Nairobi07052010

Microfinance, Remittances, and Development:INAFI Members’ Response

Associated Session

2Nairobi, April 7, 2010

Remittances, Microfinance, and Development:

INAFI Members’ Responses

Moderator: Akin Akintula, Board member, INAFI International

Speaker: Leila Rispens-Noel

Senior Advisor, INAFI InternationalResource Persons/MFI ExperiencesAtiqun Nabi, INAFI Bangladesh/INAFI AsiaAdjiby Wakil, Vital Finance (Benin)

What is INAFI?


• Established in 1995 in Cusco, Peru• A global network of 313 (as of 2007) microfinance

institutions• Serving about 26.7 million clients in Africa, Asia,

and Latin America• INAFI Africa composed of 50 member organizations

spread in 24 countries serving a client base of 4.2 million people, typically peasant farmers, artisans, and micro/small-scale entrepreneurs.

Vision


INAFI envisions a world where the poor are empowered and given the opportunity to enjoy sustainable livelihood through affordable alternative financial services and active participation in their own development.

A world where even the poorest of the poor enjoy life with dignity, sufficient food, and income security to meet basic needs including shelter, clothing, healthcare, and education

Thematic Programs


• Micro-insurance/Rural Finance• Food Security• Social Impact Measurement (SIM)• Global Remittances/Migration and

Development• Gender Mainstreaming/Women Economic

Empowerment• MDGs

Remittances in 10 Selected SSA countries


MFIs and money transfers


MFIs paying remittances (%)

Region

Total

Africa Americas Asia Does not pay remittances 61% 61% 69% 63%

Pays remittances 39% 39% 31% 37% 100.0% 100.0% 100.0% 100.0%

Source: Orozco, Manuel. Interviews to 166 MFIs worldwide.

MFIs and money transfers


• The African remittance market exhibits a low level of competition and has limited payout presence in rural areas.

• Two major money transfer companies control 65 per cent of all remittance payout locations.

• Exclusivity arrangements severely limit competition and create barriers to entry.

• More than 20 per cent of the people within the reach of MFIs receive remittances. Yet MFIs currently represent less than 3 per cent of remittance payers.

IFAD, Sending Money Home to Africa

Factors which influence MFIs’ effectiveness in delivering products


• Geographic location – proximity to remittance receiving communities

• Market position – ability to compete with remittances market

• Provision of finance services - ability to provide a broad-range of financial services and products

• Systematic information management – effective data management

• Technology – effective channel for data gathering, efficient wire transfers, and data transmission

Source: Orozco, M. and Hamilton, E., MFI Intermediation: Issues and Lessons

Issues to be addressed in relation to financial inclusion and remittances


• Informality (e.g. poor international payment infrastructure in rural areas, regulatory environments) that prevent rural banking and financial institutions from making inbound and outbound money transfers, or individuals from making outbound payments.

• Lack of competition on remittance payments is another problem faced in Africa. Exclusive agreements is that they restrict competition by preventing agents (e.g. retail stores, MFIs) from contracting with other money transfer operators.

• Low financial access. Only one per cent of the 250 million people in Africa have access to financial services. High transaction costs and lack of accessibility of affordable remittance channels.

Advantages of MFIs


• Unique distribution channel (through microfinance banks, cooperatives and NGOs)

• Opportunities to transform the remittances into productive activities (savings, credit, micro-insurance, housing loans, productive investments, etc.)

• Knowledge of clients' needs and presence in rural and urban areas. MFIs contribute to creating wealth and economic empowerment to those who have no financial access from formal banking

• If enabled, MFIs can contribute to the financial inclusion of millions of people due to its high presence in rural areas

INAFI Members’ Responses


• International Conference on the Impact of Remittances in Latin America: Microfinance as an Alternative Remittance Channel - September 22-24, 2005, Zacatecas, Mexico

• International Conference on Converging Initiatives and Best Practices in Harnessing Migrants’ Philanthropy, Investments and Remittances for Local Economic Development - May 23-27, 2006 in Tagaytay City, Philippines

• INAFI Global Conference on Microfinance, Remittances and Development which will be conducted on November 7-9, 2007 in Cotonou, Benin

Some initiatives


• INAFI Bangladesh - ‘Institutional Support for Productive Utilisation of Migrant Workers Remittances’ with funding from Remittance and Payment Partnership-RPP program of DFID and Bangladesh Bank. The objective of the project is to To promote and provide enterprise development and business development services to the remittances recipient families of Bangladesh.

• BASUG-INAFI Bangladesh Remittance Project 2009 whith

supported Oxfam Novib, Netherlands. BASUG is a Bangladeshi migrant organisation in partnership with Uddipan, Shakti Foundation, and WARBE

Some initiatives


FEDECREDITO - FEDECREDITO is a wholesale financial institution, founded 64 years ago to offer economic assistance to entrepreneurs of micro, small and medium enterprises and to the workers of El Salvador. Fedecredito launched a project to promote financial democracy and provides remittance payout services

Policy Gaps


• The need for strategies to increase competition in money transfers and the payment of remittance flows.

• Development policy to support and capacitate microfinance institutions to get involved in the market for money transfers, and to allow MFIs to play a greater role in money transfers and potentially in deposit-taking

• Help to inform and meet the financial preferences (needs and wants) of migrants have in their home country

• Capacity building of MFIs and their staff to enhance their knowledge of new services, integrate new technology and ensure regulatory compliance (KYC).

• Capacity building for immigrant associations (financial literacy, giving investment options and enabling environment), providing matching fund, active engagement of diasporas in policy-making process in the field of migration and development, support in strengthening transnational networks of diasporas, link with MFIs, etc.

Recommendations


• MFIs to build sustainable partnership with diaspora organizations by building confidences and raising awareness to make remittances work for development

• MFIs and diaspora organizations to collaborate in lobbying for an appropriate regulatory environment in money transfer, capitalizing microfinance development, and contributing to sustainable development

• INAFI member organisations lobby for the rightful recognition of diasporas’ contribution to development

Challenges Ahead


• Global economic crisis resulting to reduced amount of money being sent by migrants

• Confidence building between immigrant associations and MFIs

• Regulatory measures/legal barriers• Capacities of MFIs to deliver remittance-based

products e.g. communication facilities and technology• Development of relevant products and services which

respond to the needs of remittance senders and receivers.

Discussion 1


What is the role of microfinance in harnessing the development potnetials of remittances? What is the added value of MFIs in leveraging remittances for development practicularly in the rural areas? What are the existing practices?

Discussion 2


What are the obstacles that prevent MFIs from participating in the remittance market and in providing remittance-based products and services? What types of support MFIs need in developing remittance-based products and services?

Experience in Africa.

Discussion 3


What appropriate steps MFIs should undertake to maximise the potentials of remittances? How do we link up MFIs and diaspora organizations or hometown associations?


THANK YOUwww.inafi.org

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Nairobi07052010