastrik, 2005.
 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. 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 or
similar Institution
Government
Loan Sharks
Liquor Stores
Informal Savings
Mechanisms
Cookie Jars
Pawn Shops
Key:
Receiving
Income
Cashing
Checks
Paying 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
Source: Alvaro Lima and Peter Plastrik, 2005.
 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. 18
• Check cashing and other services
provided by traditional check
cashers
• 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
mortgage
insurance
•Savings bonds,
pensions,
other
investment
options
• High-risk, deposit
secured emergency
loans
• Loan guarantees
• Creative financing for
small businesses and
homes
INCOME
Source: Alvaro Lima and Peter Plastrik, 2005.
• Low cost money transfer

19. 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. 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. 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. 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. 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. 24

25. 25

26. 26

27. 27

28. 28

29. 29

30. 30
V - Thinking Beyond Remittances:
Recruitment
Remittances
Representation
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. 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

32. 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. 33
EXTRA SLIDES

34. 34
Network Externalities
The value to customers is in the full
range, life-cycle value proposition
Increased
market size
Increased
attractivenessIncreased value
and reduced risk
Increased sales
Integrated Product Lines
Switching costs increase due to
investment in offering,
learning and use
Increased customer
investment and
commitment to
product/service
Increased value to
customer of
product/service
Increased loyalty from
increased switching costs and
decreased value of competitors’
product/service
Leverage Education and Technology
Technology development and financial
education reduce operating, fixed, and
distribution costs
High-volume sales
drive down fixed-
cost component
Lower
prices and
marketing
costs
High
margin
In order to serve the financial needs of low-income residents effectively
and profitably, financial institutions need to develop new retail banking
models, integrate product lines, and leverage education and technology
Three Strategic Adjustments
New Retail Banking Models

35. 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. 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:
Source: Alvaro Lima and Peter Plastrik, 2005.

37. 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