© 2006 ACCION International Challenges and Opportunities of linking remittances with Home Improvement: Experience in FAMA-Nicaragua February 14, 2008 Mery Solares, Senior Director Housing María Jaramillo, Senior Director Remittances

© 2006 ACCION International2 Content: Next Steps Home Improvement Loan in FAMA ACCION’s work in Remittances

© 2006 ACCION International3 ACCION’s work in Remittances: 1. Consumer Analysis and Product Development - Identify banking opportunities: consumer insights, segmentation and cross-sell strategies: IDB/USAID, Citi, Banamex, BSE, El Comercio - Development of linked products: Home Improvement for recipients: FAMA. Home Improvement and savings tied to remittances: Sogesol 2. Innovations in use of channels - Pre-paid card as a gateway to banking recipients: Banrural 3. Financial Literacy/ Social Marketing - Promote banking of recipients and productive use of remittances: BSE - Didactic materials to ensures product understanding and promote use: BR 4. Strategic Alliances - Support alliances and contract negotiation with MTOs Goal: Increase recipient’s access to financial services, particularly to products that facilitate productive use of remittances

© 2006 ACCION International4 Profile of Recipients: majority housewives, followed by salaried workers and microentrepreneurs Opportunities to serve broader segments with financial services that go beyond microcredit Source: Integrated analysis of three quantitative studies designed by ACCION and implemented in Peru, Nicaragua and Mexico

© 2006 ACCION International5 Potential with savings, insurance and housing: Ranking of products presented to recipients in 5 countries :

© 2006 ACCION International6 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. - Transactional Accounts - Home Improvement Loans - Insurance Greater potential to link with savings and investment products Financial Opportunities:

© 2006 ACCION International7 Content: Next Steps Home Improvement Loan in FAMA ACCION’s work in Remittances

© 2006 ACCION International8 Selection of target market: Current Market: 46% Microentrepreneurs Salaried workers Potential Market: Housewives 33% 14% with additional income 17% depend on remittance 14% have additional income 17% no additional income

© 2006 ACCION International9 Challenges: - different client profile, perception of greater risk: Lack of knowledge on specific destiny of funds: several beneficiaries, debt payment, high level of consumption Insufficient information on origin: relationship between immigrant and recipient, immigration status, labor stability Few evidence of stability of flows: no historic information on frequency and amounts Flexibility to change channel used to send remittances © 2006 ACCION International

10 Insights gained from immigrants and recipients: Compromise: of immigrant to continue to send to his family nucleus, funds used to improve quality of life  recipient willing to have a credit obligation Capacity: to have and meet credit obligations (Ej: Elektra, Banco Azteca) Stability in funds sent: even in periods of crisis (68% receive with frequency: more than 6 times a year) Role of the house: it becomes the symbol, evidence of the improvement in the quality of life that is being achieved with remittances  goal of migration © 2006 ACCION International

11 Minimize risk by: Limiting access to clients with these minimum requirements: 1.Home owners 2.Direct relative of immigrant 3.Evidence of accumulation of goods/assets with remittances 4.Favorable references 5.Capacity to show frequency of receipt (minimum 6 months) 6.Ability to present guarantees © 2006 ACCION International

12 Product design: Home improvement loans for remittances as main source of income Recipients that qualify : Spouses, parents, kids Evidence of frequency in receipt of remittances Maximum 25% of average remittances can be channeled to pay for loan payments. 30% if additional income Amounts: Up to US$ 2,000, with personal or asset guarantee Up to US$ with mortgage guarantee Terms: Up to 18 months with personal or asset guarantee Up to 36 months with mortgage guarantee © 2006 ACCION International

13 Main results: (April-Dec/07)  Number of active clients: 243  Portfolio Amount: US$  Portfolio risk >30 days: 0  Average loan size: US$ © 2006 ACCION International Not yet expected results in terms of number of clients Amount proyected in terms of portfolio amount

© 2006 ACCION International14 Challenges: 1.Low volume of remittances  makes cross-sell difficult in branches 2.Business model of MFI traditiona focused on direct sell of loan officer  difficult to identify clients, greater effort needed to cross-sell 3.Funds taken for granted low value of efforts made by immigrant  lack of awareness of the investment potential of these funds © 2006 ACCION International

15 Content: Home Improvement Loan in FAMA Next Steps ACCION’s work in Remittances

© 2006 ACCION International16 Next Steps: Data mining: capture and mine historic information on behaviour of immigrant and recipient to develop parameters of additional variables that impact in risk Consider recipient as client  client ID Number in order to identify % cross-sell and complement data mining Client education increase awreness of potential that funds have for savings and investments  Financial Literacy Explore new commercialization strategies  for new portfolios with diversse products

© 2006 ACCION International17 Loan helped client complete the building of a wall surrounding her house to increase safety

© 2006 ACCION International18