The Pew Hispanic Center and the Multilateral Investment Fund of the Inter-American Development Bank released a study that describes the means that U.S. Latino immigrants use to send money home to their families, and the forces that are shaping those decisions. The multi-billion dollar flow of funds is not only growing quickly but is also becoming more formalized as a increasing number of financial institutions try to capture a share of the market. This study explores the potential for further change and growth by examining how Hispanic remittance senders in the United States view the services they now use to transfer funds and their
openness to new methods. Their choices will have a financial impact on an international scale.
"For Latin America and the Caribbean, remittances now far outstrip all forms of Official Development Assistance from all sources; account for more than 10% of GDP in several countries; and currently equal about half of all Foreign Direct Investment to the region," said IDB President Enrique V. Iglesias.
The remittance process constitutes a mostly informal financial system involving more than 100 million separate transactions a year. "From an efficiency standpoint, the current system is far from perfect," Iglesias added, noting that total costs for sending remittances to the region were approximately $3 billion, more than 13 percent of the total amount transmitted.
"Costs per transaction have been reduced in recent years—but not enough," Iglesias said. "There is growing competition in the money transfer business—but still not enough." To better understand how remittance senders view the rapid changes in the money transfer industry, the Pew Hispanic Center and Multilateral Investment Fund retained Bendixen & Associates, a Miami polling firm specializing in the Latino population.
Bendixen conducted extensive interviews with 302 remittance senders in Los Angeles and Miami which focused on their understanding of the costs they pay now and their willingness to use new electronic banking products.
Among the key findings of the resulting study:
• Remittance senders are typically unaware of the full costs they pay to send money home and have made little effort to explore alternative methods.
• Once they become aware of them, senders are willing to consider using innovative money transfer products such as electronic banking services.
• Many remittance senders take a skeptical view of banks and other financial institutions based more on impressions than firsthand knowledge. Minimum balance requirements and transaction fees are major concerns.
• Undocumented remitters face an added obstacle. Banks have traditionally required U.S. identity documents to open a bank account, but that is now changing as a growing number of financial institutions accept ID cards issued by Mexican consulates.
"Remittance senders—most of them immigrants who work long hours for low wages— are both the generators of wealth and the prime consumers in this multi-billion dollar industry," said Roberto Suro, director of the Pew Hispanic Center. "Their decisions about how to manage their money will largely determine how the remittance flow evolves." Reducing costs to 5 percent of the amount remitted would allow some of the poorest households in the United States, Mexico and Central America to keep an additional $1 billion of their income in 2003, according to Pew Hispanic Center estimates. Between now and the end of the decade, the savings could amount to some $12 billion.
"These are tough economic times in Latin America, and reducing the costs of transferring remittances would provide important support in receiving countries," said Donald F. Terry, manager of the Multilateral Investment Fund. "That is why we are promoting programs with local private and public institutions throughout the region to make the remittance flow more efficient and improve access for migrant workers and their families to formal financial institutions."