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Leveraging remittances for microfinance

Dilip Ratha's picture

   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.

Mobile money platforms for agricultural micro-insurance

Sanket Mohapatra's picture
   Photo © WorldBank/Flicker

An Economist article discusses how a “private-private-NGO” partnership between Safaricom (the parent company of Kenya’s mobile money transfer service M-Pesa), an insurance company, fertilizer and seed companies and an agricultural foundation has produced an innovative micro-insurance scheme in Kenya. The crop insurance scheme, called “Kilimo Salama” (safe farming in Kiswahili), collects insurance premiums using M-Pesa when farmers purchase seeds and fertilizers, and in the event of adverse weather, makes payouts directly into the M-Pesa mobile phone accounts of the farmers. 

US banks’ actions to close small money transfer companies’ accounts may reduce legitimate options for sending money home

US-based migrants may find it much harder to opt for formal channels in sending money to needy family members overseas because of an increasing tendency on the part of a number of US banks to close down the accounts held by small, niche money transfer companies—including many that are in full compliance with licensing, auditing, customer reporting and other regulatory requirements of US state and national authorities.