Leveraging Remittances for Economic Development CMEx October 2006

The Second Oldest Profession Transferring money for people who live in other places Changing money from one currency to another Making small loans to trusted and known friends and neighbors Societies learn how to efficiently and profitably move money from one end of town to another and from one end of the world to the other Moving money for other people has a long history in every region of the world

Remittances are Privately Held Assets Remittances are like a “salary” for the receiver Remittances cannot be used alone for development because they are at the discretion of the receiver Remittance Flows are NOT the same as Foreign Aid or Economic Development Funding and cannot replace it Remittances can create leverage for Economic Development Aid and Vice Versa

Remittances as Economic Development Lever – Why Now? Why are we only now noticing that these transfers can be used as economic development tools?  Shift in use of some remittances What do people spend their remittances on now?  Many remittances are used for subsistence, short term one-off How do sender’s requirements differ from receiver's needs?  Sender’s may be looking to invest some of their remittances in their home countries for when they return home

The Challenge to Leveraging Remittances - Time Duration: Turn a short term asset into a long term asset that can be leveraged further How do we get entities that finance long term transactions to be able to communicate with customers who have repeated short term assets? Mortgage Duration – years Remittances – Monthly, Quarterly, Annually

Remittances as Cash flows Treat remittances as cash flows Lend against cash flow – information based lending and not collateralized lending History and Projections of future flows Cash flow lending is not generally considered investment grade – how does that effect ability to create a secondary market? $$ Traditional Securities Bank Loans $$$ Monthly $$$ Quarterly $$$ Annually

Roles for the International Development Community Donors role is to mitigate risk for the domestic financial community Potentially provide financial strength behind remittance leveraged financing Work with domestic organizations like savings banks and government housing finance plans to also put some matching capital into loans