NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

As the flow of remittances has expanded massively in recent years, many in the private sector have taken advantage. While this has positive effects for facilitating formal transactions (rather than, say, having your cousin deliver money by hand), there has not been enough competition to keep prices reasonably low. Transfer services such as Western Union can take as much as 15% of the money a migrant worker sends his family in Nicaragua from the US. Rates this high hurt the ability of remittances to have positive development impacts and give senders incentives to transfer their money through informal networks.

Fresh off the presses, a new publication by the Foundation for Development Corporation argues for creative solutions to breaking this oligpolistic market open. In Remittances, Microfinance and Development: building the links, a slew of authors with experience in the field make the case for why MFIs should be in the remittances business. A telling excerpt gives the main gist of the book:

“Migrant workers and their families need financial products which make it easier to send, receive and manage international money transfers, and to save and invest their income. Microfinance is well-suited for remittance-linked financial services, particularly among poor and geographically isolated populations. Because they are poor, many remittance recipients fall outside typical bank client profiles, but are well within the market segment targeted by microfinance agencies. By extending remittance-linked services to the ?unbanked?, microfinance has the potential to promote broad-based development while vastly expanding the volume of remittance flows mediated through financial institutions.”

This is a timely point to make; if the people who need remittances the most either cannot obtain a bank account or cannot afford the transaction fees, MFIs, which are already oriented toward serving the BOP, should get involved. Many countries, including the Dominican Republic, Barbados, Haiti and others rely on remittances as one of their top sources of income- if more of this money can arrive to the most underserved communities, the economic impacts could be tremendous. The best thing that could happen for the market right now is for more organizations like the institutions mentioned in this publication, telecom companies and online services like Paramipueblo.com to get involved.