Challenges and opportunities for the financial inclusion of remittance recipients

1. Challenges and opportunities for the financial inclusion of remittance recipients Perspectives from ACCION’s work in remittances Monica Brand, Vice President, Marketing & Product Development Unit Maria Jaramillo, Senior Director Remittances Program October 19th, 2007

2. Content: ACCION’s work in Remittances Opportunities to bank recipients Challenges to bank recipients

3. ACCIÓN International, a private nonprofit organization founded in 1961, works to reduce poverty by providing financial services through its network of partner financial institutions to the millions of working poor throughout the world ACCION International Mission:Give people the tools they need to work their way out of poverty Means:By building strong microfinance institutions Core Operating Principles:Social impact and scaleSustainabilityLink to commercial markets Pervasive, permanent impact

4. Where ACCION Works 30 Microfinance Partners in 23 Countries Asia Africa MENA Americas Argentina BoliviaBrazil (2)Colombia (3)Ecuador (3) El Salvador Guatemala Haiti India China Vietnam Honduras Mexico (2)NicaraguaParaguay (2)PeruUnited StatesVenezuela Angola Benin Cameroon Ghana Mozambique Nigeria Senegal S. Africa TanzaniaUganda Zimbabwe Egypt Morocco Pakistan Actively negotiating

5. ACCION’s goals and work in remittances: Goal: Improve the financial options available to recipients by facilitating access to financial products, particularly products that can help families promote productive use of remittances ACCION has been working in remittances in the past five years to: • Identify market opportunities and develop financial products for recipients • Implement innovations such as the use of pre-paid card for remittances • Support commercialization and cross-sell strategies including the use of financial literacy tools • Recommend and support the development of strategic alliances between microfinance institutions and money transfer companies to offer remittance services

6. Content: ACCION’s work in Remittances Opportunities to bank recipients Challenges to bank recipients

7. Unpacking the potential to bank recipients depends on segmentation Recipients Migration life cycle Relationship w/ immigrant

8. 1. Segmenting the market by the stage in the immigration life cycle helps determine how remittances are being used: Segment I Segment II* Segment III Attain stability for immigrant and family Pay debts House in country of origin Increases assets Supports family Decision to settle down in the US or return to country of origin Increase of goals in USA 1-1.5 years 1-2 years 2-5 years 6-10 years >10 years Process in country of origin Purchase of house, land or construction Financed with savings Purchase of 2nd House (as investment or for family) Home Improvement Car/ Business (Low planning for future goals) • Use of loan sharks • Family pays until immigrant is stable Recipient manages funds for household expenses Purchase of appliances Sell of homes in country of origin Family divided Insurance Home Improvement Transactional Acct Transactional Accounts Savings Accounts Home Improvement

9. 2. Segmenting the market by the relationship between the immigrant and the recipient helps determine how remittances impact household’s budgets: • Who the immigrant and the recipient are determines the type of remittances that are being sent, why they’re sent and the impact that funds have in the recipient’s household budget. • This analysis helps determine financial needs, financial products that can be linked with remittances and the type of strategy needed to bank each segment. Financial Opportunities: Potential for products to help administer use of remittances Greater potential to link with savings and investment products

10. Recipients: Transactional Accounts: Initial Phase: low cost accounts to help manage use of remittances b/c savings balances are low Direct deposit into accounts with cards>> gives convenience and security to recipients Savings Account: Programmed savings for specific future goals: Education, emergency, home improvement Home Improvement: Considering remittances as additional source of income for households Microcredit – limited opportunity: Majority not entrepreneurs (only 21%) Approx 5% channeled for businesses Start-up loans: interest of recipient to start a business with the help of remittances. Product not currently offered by Microfinance Institutions Banking recipients requires entering new market segments with emphasis on savings, home improvement, insurance. Less potential with microcredit Immigrants: Insurance: Help immigrant protect family back home. Health expenses constitute 3rd-4th use. Remittances insurance, life insurance and repatriation of immigrant Mortgages: adapted to way immigrants want to buy a house, high % financed with savings

11. Content ACCION’s work in Remittances Opportunities to bank recipients Challenges to bank recipients

12. Direct marketing and soft-sell needed: • A variety of creative marketing strategies have been employed to promote remittance-linked financial services • Dedicated tellers (Cooperativa Salcajá), customer service officers (Integral), as well as independent sales force (BancoSol); • Mother's day Campaign to attract savings (Banco Solidario); • stamp in remittances receipts to promote products (FAMA); • meetings with the community (AMUCSS); • Time needed: So that client builds trust in institution • To create awareness of potential that remittances funds have • To help qualify clients for loans: frequency in receiving remittances • Good customer service: shows that institution wants to establish a long-term relationship with client

13. Key challenge: making banks approchable to people that have not used them or have had negative experience using them • Barriers to banking go beyond attracting people to come into a bank to pick up a transfer. Using remittances to overcome these barriers presents challenges • Real barriers: less convenient>>long lines; not open on weekends • Perceived barriers: bureaucratic process; costs: remittances perceived as more expensive; “globalizing” based on savings accounts which have high maintenance fees • Work needs to be done on the Client-value offer connection • Strong marketing andcommunication strategies needed relying on client education to overcome barriers, create this awareness of potential that funds can have for them, promoting good understanding of products.

14. Questions or follow up: • Remittances project: Maria Jaramillo, Senior Director Remittances (Washington DC office: 202/393-5113 x1626 or mjaramillo@accion.org) • General questions: Monica Brand, Vice President, Marketing & Product Development Unit (Washington DC office: 202/393-5113 x1621 or mbrand@accion.org)