Lessons from the APEC Remittances Initiative

Lessons from the APEC Remittances Initiative

Finance Forum, September 21, 2004

Raul Hernandez-Coss (FSEFI)

The APEC Remittance InitiativeTo encourage flows of remittances through formal channels

Best Practices to enhance the development impact of remittances

Shaping the Remittances Market by

Shifting to Formal Systems

Shaping the Remittances Market by

Shifting to Formal Systems

USA – MexicoRemittance

Corridor

USA – MexicoRemittance

Corridor

Canada – Viet Nam Remittance

Corridor

Canada – Viet Nam Remittance

Corridor

2004 2005SeptemberJulyJune NovemberApril

WB Financial Sector Remittances Program

Hawala 2 Conference

Publication

Second APEC Symposium

Additional Research

APEC ARS Initiative / APEC Remittances Initiative Follow Up

APEC ARS Draft

Report

2003

a) need for conducting bilateral analysis, for both the sender and the recipient remittance countries,

b) different degrees of development on the remittance corridors

c) presence of informal mechanisms that are linked to illicit activities

d) the need for a balance between regulations and responding to senders incentives

Lessons from the Case Studies

9,814

2,067

-

2,000

4,000

6,000

8,000

10,000

12,000Jo

rdan

El S

alva

dor

Turk

ey

Dom

inic

an R

epub

lic

Viet

nam

Serb

ia a

nd M

onte

negr

o

Col

ombi

a

Bang

lade

sh

Mor

occo

Egyp

t, Ar

ab R

ep.

Portu

gal

Paki

stan

Spai

n

Indi

a

Mex

ico

Top 15 Remittance Receiving Countries in 2002 (millions/ USD)

2,631

6,573

9,814

2,067

1,7541,7571,200

5,910

13,396

8,895

-

4,000

8,000

12,000

16,000

1999 2000 2001 2002 2003

Vietnam Mexico

1999–2003 (millions/USD)

Workers’ Remittance to Mexico and Vietnam

85%

45%

68%

135%135%

159%

148%

40%

34%

124%

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

1999 2000 2001 2002 2003

Vietnam Mexico

1999–2003 (percent)

Remittances as a Share of FDI

Operational Stages

First Mile

Increased accessibility to formal channels Financial awareness among migrants Market information Bilateral initiatives Harmonization of regulations

Regulated and supervised financial institutions appear to play a relatively limited role Viet Kieu and sending habits from Canada The role of ethnicity The need for licensing/registration

Intermediary

Greater competition Technology Innovative services and products The decline of IFT services The tendency to oligopoly

Widespread use of IFT systems Development of the Vietnamese market The technological imperative Potential impediments for RFIs.

Last Mile

More distribution channels Links between sender and recipient communities Gradual approach of regulators The banking approach to recipients Negative effects of remittances Creating rural distribution networks

Flow distribution and geography in Vietnam Anonymity as a Last Mile incentive Data and recording issues Lack of distribution channels Government policy and remittances.

Key Features for the Corridors

Impact of factors and incentives

IFT systems are faster and cheaper than formal systems.

Nascent Market

Nascent Market

Mature MarketMature Market

Cost and speed are critical, but once competitive prices and efficient channels are in place, competitors should explore other factors

Formal systems rely on expensive mechanisms not necessarily designed to facilitate remittance transactions.

•Use of Money Orders sent by mail.•Cash couriers•20 days

Sergio

Nascent

ChannelsOliverio

Mature

• Use of a Bank• 2 seconds

• He uses Money Orders delivered by courier service

Perceived Incentives in the Remittance Process

APEC Framework Perceived Incentives

First Mile

Last Mile First Mile Last Mile

Anonymity/Secrecy Δ Δ

Cultural Familiarity Δ Δ Personal Incentives

Personal Contacts Δ Δ Δ Δ

Dispute Resolution

Accessibility Δ Δ Δ

Class Discrimination

Customer Service Incentives

Versatility/Resilience

Speed Δ Δ Cost Δ Δ Secondary Benefits Δ

Economic Incentives

Legal/Regulatory Environment Δ Δ Δ Δ

Information to the Market

Nascent Market

Nascent Market

Mature MarketMature Market

Authorities and investors should initiate research on the characteristics and potential of the remittance corridor

Authorities should institute mechanisms and standards for systematic information gathering that are detailed and organized

Businesses are looking at remittances flows as an opportunity to create land and home investment opportunities for the remitter

Mono-product platforms, such as those implemented by MTOs, are very limited for products and service innovations.

Multi-product platformMono-product platform

Regulations should be a tool

Nascent Market

Nascent Market

Mature MarketMature Market

Regulations should be applied transparently and consistently to result in a level playing field for market competitors.

Standards should be consistent.