migration

Photo © WorldBank/Flicker

One of the four important pillars of the international remittances agenda is leveraging remittances for imporoving access to finance for households. There are several angles from which this issue can be approached, some good, some not so great.

One hears of a few anecdotes and pilot programs to link remittances to financial inclusion for households, but the scale of such programs to date remains limited. Some early evidence (from 2004-2005) from the World Council of Credit Unions showed that when people enter a credit union branch to send or receive remittances, remittance senders and receivers both end up opening an account and leave some money behind for use later. I have heard of similar evidence, albeit anecdotally, from many other organizations involved in money transfer business. Kenya's MPesa also creates deposits to the extent there is a lag between a deposit by a remitter and withdrawal by the beneficiary. These deposits do not earn any interest rates, presumably because MPesa (and parent Safaricom) wants to avoid coming under Banking regulations (so the interest earnings are put in a trust fund). Universal Postal Union is also working with a remittance software platform to provide remittance services through member post offices, earn remittance fees and at the same time cross-sell postal saving products. World Saving Bank Institute is trying to do the same with member saving banks. Also several microfinance agencies are trying earn remittance fee income. An early scheme to link remittances to microsaving was by Cemex, the cement company from Mexico which was trying to encourage microsaving from migrants for building houses in installments. Later a Bancomer affiliate piloted a scheme in New York suburbs to provide housing finance to migrants who send remittances through its branches. I have heard of two other products linked to remittances were a pilot to provide (a) car loans to migrants in the US for purchasing cars in Mexico and in the Gulf for cars in the Philippines, and (b) life insurance to remitters to guarantee continuation of remittance flows for a 12 or more months in the event of remitter's death.

Poor people are not used to receiving customized services from businesses that are usually vying to serve rich customers. Every now and then, however, one comes across an example that defies convention. The example I have in mind is the story of Esterelle, a remittance agent who goes to the migrant camps in Abu Dhabi to provide remittance services to poor migrant workers from Bangladesh and the Philippines and other countries. In a story published today - Bringing it all back home - John Gravois describes how Esterelle provides not just a standard remittance service, but actually deposit and loan services customized to the needs of the poor individuals. And she does it for profit, not charity (even though the story hints at this motive). Charity is not sustainable; profit motive is.

This example is also an exception to the notion that services for the poor must rely on state subsidies and earmarks. When small numbers add up to create large profit opportunities, market competition can pressure businesses to provide customized services for the poor at market prices. Such services are likely to be more sustainable over time than those relying on public or private subsidies.

A laudable measure that will benefit Haitians, more than any other aid and assistance, is the decision by the United States to grant them temporary protected status (TPS) for 18 months. This will allow about 200,000 Haitians currently residing in the US without proper documents to live and work here legally, without a fear of deportation. It would also allow them to send money home quickly and efficiently through formal remittance channels.

Haiti receives between $1.5-1.8 billion in remittances each year (some estimates are even larger, over a half of its national income).  If the TPS resulted in a 20 percent increase in the average remittance per migrant, we would expect an additional $360 million remittance flows to Haiti in 2010! What is more, if the TPS were to be extended once beyond the currently stipulated 18 months – the extension is almost certain to happen, judging by the history of extensions of the TPS for El Salvador, Honduras, Nicaragua, Somalia and Sudan – additional fund flows to Haiti would exceed a billion dollar over three years. That would be a billion dollar of financial help coupled with goodwill and advice, tailored to the needs of the recipient. Financial help in the form of remittances from family members abroad is always the first to arrive in times of distress. Remittances to Haiti this year will surge, as they have done whenever and wherever there has been a crisis or natural disaster (see paper).

Wish you a new year of happiness and prosperity.

Recent events have once again confirmed that security threats will remain a recurring theme in this new decade as in the past decade. To me, security and development seems more of a global public good issue than, say, conflict and development, and has more practical implications in the immediate term than, say, climate change and development. Yet I have not read much on the global development implications of the new security regimes. There is a bit of literature on conflict, but not much on the global development implications of the current security concerns.

Tighter security post-911 has made international travel and trade more cumbersome, costly and time consuming than before. Efforts to track the terrorists by tracking the flow of financing has greatly increased the need for new financial laws and documentation to open a bank account, get a car loan, or simply send money. All countries have increased the scrutiny of foreigners’ legal status and intentions. To what extent such tighter measures have impacted different aspects of globalization – for example, aid, trade, investments, tourism, study abroad, sports, the flow of information and the sharing of technology?

I was in Dubai two weeks ago to attend a meeting of the World Economic Forum. Our hosts, the Government of Dubai, told us that Dubai had turned the corner – hotel occupancy was up, airline traffic had recovered, and Burj Dubai, the tallest building in the world was complete. And then the story broke – Dubai World was having difficulty repaying creditors. 

Photo ©istockphoto.com

I have been to Dubai twice this year. In early 2009, I learnt that migrants were not returning en masse as reported in the media at the time. They have stayed on instead, even at the cost of losing legal status in many cases.  This time conversations with some Bangladeshi construction workers at a labor camp brought out some interesting facts: Because new construction is slowing, maintenance is doing well. Migrant workers in maintenance and hospitality are doing better than those in new construction and finance. Many migrants are moving on to Abu Dhabi and other oil-rich Emirates and neighboring countries where huge infrastructure investments are going on. Many are coping with the crisis by cutting consumption and sharing accommodation. Many have sent their families back home, so the funds spent in Dubai are now remitted home.

Many migrant workers, from Bangladesh in particular, are somewhat stuck in Dubai because they cannot afford to return. It costs about 12,000 dirhams to pay recruitment agencies and travel costs. At a monthly income below 900 dirhams – no overtime these days – a construction worker can easily take three years to save enough to repay recruitment costs. Too bad there is a crisis – they just can’t risk returning home. So many are entering into creative arrangements (e.g., taking unpaid leave) with employers to simply wait it out in Dubai.