Technical Working Level Meeting

Realizing post-2015 aspirations for migrants and migration

(16-17 October 2014)

REDUCING MIGRATION COSTSMANUEL OROZCO

INTER-AMERICAN DIALOGUE

Despite that technology, social values and material resources have increasingly spread out across nations, foreign labor mobility continues to face inequities unique to its condition.

Development, a condition that brings opportunities of prosperity for all, continues to lack in the context of international labor migration.

This reality is even more significant given the fact that there are intersecting spaces where migration connects with development, either during departure, at the time of migration or upon return.

Take the migration process, immigrants and families participate in a value chain that has important implications for development because they promote prosperity through market expansion, access, or asset building (through remittances).

Engagement

Immigrant economic activity

i) Host country i) Intermediation i) Home country

Activity associated to …Family remittances The decision to remit a

share of the workers’ income

the work of remittance service providers

Effect of remittances on family household economics

Entrepreneurship the decision to create or maintain a minority owned business

the enabling environment to form a business

Creating a micro or small enterprise by an immigrant or family member in homeland

Investment The effort to allocate capital for a particular investment or business venture

the investment environment Allocating capital for a particular asset or venture in the hometown

Philanthropy Raise funds to donate to the hometown

Transfer and donation implementation mechanisms

Funds received and projects implemented

Consumption Consume home country goods or services related to the homeland

Supply chain of products and services

Production chain of home country goods

Knowledge transfer

Information and skills acquired as development tools

Institutions forming skills in the knowledge economy

Methods to share information, knowledge and skills that enhance local and national development

But such process does not occur evenly and without substantive economies of scale. There are market and policy failures inherent to an inequitable treatment of migrant labor.

To that effect is important to identify solutions that integrate market and policy strategies into migration livelihood as a matter of ensuring equity among migrants and families.

These problems deal with poor regulations, competition, among other issues, but there is now a wide range of lessons on solutions that can be brought to scale.

The experience of remittances as it intersects with development is one important case

Policy Issue

Immigrant economic activity

Policy problem interpretation(what to make out of the issue)

Policy approach (how to address the issue)

Policy initiatives (what has been done so far)

Impact

A. Remittances marketplaceRegulatory environment: barriers to entry, foreign currency deposits; AML, and other rules

Barriers to entry Regulatory or policy reform

Laws on exclusivity, regulations allowing non-banking to perform transfers;

RSP operating costs drop; Financial access increases

Type of intermediaries: licensed-unlicensed

Strong informal networks

Lower operating costs Introduce easier licensing;

Small businesses are formalized or disappear

Market intermediation: competition on the payout

Uncompetitive markets with expensive transactions

Increased competition Bring new players, streamline technologies;

Cost of remitting drops 3% in 3 years

A. Remittances and Financial inclusion issuesSavings capability, money management and financial access

At least half of recipients hold (an average of US$600) savings but do so informally

Financial inclusion: financial advising; products; Accessible technologies

Financial education;Product designed;Front end electronic instruments

Savings mobilization among 20% through education;

Banking services to remittance recipients: scope (loans, payments, savings) and depth (geographic dispersion)

Two thirds of recipients do not hold bank accounts or own other financial products

Financial access: increase presence of banking institutions; target population

Market new products;Confidence building

Increased bank account ownership or new products among recipients by commercial banks, credit unions, MFIs, postal offices;

A. Entrepreneurship and InvestmentMigrant and Family Entrepreneurship Initiatives

Barriers to entry Financial access through credit;Business advice

Value chain integration; Business partnerships

Formalization of businesses with up to 10 new jobs; increased revenues

Migrant capital investment (ventures, bonds, etc.)

Barriers to entry Access to partners, investment funds, and other vehicles

Matching small investment programs; Bonds

Limited to few investments and capital raised

Other economic activitiesMigrant and Diaspora Philanthropy

Disconnected with development goals

Partnerships; Technical assistance to improve project design

Matching programs Improved local development impact from no more than 20 projects with limited scope

Migrant home country goods consumption

Business and distribution networks are limited

Value chain integration; Technical advice; partnership promotion

Technical assistance to improve quality; Assistance to access to wider markets

Increase output and distribution by 20% among those benefiting

Remittances are instrumental to financial access in a number of ways: Because the cash transfer is typically relying on a financial institution, people are

accessing the system; The flow of money increases disposable income which in turns increases savings; The management of income improves decision making in ways that facilitates

financial access (people have needs);The instrumental role of remittances can thus be leveraged to further financial inclusion in at least four ways: Expanding payment networks through a wide range financial institutions or

instruments Ensuring payment networks are cost efficient; Ensuring that remittance recipients are able to mobilize the savings they accrue into

accessible, open and regulated institutions; Enabling tools that motivate (pull) recipients to access and use a range of financial

products needed to increase assets.

The instrumental role of remittances in relationship to finances and financial inclusion

Although many people who receive remittances are able to save, a small share do so in the financial system. There is a substantial wealth that is in the informal economy;

Savings and financial education as strategy of financial inclusion

Amount received in remittancesRegion

CountryPeople who save (%)

Formally saving (%)

Do not save Save(US$)

Amount of savings

Caucasus Georgia 48 7.3 4000 3300 1500Azerbaijan 80 23 5054 6276 150Armenia 47 17.2 3517 4186 2468Moldova 72 19 2167 5179 1478

Central Asia Tajikistan 33 32.3 1747 2299 498Kyrgyzstan 38 14.3 1744 2244 1636Uzbekistan 42 31 2295 2300 980

Africa Morocco 66 21.3 850 1200 1749Senegal 53 3.1 2600 1800 206

Latin America and Caribbean

Guatemala 69 40 3036 4107 900Jamaica 79 65 2192 3899 1455Mexico 59 11.9 2431 3190 650Nicaragua 43 17.4 2735 3509 500Paraguay 63 18.8 963 1363 250

Through Dialogue programs, over 200,000 people in 13 countries worldwide have received financial education that promotes budgeting, saving, and the informed use of financial products.

From April through November 2013, the Dialogue carried out a Financial Literacy Project in Mexico. The project, which was implemented in partnership with La Asociación Mexicana de Uniones de Crédito del Sector Social (AMUCSS), provided financial counseling to over 9,000 people in five Mexican states, encouraging money management, formal savings, and the informed usage of financial products and services.

Approximately 25% of people who received the financial counseling went on to acquire a financial product, and 40% said they plan on using the new savings methods they have learned.

The project attracted over MX$4,628,760 (US$352,807) in deposits. Participants also purchased over MX$94,079 (US$7,170) in insurance and MX$9,951,372 (US$ 758,500) in credit.

Financial advising among recipients in Mexico: a strategy on economies of scale through financial inclusion

Number of New Transactions

New checking accounts

New savings accounts

Savings account deposits or reactivations

New CDs New Children’s Accounts

New Loans New Insurance Policies

3391 766 113 420 25 86 1226 755% of Total 23% 3% 12% 1% 3% 36% 22%

New Financial Activities among Clients (Numbers and Percentages), 2013

Individual financial counseling to migrants and remittance recipients

Partnerships with local banks, credit unions or MFIs.

Use of pedagogical tool on money management;

Strategy that forms, informs and transform;

Data tracking method to profile financial behavior;

This approach has proven successful in promoting financial empowerment and inclusion among participants.

The partnership with local financial institutions facilitates saving in the formal financial system, which offers important benefits for individuals and societies alike.

The Dialogue model promotes savings mobilization by transforming transactional clients, such as migrants and remittance recipients, into bank account deposit holders.

The model