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ECONOMY-LATAM: Using Bank Accounts to Make the Most of Remittances

Humberto Márquez

CARACAS, Aug 2 2004 (IPS) - The 38 billion dollars in emigrant remittances sent home to Latin America and the Caribbean from abroad last year would have been more fruitful if more bank accounts had been used to send and receive the money.

These were the main recommendations of a seminar organised in Caracas by the Latin American Economic System (SELA) in Caracas, which backed programmes encouraging migrants to open bank accounts in the countries where they live and work, and urging their families to open accounts for receiving the remittances at home.

“Latin American and Caribbean immigrants with a bank account in the United States are more likely to send money home than those who don’t have one,” Fernando Lozano, with the state-run National Autonomous University of Mexico and the International Migration and Development Network, told participants.

“Financial mediation must be promoted” in the countries of origin “so that families of emigrants can receive remittances and have access to other types of services, like savings accounts and cheques,” he added.

Latin America and the Caribbean have nearly 550 million inhabitants and 250 million poor people, and “only 20 percent of the population have access to banks, whereas if the banking system opened up to the rest of the population, the savings rate would triple,” Manuel Orozco, a Nicaraguan with the Institute for the Study of International Migration (ISIM) at Georgetown University in Washington DC, told IPS.

Private banks in the region “have oligarchic attitudes, they don’t actively attract clients, and loans generally go to the export sector or big companies. In many countries less than five percent of the portfolio is aimed at small and medium-sized businesses, which generate 30 percent of employment,” Orozco criticised.

Emigrant remittances to their home countries in Latin America and the Caribbean “have seen spectacular growth in recent years,” said Lozano, who noted that they had climbed from 11.7 billion dollars a year in 1995 to 38 billion dollars in 2003, while their contribution to regional Gross Domestic Product (GDP) doubled in seven years.

Nearly 40 percent of this mass of money goes to Mexico, which experts say could bring in a record 15 billion dollars in remittances this year. More than half of all households in urban areas in Mexico have benefited from money sent home by relatives, mainly those residing in the United States.

Other countries receiving large amounts of emigrant remittances are Brazil, (5.2 billion dollars in 2003), Colombia (3.1 billion), El Salvador (2.3 billion), the Dominican Republic (2.2 billion), Guatemala (2.1 billion), Peru (1.3 billion) and Cuba (1.2 billion).

In the case of Haiti, the poorest country in the Americas, the almost 1 billion dollars received in money from nationals abroad represents one-third of GDP and more than three times the country’s total export revenues, according to Orozco. Nicaragua and Jamaica, also among the poorest, receive more money from remittances than exports as well.

Orozco noted that remittances from the United States average 300 dollars or more for Brazil, Costa Rica, Chile, Mexico and Paraguay, between 200 and 300 for Bolivia, Colombia, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Panama and Venezuela, and between 140 and 200 dollars for Argentina, Haiti, Nicaragua, Peru and the Dominican Republic.

But sending the remittances – mainly due to the cost of the bank transfer and money wiring procedures – swallows up an average of seven percent of each transaction, whereby 2.7 billion of the 38 billion sent last year did not reach the recipients.

The highest costs occur in the case of Cuba (12 percent) and the Dominican Republic (11 percent), while the lowest were found in the case of Ecuador and Peru (five percent).

Francisco Verdera, with the International Labour Organisation’s (ILO) Andean region office, said banks are not used due to “the high commissions they charge, unfavourable exchange rates, complex procedures” and the fact that people are simply not used to visiting banks.

“That’s why we need to open up the banking system to the wider public, and for this to happen banks must first create incentives for people to receive remittances, cut the cost of transactions, encourage savings and credit, and reinvest savings in the communities which use them,” Orozco maintained.

In its conclusions, the SELA seminar proposed promoting the use of transnational financial services in the transfer of remittances, through less costly mechanisms like debit or dual (debit/credit) cards.

Microfinance bodies should also be encouraged to receive remittances, “as it has been proven that they are effective in offering financial services in poor rural or outlying urban zones.”

New regulations and policies “should allow savings and credit cooperatives to receive remittances and thus attract more clients,” Orozco stressed.

Finally, he warned of the temptation to see emigration and cash remittances as a panacea for the region’s dramatic problems of underdevelopment and poverty.

“Exporting labour power is not the Latin American route to development nor are remittances sufficient to fund the growth we need of 10 percent a year for 10 years,” he stated.