Challenges and opportunities for the financial inclusion of remittance recipients: Challenges and opportunities for the financial inclusion of remittance recipients October 19th, 2007 Monica Brand, Vice President, Marketing & Product Development Unit Maria Jaramillo, Senior Director Remittances Program Perspectives from ACCION’s work in remittances


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ACCION International: ACCION International ACCIÓN International, a private nonprofit organization founded in 1961, works to reduce poverty by providing financial services through its network of partner financial institutions to the millions of working poor throughout the world Mission: Give people the tools they need to work their way out of poverty Pervasive, permanent impact Means: By building strong microfinance institutions Core Operating Principles: Social impact and scale Sustainability Link to commercial markets


Where ACCION Works: Where ACCION Works 30 Microfinance Partners in 23 Countries Argentina Bolivia Brazil (2) Colombia (3) Ecuador (3) El Salvador Guatemala Haiti Americas Honduras Mexico (2) Nicaragua Paraguay (2) Peru United States Venezuela Africa Angola Benin Cameroon Ghana Mozambique Nigeria Asia India China Vietnam Actively negotiating Senegal S. Africa Tanzania Uganda Zimbabwe MENA Egypt Morocco Pakistan


ACCION’s goals and work in remittances:: ACCION’s goals and work in remittances: Goal: Improve the financial options available to recipients by facilitating access to financial products, particularly products that can help families promote productive use of remittances ACCION has been working in remittances in the past five years to: Identify market opportunities and develop financial products for recipients Implement innovations such as the use of pre-paid card for remittances Support commercialization and cross-sell strategies including the use of financial literacy tools Recommend and support the development of strategic alliances between microfinance institutions and money transfer companies to offer remittance services


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How are remittances connecting financial opportunities?: How are remittances connecting financial opportunities? For low-income households >> funds have positive impact in education and health of children. Positive correlation between remittances and increased savings rate* Most of remittances are used to meet basic household needs, they’re sent to be spent: Remittances do create in an indirect way the capacity for households to save or invest. When remittances are an additional source of income, recipients’ households have the opportunity to use part of their regular disposable income for these goals. “The money sent by my sister is used for taking care of my mother, buying food and medicine. […] From my regular salary I use part of it to save.” (Focus groups Peru) Source: World Bank Report Impact of remittances in Latin America, Dec. 06 * Studies in PE and NI carried out as part of IDB/USAID funded project.


Unpacking the potential to bank recipients depends on segmentation: Unpacking the potential to bank recipients depends on segmentation Migration life cycle Relationship w/ immigrant Recipients


1. Segmenting the market by the stage in the immigration life cycle helps determine how remittances are being used:: 1. Segmenting the market by the stage in the immigration life cycle helps determine how remittances are being used: Process in country of origin Use of loan sharks Family pays until immigrant is stable Recipient manages funds for household expenses Purchase of appliances Purchase of 2nd House (as investment or for family) Home Improvement Car/ Business (Low planning for future goals) Purchase of house, land or construction Financed with savings Sell of homes in country of origin Family divided Pay debts Attain stability for immigrant and family 1-1.5 years 1-2 years 2-5 years 6-10 years >10 years House in country of origin Increases assets Supports family Decision to settle down in the US or return to country of origin Increase of goals in USA Segment I Segment II* Segment III Transactional Accounts Savings Accounts Home Improvement Insurance Home Improvement Transactional Acct


2. Segmenting the market by the relationship between the immigrant and the recipient helps determine how remittances impact household’s budgets:: 2. Segmenting the market by the relationship between the immigrant and the recipient helps determine how remittances impact household’s budgets: Who the immigrant and the recipient are determines the type of remittances that are being sent, why they’re sent and the impact that funds have in the recipient’s household budget. This analysis helps determine financial needs, financial products that can be linked with remittances and the type of strategy needed to bank each segment. Potential for products to help administer use of remittances Greater potential to link with savings and investment products Financial Opportunities:


Who are recipients of remittances in the region?: Who are recipients of remittances in the region? Siblings and Parents tend to be main recipients in the region. Followed by Spouses and Children of immigrants. However important country differences exist. Analysis of banking opportunities has to be done understanding immigration context in each country and carrying out segmentation of each market accordingly. * Studies in PE and NI carried out as part of IDB/USAID funded project. ** Study in MX carried out for private commercial bank


Majority of recipients are not microentrepreneurs: Majority of recipients are not microentrepreneurs Studies carried out by ACCION indicate that on average only 21% of recipients are microentrepreneurs. Second main group of recipients tends to be housewives and salaried workers This opens opportunities for microfinance institutions to serve new segments of the market that need financial services which go beyond microcredit: savings, home improvement loans, insurance 21% * Studies in PE and NI carried out as part of IDB/USAID funded project. ** Study in MX carried out for private commercial bank


Banking recipients requires entering new market segments with emphasis on savings, home improvement, insurance. Less potential with microcredit: Recipients: Transactional Accounts: Initial Phase: low cost accounts to help manage use of remittances b/c savings balances are low Direct deposit into accounts with cards>> gives convenience and security to recipients Savings Account: Programmed savings for specific future goals: Education, emergency, home improvement Home Improvement: Considering remittances as additional source of income for households Microcredit – limited opportunity: Majority not entrepreneurs (only 21%) Approx 5% channeled for businesses Start-up loans: interest of recipient to start a business with the help of remittances. Product not currently offered by Microfinance Institutions Banking recipients requires entering new market segments with emphasis on savings, home improvement, insurance. Less potential with microcredit Immigrants: Insurance: Help immigrant protect family back home. Health expenses constitute 3rd-4th use. Remittances insurance, life insurance and repatriation of immigrant Mortgages: adapted to way immigrants want to buy a house, high % financed with savings


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Direct marketing and soft-sell needed: : A variety of creative marketing strategies have been employed to promote remittance-linked financial services Dedicated tellers (Cooperativa Salcajá), customer service officers (Integral), as well as independent sales force (BancoSol); Mother's day Campaign to attract savings (Banco Solidario); stamp in remittances receipts to promote products (FAMA); meetings with the community (AMUCSS); Time needed: So that client builds trust in institution To create awareness of potential that remittances funds have To help qualify clients for loans: frequency in receiving remittances Good customer service: shows that institution wants to establish a long-term relationship with client Direct marketing and soft-sell needed:


Key challenge: making banks approchable to people that have not used them or have had negative experience using them: Barriers to banking go beyond attracting people to come into a bank to pick up a transfer. Using remittances to overcome these barriers presents challenges Real barriers: less convenient>>long lines; not open on weekends Perceived barriers: bureaucratic process; costs: remittances perceived as more expensive; “globalizing” based on savings accounts which have high maintenance fees Work needs to be done on the Client-value offer connection Strong marketing and communication strategies needed relying on client education to overcome barriers, create this awareness of potential that funds can have for them, promoting good understanding of products. Key challenge: making banks approchable to people that have not used them or have had negative experience using them


Questions or follow up:: Questions or follow up: Remittances project: Maria Jaramillo, Senior Director Remittances (Washington DC office: 202/393-5113 x1626 or mjaramillo@accion.org) General questions: Monica Brand, Vice President, Marketing & Product Development Unit (Washington DC office: 202/393-5113 x1621 or mbrand@accion.org)