Improve Access to Financial Services, Recommends Task Force

By Nancy Castillo
May 1, 2007

Event: "Making the Most of Family Remittances," A Report of the Inter-American Dialogue's Task Force on Remittances
Hosts: Senators Bob Menendez (D-NJ) and Norm Coleman (R-MN)
Featuring: Manuel Orozco, Inter-American Dialogue; Maria Eugenia Brizuela de Avila, president of Banco Salvadoreño and former minister of foreign affairs of El Salvador; Earl Jarrett, president of the Jamaica National Building Society; and Don Terry, manager of the Multilateral Investment Fund of the Inter-American Development Bank.

Significant progress has been made in reducing the transaction costs of sending remittances, according to panelists at a May 1 Inter-American Dialogue meeting on Capitol Hill. Since the release of the Dialogue's 2004 task force report on remittances, transaction costs have decreased from 15 percent of the total transaction to 5 percent, as a result of the increased competition and growth within the money transfer industry. Expensive transaction costs remain an issue, however, in south-south transfers and other corridors that lack sufficient competition.

The second report of the Task Force on Remittances, "Making the Most of Family Remittances," examines the high cost of transactions, financial sector opportunities to incorporate senders and receivers, and the macroeconomic effects of remittances. The authors recommend increasing the transparency of transfer fees, looking more closely at new technologies such as prepaid cards and mobile banking transfers, and strengthening the relationship between money transfer operators (MTOs) and banking institutions.

Recent figures estimate that over $60 billion in remittances entered Latin America and the Caribbean in 2006. Yet currently, few banking institutions have an aggressive outreach program aimed at remittance senders and receivers, due to the perception that most remittances are spent on consumption and that efforts to integrate recipients are too costly. A growing number of success stories, however, are beginning to prove these impressions wrong.

Banco Salvadoreño, which handles ten percent of remittance transfers to El Salvador, is one bank that offers recipients options for investing remittances. Maria Eugenia Brizuela, president of Banco Salvadoreño, explained that they have tried "to surpass the cultural barriers" in financial education through initiatives such as teaching campesinos how to use an ATM. Similarly, Earl Jarrett said that the Jamaica National Building Society has offered card-based money transfers to introduce remittance receivers to the benefits of banking, while improving their access to financial services.

Don Terry noted that difficulties remain for immigrants in the United States to obtain bank accounts, many of which stem directly from strict regulations adopted after 9/11. "We aren't doing anything to fight terror by preventing 'bankarization,'" said Terry.

Manuel Orozco, coordinator of the task force, suggested that U.S. banks interested in the remittance market need to identify products that senders demand, formulate marketing strategies, and open branches in areas with large migrant communities. In many of these communities, added Orozco, "adopting a traditional model of education doesn't work-it has to be learning by doing."

The speakers recommended that government institutions should pay more attention to financial access issues and develop a strategy and a framework for dealing with these important transnational flows.