Daniel Rosas almost gave up. The US credit crisis had
ravaged the construction industry in Durham, North Carolina,
and the undocumented worker from Pahuatlán in the
Mexican state of Puebla was barely able to send a dollar home
Then in November, just as he was about to cut his losses and
head home, his wife Alma Delia Aguilar got a call. He
said things were starting to get better again, she said.
That there was work. By January, Rosas was
regularly wiring her cash again.
With the US suffering a devastating recession last year,
remittances sent home by migrants to their relatives in Latin
America and the Caribbean plunged as much as 15% in 2009, the
worst ever recorded decline, sinking families across the region
Now, as the US economy starts to recover, the main
international institutions monitoring the flows say the
declines are moderating and are predicting remittance levels
will remain flat at just under $60 billion or
even see a single digit increase in 2010.
Youre not seeing these huge drops from month to
month, says Greg Watson, a remittance specialist at the
Multilateral Investment Fund (MIF), a member of the IDB group.
We think were seeing the bottoming out of the
drops, and well probably see a small growth this
In and around Pahuatlán, a lush coffee-growing town
cradled between mountains in Mexicos Sierra Madre,
anecdotal evidence seems to bear out the data.
The economy here revolves almost exclusively around money
sent home by migrants living in Durham, NC. Just a few months
ago, say locals, the mood in town was universally bleak. But
while some households and businesses say things are still
getting worse, a significant few are now noticing an
In San Pablito, an outpost of Pahuatlán scattered
across a steep mountainside, part-time mayor and butcher Jose
Santiago Lopez says some families who cut out meat altogether
during the worst of the crisis are now adding it to their
menus, albeit once a week.
Pahuatláns cement vendor says sales are still
terrible people arent resuming their home
improvements yet. But the small clothes boutique across the
street, on the other hand, has noticed customers venturing in
Owing to different methodologies, total Latin American
remittance estimates vary wildly among the main monitoring
institutions the MIF, the World Bank, the UNs
International Fund for Agricultural Development (IFAD) and
Washington DC think-tank the Inter-American Dialogue
even though they are mostly in agreement over the wider
While the 2009 decline was dramatic, experts have been
encouraged by the relative resilience of remittance flows
during the credit crunch.
There was never a global crisis before, says
Dilip Ratha, the lead remittance expert at the World Bank.
We knew that if there was a financial crisis or natural
disaster in a country that receives a large amount of
remittances, then post crisis remittances go up, he says.
What we didnt know was what happens in a
synchronized global crisis, especially one that begins in the
major destination countries. Remittances do not fall as much as
private capital flows do.
That stability has a lot to do with the depth of the
commitment migrant workers have to their relatives back home,
says the MIFs Watson, citing a study last year that
showed a quarter of unemployed migrants in the US were still
sending money back proof that spending on remittances
was not discretionary.
Its not like, I have $200 dollars left at
the end of the month, Im going to send it to my
grandma, says Watson. If Im unemployed,
Im going to tap my savings. Im going to pick up odd
jobs. If Im already employed, Im going to take a
second job. Im going to cut back on my own expenditure.
The reason for the migration is sending money home, so
thats the first payment that goes out the door, not the
It will likely be a long time until Pahuatlán, and
thousands of places like it dependent on migrant cash across
Latin America and the Caribbean, have real reason to celebrate.
Most economists say that with the US economic outlook
uncertain, it could be years before remittances to the region
rebound to 2008 levels, and some say it may be premature to
talk about growth at all.
Robert Meins, a remittance specialist at IFAD in Rome,
points out for example, that Mexico, Latin Americas
largest collector of remittances by far, received only $1.32
billion in January according to the latest central bank figures
nearly a 16 % drop year-on-year and the countrys
lowest monthly dollar total since February 2004.
The number of downside risks outnumber the upside
risks, he says. There has been no major change in
US immigration policy, the economy isnt getting better,
and the construction sector has seen a drop in how badly
its declining, but it hasnt improved
significantly. With those risks in mind, experts in the
field are busy chasing strategies and new technology that can
make remittances cheaper to send, make them go further when
they arrive at their destination, and hopefully turn them into
a catalyst for development.
The science of remittance economics is barely a decade old,
but from the outset, experts who cut their teeth in Latin
America have been at the forefront. One of the pioneers,
Nicaragua-born economist Manuel Orozco, first began studying
the phenomenon in the mid-1990s, looking at the impact of
migrant money sent to Colombia, Guatemala, El Salvador and
Nicaragua. All were then either mired in brutal civil wars or
just emerging from them.
Before the advent of remittance transfer companies such as
Western Union, money was sent back through human
mules, bank wires that took three weeks, and later,
money orders. Data was at best hard to come by.
There was almost nothing available, says Orozco,
who works for the Inter-American Dialogue. We started by
looking at official statistics on migrants and on remittances,
then realized very quickly that there was no correspondence
between the two.
By conducting groundbreaking surveys in sender and receiver
countries and helping central banks improve the way they
collect data themselves, Orozco and his peers have alerted
governments to the sheer size of these flows, and
private-sector players looking for investment opportunities are
also taking notice.
The market is widely seen as the key motor for harnessing
the development power of remittances, but while global
institutions like Citibank are playing a major role,
development economists see small local banks and microfinance
institutions as their natural partners.
The wisdom of linking microfinance institutions to
remittances became clear in the aftermath of Haitis
devastating earthquake. Coordinated by the MIF, the US
Treasury, State Department and US armed forces, which helped
with cash drops, Haitian microfinance institution Fonkoze was
able to deliver life-or-death remittances to 34 remote villages
within days of the disaster, while the countrys banking
system lay literally in ruins.
While less dramatic, economists believe microfinance
institutions increasing use of remittance flows to bring
people into the banking system for the first time could have an
even more profound long-term effect on regional poverty
reduction. Studies show that if people put their money in bank
accounts, instead of stuffing it in their mattresses, they
manage it better and spend it more wisely. Institutional saving
protects peoples nest eggs from thieves and inflation and
opens the door to credit.
Research has also shown a strong correlation between
receiving remittances and saving money, and the IDB in
particular has been instrumental in backing projects linking
the two. In just one example, IDB-backed microfinance project
Apoyo Integral in El Salvador is taking remittance flows into
consideration in a home-grown credit-scoring system that has
enabled people to take out $2.3 million in loans for small
If youre smart and you build the right
incentives, you can convert remittances into deposits,
says Martin Holtmann, chief of microfinance at the
International Finance Corporation (IFC), the private investment
arm of the World Bank, which has a quarter of its $1.3 billion
total investment in microfinance, working in Latin America.
Converting remittances into savings is a particularly good
idea for microfinance institutions as it reduces their exchange
rate risk by weaning them off foreign currency financing.
You can make money, you provide additional services,
which your customers like, and you stabilize your funding
base, Holtmann says.
Local large to medium-sized banks as well as US titans are
embracing the idea. Financiera El Comercio, Paraguays
largest financial institution, for example, kicked off a
programme in December giving financial education to about
10,000 remittance receivers. By mid-February it had brought in
900 new customers and their savings, largely made up of
remittances sent from Spain.
It opens a new market for us, says Carlos
Heisecke, president of Financiera El Comercio. Its
a social service, but it has to be sustainable and it has to
A remittance pioneer among the big US banks, Citigroup uses
the Swift payment system to channel remittances for a low $5
fee from the Citi accounts of Ecuadorean migrants in the US,
straight into their relatives accounts in its local
partner banks Banco Solidario and Banco Bolivariano.
Often in neighbourhoods with significant immigrant
communities, you see someone taking cash out of an ATM and
crossing the street to wire money home, says Robert
Annibale, head of microfinance at Citi. In contrast, for
example, where Citi has forged partnerships with Ecuadorian
banks, sending remittances directly through us brings down the
cost to the sender, who is a banking client of ours.
Not all is rosy. While average sending commission fees, for
example, have come down in the region from more than 10% to
just over 6% in just five years, many experts say they could
still come down a lot more compared to other regions, and that
technological innovation like mobile phone transfers is also
lagging other parts of the world.
Latin America is a shining light, says Meins of
IFAD. It is my pleasure to watch what happened in Latin
America happen in Africa as well, where they are beginning to
realize how important these flows are to their
The ease of having money directly deposited has been a major
pull for thousands to open their first ever bank accounts
Customer Fabiola López, a 21-year-old indigenous
Otomí and single mother, used to keep the money her
parents wired her from Durham in an envelope. She always spent
it too quickly and on occasions lost it altogether. The
good thing about saving is that you keep your money safe and
you get interest too, she says. Now, even though her
parents have sent her less cash because of the crisis, through
better management of her finances shes been able to save
enough to begin building the familys first flushing
toilet, ready for when they eventually return. Soon she will
ask the bank for a micro-loan to help her buy materials for her
small traditional jewellery-making business.
Through its Envíos Confianza programme, AMUCSS, a
Mexican non-governmental microfinance umbrella group,
intermediates between US wire merchants such as Western Union
and 141 rural points of payment throughout the country.
Customers of their local microbank receive the remittances,
saving them a costly bus journey, fraught with the danger of
robbery, to the nearest large town.
Enviós Confianza national director Angel Lopez is a
rising star in Mexicos commercial bank system. He moved
into remittance microfinance hoping to make a greater social
impact. Visiting Lopez in the hillside hamlet of Xochimilco
outside Pahuatlan, he reflected on why he loves his job.
Before I used to spend all day selling people financial
products they didnt need, he says. Now I get
to give people products that can change their lives.