Making the 

Most of Family 

Remittances

Second Report of the 

Inter-American Dialogue

Task Force on Remittances

May 2007
Inter-American Dialogue

The Inter-American Dialogue is the leading U.S. center for policy analysis, exchange, and 

communication on issues in Western Hemisphere affairs. The Dialogue brings together public 

and private leaders from across the Americas to address hemispheric problems and opportunities. Together they seek to build cooperation among Western Hemisphere nations and 

advance a regional agenda of democratic governance, social equity, and economic growth.

The Dialogue’s select membership of 100 distinguished citizens from throughout the 

Americas includes political, business, academic, media, and other nongovernmental leaders. 

Twelve Dialogue members served as presidents of their countries and more than two dozen 

have served at the cabinet level.

Dialogue activities are directed to generating new policy ideas and practical proposals for 

action, and getting these ideas and proposals to government and private decision makers. 

The Dialogue also offers diverse Latin American and Caribbean voices access to U.S. policy 

debates and discussions. Based in Washington, the Dialogue conducts its work throughout the hemisphere. A majority of our Board of Directors are from Latin American and 

Caribbean nations, as are more than half of the Dialogue’s members and participants in our 

other leadership networks and task forces.

Since 1982—through successive Republican and Democratic administrations and many 

changes of leadership elsewhere in the hemisphere—the Dialogue has helped shape the 

agenda of issues and choices in inter-American relations.
Making the 

Most of Family 

Remittances

May 2007

Second Report of the Inter-American Dialogue

Task Force on Remittances

iii

Members of the Task Force....................................................................................... iv

Preface.............................................................................................................................. 1

Context .............................................................................................................................. 3

Reducing Transfer Costs: How Low Can You Go?......................................................... 5

Banking the Unbanked............................................................................................................. 9

Remittances and Development: Macroeconomic Impacts and the Role 

of Governments.................................................................................................................... 14

References.................................................................................................................................................... 16

CONTENTS
iv 

Members of the Task For

Ernesto Armenteros, Chief Executive 

Officer, Grupo Quisqueyana

José Francisco Avila, President, New 

Horizon Investment Club

Daniel Ayala, Senior Vice President, 

Global Remittance Services, Wells Fargo

Carl Braun, Chairman and CEO, Unibank

María Eugenia Brizuela, President, 

Banco Salvadoreño; former Minister of 

Foreign Affairs, El Salvador

Teresa de Velilla, Vice President, El 

Comercio Financiera

Ernesto Fernández Hollman, Chief 

Executive Officer and President of the 

Board of Directors, Grupo Financiero Uno

Michael Frias, New Alliance Task Force 

National Coordinator, Federal Deposit 

Insurance Corporation

Javier Gavito, General Director, BANSEFI

David Grace, Financial Services and 

Regulatory Manager, World Council of 

Credit Unions, Inc.

Moises Jaimes, President, Bancomer 

Transfer Services

Earl Jarrett, Executive Director, Jamaica 

National Building Society

Efraín Jiménez, Executive Projects 

Director, Federación de Clubes Zacatecanos

Irene Lee, Senior Associate, Annie E. 

Casey Foundation

Doris Meissner, Senior Fellow, Migration 

Policy Institute; former Commissioner, U.S. 

Immigration and Naturalization Service

David Myhre, Program Officer, 

Development Finance and Economic 

Security, Ford Foundation Office for Mexico 

and Central America

Linda Singer, Executive Director, 

Appleseed Foundation

Elisabeth Rhyne, Senior Vice President, 

Research, Development, and Policy, 

ACCION International

Gert Rosenthal, Minister of Foreign 

Affairs, Guatemala

Donald Terry, Manager, Multilateral 

Investment Fund, Inter-American 

Development Bank

Task Force Coordina

Manuel Orozco, Senior Associate, 

Inter-American Dialogue
iv 

Members of the Task For

Ernesto Armenteros, Chief Executive 

Officer, Grupo Quisqueyana

José Francisco Avila, President, New 

Horizon Investment Club

Daniel Ayala, Senior Vice President, 

Global Remittance Services, Wells Fargo

Carl Braun, Chairman and CEO, Unibank

María Eugenia Brizuela, President, 

Banco Salvadoreño; former Minister of 

Foreign Affairs, El Salvador

Teresa de Velilla, Vice President, El 

Comercio Financiera

Ernesto Fernández Hollman, Chief 

Executive Officer and President of the 

Board of Directors, Grupo Financiero Uno

Michael Frias, New Alliance Task Force 

National Coordinator, Federal Deposit 

Insurance Corporation

Javier Gavito, General Director, BANSEFI

David Grace, Financial Services and 

Regulatory Manager, World Council of 

Credit Unions, Inc.

Moises Jaimes, President, Bancomer 

Transfer Services

Earl Jarrett, Executive Director, Jamaica 

National Building Society

Efraín Jiménez, Executive Projects 

Director, Federación de Clubes Zacatecanos

Irene Lee, Senior Associate, Annie E. 

Casey Foundation

Doris Meissner, Senior Fellow, Migration 

Policy Institute; former Commissioner, U.S. 

Immigration and Naturalization Service

David Myhre, Program Officer, 

Development Finance and Economic 

Security, Ford Foundation Office for Mexico 

and Central America

Linda Singer, Executive Director, 

Appleseed Foundation

Elisabeth Rhyne, Senior Vice President, 

Research, Development, and Policy, 

ACCION International

Gert Rosenthal, Minister of Foreign 

Affairs, Guatemala

Donald Terry, Manager, Multilateral 

Investment Fund, Inter-American 

Development Bank

Task Force Coordina

Manuel Orozco, Senior Associate, 

Inter-American Dialogue


At more than $50 billion a year, family remittances are central to economic growth, national expenditures, and balance of payments for many countries in Latin America and 

the Caribbean. Remittances now exceed portfolio investment, foreign aid, and government or private borrowing, and they have proven to be remarkably stable, often increasing when economies falter. Perhaps most importantly, remittances are reducing poverty and inequality 

in the region, with most transfers going to low-income families.

Subsequent to the publication of the 2004 report of the Inter-American Dialogue’s Task Force on 

Remittances, All in the Family, the task force convened twice more to review developments in the field and 

explore a few mechanisms that would allow families to get more out of remittance transfers. Although the 

cost of sending remittances has decreased sharply over the last several years, further reductions can and 

should be achieved. Another challenge is to turn remittance senders and recipients into bank customers. Without changing the private and voluntary nature of remittance transfers, governments can create 

productive opportunities for their use. Finally, understanding the macroeconomic effects of remittances 

is essential in developing appropriate incentives to increase their contribution to national development.

The task force includes prominent political and business leaders; financial, technical, and legal experts; and representatives of sending and recipient communities. We deliberately set out to assemble a 

diverse group, but—more than anything else—we wanted participants who were knowledgeable about 

key aspects of migration and remittances, and who could speak with authority on these issues. We sought 

to craft recommendations for government and private efforts to bolster the value of remittances—for 

families, communities, and nations.

This report reflects the consensus of the task force members. Not every signer agrees fully with every 

phrase in the text, but each endorses the report’s overall content and tone, and supports its principal 

recommendations. Signers subscribe to the report as individuals; institutional affiliations are noted here 

for purposes of identification only.

We want to acknowledge the critical contributions to this exercise of the task force coordinator, 

Manuel Orozco, including his extensive and highly regarded original research on remittances. The 

members of the task force played an invaluable role in shaping this report, bringing their considerable 

breadth of experience and knowledge to our deliberations. We are appreciative of the financial and intellectual support the Inter-American Development Bank and the Annie E. Casey Foundation provided 

to this initiative.

Peter Hakim, President

Inter-American Dialogue

May 2007

Pref



Context

Latin American migrants to the United States 

now send upwards of $50 billion a year to their 

families and communities in Latin America. 

Remittances are second only to foreign direct 

investment among international flows of capital 

to Latin America and the Caribbean (see figure 

1). They exceed, by substantial margins, such 

other flows as portfolio investment, foreign aid, 

and government and private borrowing. For some 

countries, particularly in Central America and the 

Caribbean, they are larger than all of these other 

flows and foreign direct investment put together.

But it is not only the amount of money involved that makes remittances so significant for 

economic and social development in Latin America. For an economically volatile region known for 

its boom-and-bust cycles, remittance flows have 

been remarkably constant over many years—and 

may be responsible, in part, for the recent economic stability of so many Latin American countries. Remittances have grown markedly from year 

to year; moreover, when Latin American economies falter and growth diminishes, remittances to 

many countries tend to increase. Further, remittances, which are directed to low-income groups 

in most countries, are reducing poverty and improving social equity in Latin America, where income and wealth disparities are greater than in 

any other region of the world. And, unlike debt or 

imports, the largest share of remittances imposes 

no financial obligations on recipients. They are a 

family affair.

0

10

20

30

40

50

60

70

80

90

1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

1982

1980

Figure 1: Latin America and the Caribbean: remittances, investment, and aid

 $ Billions

Sources: World Bank Development Indicators (2006); Multilateral Investment Fund of the 

Inter-American Development Bank 2006, http://www.iadb.org/mif/.

 Remittances

 Foreign direct investment

 Foreign aid
 

These advantages notwithstanding, questions are regularly 

raised about whether remittances contribute to development, in 

Latin America and elsewhere. The argument is 

that remittances are inconsequential for development because they are mostly used to cover 

the cost of living. However, the opportunity for 

people to have a wider set of choices is precisely 

what development is all about. Remittances enable families to improve their diets, secure higher quality housing, dress better, and escape the 

drudgery of daily life. All of these activities have 

multiplier effects. More food has to be grown, 

processed, and sold. Houses have to be built or 

renovated. And even if the items purchased with 

remittances are imported, development still takes 

place. A television from Japan has to be delivered; a CD player from Korea must be repaired.

Furthermore, as discussed here, remittances 

are contributing substantially to national income 

in many countries. In Mexico, remittances are 

nearly 5 percent of national income; in several 

smaller countries, this proportion is even higher. 

For El Salvador, remittances are more than 15 

percent of national income; for Jamaica, nearly 

20 percent; and for Honduras, over 20 percent. 

A number of countries would fall into recession 

if remittances were curtailed, and growth rates 

would be lower in virtually every country north of 

Panama (see table 1).

In most countries, a large fraction of remittances are sent to rural areas, where incomes are 

generally far below national averages. And the majority of remittances in nearly all countries go to 

lower income families. Remittance recipients tend 

to have higher savings rates and spend more on 

education and health. Although research findings 

are not yet conclusive, there are good reasons to 

believe that remittances are making a substantial contribution to 

development, particularly to combating poverty and inequality.

The question the Inter-American Dialogue 

Task Force on Remittances was asked to address 

was what, if anything, could be done to enhance 

the development outcomes of remittances. In 

seeking to answer this question, four key issues 

were explored:

 How the costs of sending remittances could be 

reduced further, thus adding to the amounts 

received by recipients

 What could be done to increase the number of 

migrants and their families in Latin America 

who have bank accounts

 How Latin American and Caribbean governments could create more productive opportunities for the use of remittances by expanding 

and improving such public services as health 

and education

 What would be needed to better understand 

the macroeconomic impacts of remittances

In addressing these issues, the task force 

started with a central premise—that the sending 

of remittances is unambiguously a private matter 

and that the basis of any constructive public policy or program is acknowledgment of the private 

nature of these flows. Every member of the task 

force agreed that remittances should not be taxed. 

They also agreed that remittances should not be 

directed to government programs and that official 

agencies monitoring remittance use should not infringe on individual privacy. Governments should 

enhance the opportunities for private citizens—

through appropriate regulatory and policy incentives—to make productive use of remittances.

Sending remittances 

is unambiguously a 

private matter.


Reducing Transfer Costs:

How Low Can You Go

In the past several years, sending remittances 

from the United States to Latin America has become much less expensive (see figure 2). In the 

mid-1990s, the cost of sending $200 averaged 

about $30 (or 15 percent). By 2001, this cost had 

dropped to about $20 (10 percent), and to about 

$12 (6 percent) by 2005. The amount saved in 

transfer fees in 2005 alone was approximately $5 

billion—far exceeding total foreign aid to the region that year.

Table 1: Remittances and key economic indicator

Country

(Ordered by % GDP)

Remittances

As % GDP Per capita 

($)

Cost per 

transfer 

(%)

Average 

transfer 

($)

Annual 

volume

($ millions)

Guyana 37 360 10 179 270

Haiti 35 116 7 123 1,100

Honduras 23 245 6 225 2,359

Nicaragua 19 155 5 133 950

Jamaica 18 623 8 209 1,770

El Salvador 18 411 5 339 3,316

Dominican Republic 13 271 6 176 2,700

Guatemala 11 238 6 363 3,610

Bolivia 10 94 6 235 989

Paraguay 9 89 9 263 650

Ecuador 6 136 4 293 2,900

Grenada* 5 220 — 220 23

Colombia 5 90 5 220 4,200

Barbados* 4 418 12 220 300

Suriname 4 122 10 220 102

Belize 4 149 9 220 93

Peru 4 89 5 169 2,869

Mexico 3 187 6 351 23,053

Costa Rica 2 92 9 301 520

Antigua and Barbuda* 2 140 — 220 11

Dominica* 2 56 — 220 4

Panama 1 62 11 196 292

St. Kitts and Nevis* 1 86 — 220 4

Brazil 1 31 8 541 7,373

St. Vincent and the Grenadines* 1 27 — 220 3

Trinidad and Tobago 1 71 11 200 110

St. Lucia* 1 25 — 220 4

Uruguay* .3 71 11 198 115

Argentina* .2 7 9 212 800

Venezuela .1 5 17 138 124

Chile* 0 1 9 279 13

Sources: Central banks of each country, World Bank Development Indicators (2006), and data collected by Manuel Orozco.

Note: Excluding annual volume of remittances, all data are for 2005, except those indicated with an asterisk (*), which are for 2003. All data 

on annual volume of remittances are for 2006.
 

Table 2: Some characteristics of remittance recipients (percent)

Country

Live in 

rural 

areas

Female

Spend on 

health and 

education

Have 

a bank 

account

Nonremittance 

recipients with 

bank accounts

Have 

investments

Bolivia — 52 — 44 35 —

Colombia — 68 84 52 45 15

Dominican Republic 40 73 39 66 58 21

Ecuador 57 74 48 46 34 30

El Salvador 40 72 50 31 19 11

Guatemala — 80 59 41 17 5

Guyana 40 71 23 62 — 12

Haiti 54 53 86 68 — 18

Honduras — — — 34 16 4

Jamaica — — — 65 60 —

Mexico 46 63 — 29 28 —

Nicaragua 45 72 54 10 10 27

Peru — 46 — 37 35 —

Source: Data compiled by Manuel Orozco from multiple surveys (2005).

Table 3: Some characteristics of remittance senders (percent)

Country Female Have investments

Bolivia 71 4

Colombia 54 5

Dominican Republic 45 3

Ecuador 28 1

El Salvador 46 3

Guatemala 29 2

Guyana 48 8

Haiti 32 26

Honduras 37 4

Jamaica 49 2

Mexico 17 2

Nicaragua 44 3

Peru — —

Source: Data compiled by Manuel Orozco from multiple surveys (2005).

Table 4: Monthly cost of living, income, and remittances ($)

Expenses and Earnings of 

Remittance Recipients

Jerez, 

Mexico

Catamayo, 

Ecuador

Suchitoto, 

El Salvador

Salcaja, 

Guatemala

May Pen, 

Jamaica

Cost of living* 359 348 352 403 478

Wages 323 303 125 162 200

Remittances received 637 331 515 181 200

Total earnings, remittances 

included 960 634 640 343 400

Source: Orozco (2006a).

*Monthly cost of living includes food, utilities, education, health, and entertainment expenses. It excludes housing expenses.


The decline in fees can be explained largely 

by growing competition among money transfer 

operators (MTOs), companies that send and receive money but do not offer banking services. 

Today, for example, more than 100 MTOs are 

serving Mexico; a dozen years ago, there were 

just five. The use of technology has also increased. Directo a México, an automated clearinghouse, charges U.S. banks only 67 cents per 

transaction to transfer money to Mexican banks 

(see box). Other companies are expanding their 

use of automated teller machines (ATMs), debit 

and credit cards, and prepaid cards. Some are 

experimenting with the use of cell phones to 

make remittance transfers.

MTOs are the principal means for transferring remittances to most countries. For some destinations, MTO operating costs make it difficult 

to bring prices down much further. The average 

cost of managing a remittance collection point 

(which includes rental or purchase of space, salaries, and equipment) is about $7 per transfer. In 

recipient countries, additional investments have 

to be made in delivery services, with expenses 

varying from place to place. For instance, a 

Figure 2: Total value of remittances sent to Latin America and the Caribbean 

and transaction costs of remitting

Source: Orozco (2006b). 

Note: The transaction cost is based on a remittance of $200.

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

2001 2002 2003 2004.01 2004.06 2004.11 2005.06 2005.12 2006.06

$20

$25

$30

$35

$40

$45

$50

$55

$60

$65

Transaction cost as 

percent of remittance

Remittances (Billions)

The Experience of Directo a México

The Federal Reserve Bank of Atlanta, 

along with the Bank of Mexico, created an 

innovative bank-to-bank binational automated 

clearinghouse to facilitate affordable and 

secure remittance transfers to Mexico. This 

service, branded for consumers as Directo a 

México in 2005, is currently being used by at 

least 35 banks. The clearinghouse requires 

that senders and recipients have bank 

accounts in the Federal Reserve’s network. 

The cost of a transfer is 67 cents.
 

money transfer to Mexico costs 

about 5 percent of the amount 

sent, and this charge cannot be 

reduced much more—even with 

the adoption of innovative business models and new technologies. Average costs are higher in 

the Dominican Republic and 

Haiti, where remittances are typically delivered to 

recipients’ homes. However, substantial price reductions are possible in several particularly highpriced corridors, including the United States to 

Cuba and the United States to Venezuela, where 

competition and innovation are limited.

Beyond expenses related to the individual 

recipient countries, there is another set of factors affecting MTO operating costs. Specifically, 

the U.S. post-9/11 regulatory environment has 

added to the cost of sending remittances. Tighter regulations and compliance with new antimoney-laundering legislation have raised MTO 

costs of doing business. There has also been a 

significant increase in the regulatory scrutiny 

of banks that provide services to MTOs, and a 

growing number of banks are choosing not to 

do business with MTOs rather than absorb the 

higher management costs and increased risk. 

Many MTOs are struggling to find banks to serve 

their needs and are consequently paying higher 

banking costs. As a result, some MTOs have had 

to suspend part or all of their operations.

No one opposes efforts to combat money 

laundering to curtail the financing of criminal networks and terrorist groups. Illegal financial transactions must be aggressively policed. But no one 

gains when legitimate businesses unnecessarily get 

caught up in enforcement actions. The regulators 

waste resources, the cost of doing business goes 

up, and—in the case of remittances—low-wage 

immigrant workers and their low-income families 

pay a high cost. Surely, it should 

be possible for regulators to work 

with banks and MTOs to develop 

mechanisms that would facilitate 

(or at least not interfere with) the 

flow of remittances while combating money laundering. The 

predictability of MTO operations 

and the small sums involved in each transaction 

(the average transfer is about $200) should allow 

for an approach that is less burdensome.

Other initiatives that could help reduce costs 

include the following:

 Encouraging or requiring MTOs to provide accurate, up-to-date information 

on their costs and methods of operation. Transparency is critical. MTOs should 

provide their customers with information on 

the fees they charge, the exchange rate they 

will use to convert the dollars into foreign currency, how they will transfer and deliver the 

money, and any additional financial services 

they might offer. An industry-wide agreement 

on what information to provide and how to 

present it would be an important aid to immigrant senders. In addition, the adoption of 

a common formula for determining exchange 

rates would eliminate a major source of confusion for senders about the pricing process. 

One or more independent groups, either 

official or nongovernmental, could monitor the accuracy and completeness of MTO 

disclosures and work with community organizations and financial institutions to educate 

senders on how to use the information.

 Promoting cooperation between banks 

and MTOs. While banks and MTOs are 

competitors in the remittance transfer business, they could both benefit from some measure of cooperation that would take advantage 

Every effort should be 

made to get remittance 

senders and recipients 

to open and use 

bank accounts.


of their relative strengths. For their part, banks 

offer a wider range of services than MTOs 

and greater geographical coverage in both the 

United States and abroad. MTOs tend to be 

seen as trustworthy by senders and recipients, 

and they offer experience with remittances 

and better knowledge of sender and recipient 

communities. Such collaboration could result 

in more remittance senders and recipients using banks and their products, including credit 

and debit cards—which would probably speed 

the transition to account-to-account transfers.

 Accelerating the use of new technologies. New technologies that enable transfers 

from bank account to bank account would result in far less costly transactions, but MTOs, 

financial institutions, and senders and recipients would have to learn how to use these new 

technologies and make substantial adjustments in their behavior. International debit 

cards are perhaps the most promising technology because they make possible remittance 

transfers to overseas banks that are linked to a 

network of retail stores. It is encouraging that 

nearly 30 percent of remittance recipients already use debit or credit cards; this proportion is as high as 50 percent in some countries 

(Orozco et al. 2005).

Banking the Unbanke

The most critical recommendation of All in the 

Family—the 2004 publication of the Dialogue’s 

Task Force on Remittances—is that policy and 

advocacy efforts by all institutions should focus on 

encouraging remittance senders and recipients—

indeed, all citizens and residents—to use bank accounts. That recommendation is still paramount. 

Banks and other financial institutions can help reduce the cost of money transfers because they are 

able to move money across international boundaries more cheaply than MTOs or couriers. Perhaps even more important, they offer a range 

of other relevant products: interest-bearing savings accounts; checking accounts for paying bills 

(replacing costly money orders); free and secure 

check-cashing services; the means to establish a 

credit history, such as credit and debit cards; loans 

for housing and education; small business credit; 

and insurance products. With accounts in banks 

or other financial institutions, migrants and their 

family members back home become economic 

citizens as well as promote economic development 

in their countries (Fajnzylber and Lopez 2007).

U.S. Banks

Over the past several years, U.S. banks have made 

progress in recruiting remittance senders. More 

than 100 U.S. banks now offer remittance transfer 

services, and a variety of innovative experiments 

are under way; worth noting are the following:

 Over 50 U.S. banks have partnered with MTOs 

to provide remittance services.

 More than 150 U.S. banks are taking advantage 

of an automated clearinghouse established by 

the Federal Reserve Bank of Atlanta and the 

Bank of Mexico. The clearinghouse processed 

about 350 transfers in August 2006, a threefold increase in monthly transactions since the 

beginning of the year.

 BANSEFI, a Mexican government development bank, is seeking to allow bank account 

holders in the United States to open a linked 

bank account for relatives in Mexico to whom 

they send remittances.

 The New Alliance Task Force—a joint initiative of the Federal Deposit Insurance Corporation and the Consulate General of Mexico—is 

a coalition of banks, community organizations, 

and government agencies working to facilitate 

immigrant access to the U.S. banking system. 

The coalition’s efforts have resulted in more 
10

than 183,000 new accounts opened by immigrants over the past four years.

Their promise notwithstanding, these efforts 

are all experiments, and none has managed to recruit large numbers of immigrant customers, despite 

the enormous advantages that come with opening 

a bank account. Nor have many U.S. banks been 

eager to join these programs. In short, not much 

progress has been made in bringing Latin American immigrants into the U.S. banking system.

Adoption of the recommendations in All in the 

Family depends mostly on the willingness of banks 

to change their ways of doing business. When that 

report was written, the task force believed U.S. 

banks would, on their own, conclude that serving the immigrant community was good business. 

Some banks have responded, but the number is 

far too small. Moreover, the Patriot Act and other 

anti-money-laundering efforts discourage banks 

from offering remittance services, which could be 

an incentive for immigrants to open accounts. As 

the recommendations of the present report suggest, the task force is now convinced that it will 

take a heavier dose of government policy to make 

a difference, although much of the initiative still 

must come from private banks and community 

and immigrant organizations.

To encourage more immigrants to use 

banking services, the task force recommends 

the following:

 The FDIC and Federal Reserve of Atlanta experimental programs discussed 

above must be vigorously pursued by 

other parts of the Federal Reserve System and other government agencies. Although these programs are valuable, they have 

had only limited reach. The U.S. government 

should understand the importance of moving 

remittance flows from informal markets to the 

banking system, where they are more easily 

monitored—and where criminal activity can 

be confronted more effectively and individuals’ 

rights better protected. The U.S. government 

should enforce the Patriot Act and other antimoney-laundering statutes in ways that do not 

keep remittance senders out of U.S. banks. Everyone gains when remittance senders become 

bank customers—banks and senders, recipients, their communities and countries—and 

U.S. security is enhanced.

 Private banks should do more to make 

their services attractive to immigrants. 

Besides remittance services, banks should consider providing additional products for immigrants. For example, they could offer low-cost 

money orders and direct electronic payments 

(without requiring checking accounts). These 

services make MTOs and check-cashing stores 

vital for newly arrived immigrants, but banks 

could perform these tasks—and others—better and cheaper. Hiring bilingual tellers and 

offering extended hours would also make 

banks more attractive to immigrants. As an 

alternative to check cashing, banks, prepaid 

card companies, and MTOs could offer debit 

or prepaid cards into which immigrants could 

deposit their paychecks and then use them for 

transactions in stores accepting such cards. 

The suggested initiatives are straightforward 

and should not be costly to test.

 Community organizations—where possible in cooperation with banks, government agencies, foreign consulates, and 

financial institutions—should provide 

immigrants with information on managing their finances. Better financial management can reduce economic burdens on 

immigrant families, and the advantages of 

a bank account—as well as the costs of not 
having one—should be made clear. Furthermore, immigrants must be informed of how 

to acquire the identification needed to open 

a bank account.

Latin American and Caribbean Banks

Progress in encouraging remittance recipients 

in Latin American and Caribbean countries to 

open bank accounts has also been slow. Ironically, 

across Latin America, banks distribute nearly 50 

percent of all transfers—but so far, they have 

not taken advantage of this central role to turn 

recipients into bank customers (see figure 3).

Sustained and intelligent efforts to recruit 

low-income customers do produce results (see 

table 5). In Mexico, BANSEFI established L@ 

Red de la Gente, a network of some 1,200 banks, 

microfinance institutions (MFIs), and credit 

unions that serve as remittance distribution 

centers. By the end of 2006, L@ Red de la Gente 

was distributing 100,000 transfers a month. In 

2003, Caja Popular Mexicana, the largest credit 

union in Mexico, began distributing remittances 

for several MTOs. With a network of 330 branches in 28 states, the credit union has distributed 

over $165 million in remittances to recipients in 

rural Mexico. Membership in the credit union 

has grown from 600,000 to over 1 million since 

2003. Moreover, BBVA-Bancomer, a remittance 

payer that distributes over 40 percent of all flows 

to Mexico, transfers more than 12 percent of 

these flows from account to account. This means 

that more than a half-million Mexicans are now 

using bank accounts.

In Guatemala and El Salvador, the record 

is even better. The Guatemalan Banco Industrial entered the remittance business as a payer 

0

10 20 30 40 50 60 70

0

5

10

15

20

25

30

35

40

45

50

55

60

65

70 75

80

Figure 3: Access of remittance recipients to banks and bank accounts

Source: Orozco (2006b).

Nicaragua

Guatemala

Jamaica

Haiti

Colombia

Ecuador

Mexico

Dominican Republic

Peru

Bolivia

Percent of recipients with a bank account

Percent of banks paying remittances
12

for King Express, a major U.S. MTO. When 

Banco Industrial realized that some recipients 

were interested in opening accounts, it began 

offering a range of financial services; about 30 

percent of its remittance clients now have a savings or checking account. Banco Salvadoreño 

adopted a different model (see box). It opened 

its own MTO in the United States, and most of 

its transactions go directly into bank accounts 

in El Salvador. The Salvadoran Federation of 

Credit Unions has enrolled about 25 percent of 

its remittance recipients as members (Orozco 

and Hamilton 2005).

Credit and savings cooperatives and MFIs are 

also providing financial services to a growing number of remittance recipients. In rural Guatemala, 

for example, the credit union Salcaja offers remittance recipients a wide range of products, including pensions, life and medical insurance, home 

equity, and small business credit. Although only 

3 percent of remittance payers in Latin America 

are MFIs, they have been recruiting one-third of 

their remittance recipients as clients (Orozco and 

Hamilton 2005; Orozco 2006b).

The experiences of these institutions illustrate how remittance recipients can be transformed into bank customers—but their efforts 

are the exception in Latin America and the 

Caribbean. Most banking institutions in the 

region offer only cash withdrawals to remittance recipients, showing little interest in providing them other services. Low-income groups 

do not usually have access to bank services for 

a host of reasons (for example, banks may be 

geographically inaccessible, require minimum 

deposits that are too high for low-income people, or simply not be very accommodating to 

poorer people). This lack of access prevents 

countries from taking full advantage of remittance flows—either for national development or 

for bringing excluded groups into the economic 

mainstream. In Central America, for example, 

each bank receives an average of 30,000 remittance transfers a month, but each bank’s client 

base averages fewer than 10,000 customers, the 

majority of whom are not remittance recipients. 

Remittance transfers are an important source of 

income for banks, comprising up to 8 percent of 

total revenue for some banks. Banks and financial institutions in Central America could reach 

out to remittance customers to increase their clientele and revenue base (Claros 2006).

Latin American governments need to do 

much more to promote wider access to financial 

The Experience of Banco Salvadoreñ

Banco Salvadoreño is an example of the link between MTOs, banks, and financial services in El 

Salvador. Currently, banks receive 70 percent of all remittances in El Salvador. Banco Salvadoreño 

has a presence in most U.S. states because of BancoSal, an MTO it established, and strategic 

alliances with some of the biggest MTOs, including Western Union and Bancomer Transfer Services. 

In 2005, Banco Salvadoreño made over 1 million remittance payments, totaling $256 million. Of 

these payments, $90 million were transfers from its own BancoSal, and 63 percent of BancoSal 

transfers were deposited directly into the accounts of at least 13,000 remittance recipients at Banco 

Salvadoreño. Banco Salvadoreño offers remittance recipients the opportunity to borrow up to 

80 percent of the last six months’ remittance flows. The bank has also opened more than 29,000 

savings accounts for recipients and distributed nearly 9,000 debit cards to small business owners 

and more than $10 million in loans to Salvadorans living abroad. In addition, Banco Salvadoreño is 

the only bank in El Salvador that has an Internet-based remittance service that enables clients to use 

the bank’s Web site to send money from any account in the United States.
institutions. Governments can and should encourage banks to actively recruit low-income customers. In many cases, governments in the region must 

revise regulations that discourage banks and other 

financial institutions from offering services to the 

poor—which hurts both banks and national development prospects. For their part, banks should 

learn about the needs of low-income groups and 

what it would take for them to open accounts. 

Remittances give people the resources to participate in the formal financial system, and they 

should provide banks with substantial incentives 

to seek out recipients and turn them into customers. Conversely, banks, governments, and nongovernmental organizations in Latin America should 

together be doing more to educate remittance recipients about the value of bank accounts.

The Experience of the Jamaica National Building Societ

An important lesson from the Jamaican experience is that the “bancarization” of small businesses, 

such as convenience stores that install ATMs or accept debit cards, is not only feasible but also 

promotes economic development. In Jamaica, remittance receipts have been accompanied by the 

distribution of debit cards by banks and some MFIs. Meanwhile, banks and MFIs have also offered 

ATMs and electronic points of sale at a low cost to their small business clients, many of which offer 

goods and services demanded by typical remittance recipients.

The Jamaica National Building Society (JNBS), through its subsidiary JN Money Services Ltd., 

serves Jamaicans living abroad by offering remittance services in Canada, the United States, and 

the United Kingdom. In partnership with the U.S. Agency for International Development, JNBS has 

automated the process of sending and receiving money transfers through swipe card technology. 

As a result, JNBS now has over 70,000 money transfer card users. JNBS’s Computers in Schools 

project applied one-third of the cost savings accrued from the money transfer card to education, 

donating approximately 250 computers to schools across the island. In turn, 50 percent of remittance 

recipients in Jamaica have been brought into the formal banking system, with 25 percent of those 

receiving remittances through a card product that can be used for purchases at small businesses that 

accept debit cards. These small businesses, clients of JNBS, are benefiting from their relationship 

with remittance-receiving customers. Savings ratios have increased considerably, not only through 

direct deposits to savings accounts, but also through a reduction in the amount of cash in circulation 

and the increased use of electronic transactions.

Table 5: Number of accounts opened by remittance recipient households at credit unions and MFIs (2005

Institution Number of 

accounts opened

Number of 

monthly transfers

New accounts as % 

of monthly transfers

L@ Red de la Gente (Mexico)* 10,000 100,000 10

Guayacan (Guatemala) 533 5,426 10

El Comercio (Paraguay)* 2,000 20,000 10

Coosadeco (Guatemala) 529 4,780 11

Fedecaces (El Salvador) 4,375 22,000 20

Acocomet (El Salvador) 800 2,383 34

Salcaja (Guatemala) 500 1,000 50

Banco Solidario (Ecuador) 4,000 5,000 80

Acacu (El Salvador) 2,703 2,703 100

Source: Orozco and Hamilton (2005).

*December 2006.
Remittances and

Development: 

Macroeconomic Impacts 

and the Role

of Governments

The amount and continuing growth of remittance 

flows to Latin America and the Caribbean present 

the region’s governments and international organizations with an array of policy issues. The central question is what governments can and should 

do to account for remittances in broader economic and social policies. One of the challenges 

to developing coherent policies on remittances is 

that the transfers are private (mostly within families), each transaction is relatively small (averaging 

about $200), and the transfers are decentralized 

and mostly outside the formal banking system. Although there are increasingly reliable data on the 

volume of remittances reaching almost all recipient countries, the statistics have been collected for 

only a short time, and variations among countries 

are great. The models that have so far been used 

to analyze and interpret these data were developed for other financial flows and are not yet well 

adapted to remittances. Accordingly, any research 

linking remittances to macroeconomic or development phenomena have to be considered tentative at this point.

Some preliminary conclusions are worth 

noting, however:

1. Remittances are central to economic growth, 

national expenditures, and balance of payments for many countries in Latin America—particularly Mexico, almost all of Central 

America and the Caribbean, Bolivia, Colombia, Ecuador, and Peru. Remittances represent 

more than 15 percent of the national income of 

Honduras, Jamaica, and El Salvador. In many 

other countries, including Mexico, remittances 

make up nearly 5 percent of national income. 

Haiti, where remittances account for some 35 

percent of national income, is clearly an outlier. Remittances bolster economic growth, particularly in countries recovering from financial 

crises (Fajnzylber and Lopez 2007).

2. Despite their economic significance, remittances must be treated as voluntary transfers 

between individuals and their families. Governments seeking to tax remittances or intervene 

in their use will provoke remitters to stop sending money or turn to transfer channels outside 

official control. Regardless of their volume and 

importance, these decentralized flows are inappropriate for direct government intervention.

3. As remittances increase in importance in the 

economy, some variant of the “Dutch disease” 

emerges, leading to higher exchange rates and 

a deterioration in the balance of payments. 

Export growth tends to decline while imports 

increase. However, these effects are partially 

counterbalanced in some places by the regular 

travel of expatriates to their countries of origin and the external market for home country 

goods created by emigrants.

4. Although the numbers are inexact, savings 

from remittances appear (even under conservative assumptions) to have become an 

increasingly important source of investment 

financing. These savings have not eliminated 

Latin America’s debt, but remittances have 

surely reduced its magnitude—thus setting the 

stage for more sustainable economic growth. 

Because remittance flows tend to be countercyclical (that is, they increase when recipient 

economies turn downward), they should help 

dampen Latin America’s economic volatility.
5. The value of remittance flows to national development could be enhanced by sound economic policies in recipient countries. Good 

policies and predictable economic environments will provide greater opportunities for remittance recipients and encourage reinforcing 

flows of investment capital.

6. Research and statistics are scarce on how remittances are used by recipients, their effects 

on family and community well-being, and 

their contribution to reducing poverty and inequality. Remittances obviously are improving 

the lives of poor families and communities in 

most recipient countries—particularly those in 

which migrant senders come from the poorest 

groups. Low-income rural areas receive a large 

share of remittances in a majority of countries. 

And remittances mostly go to poor families; 

over half of all recipient households in Latin 

America earn less than $200 per month. In 

Guatemala, 60 percent of household income 

for the poorest 10 percent of the population 

is from remittances. In short, remittances 

are—in most places—helping improve Latin 

America’s skewed income distribution. This 

is particularly important in countries with low 

per capita incomes and large inequalities between rich and poor.

Although these preliminary findings do not 

yet provide much guidance for remittance policy, 

two points are clear:

 Governments and international organizations should invest much more in 

research on remittances and their impact. The quality and extent of research and 

data collection should reflect the size of remittance flows and their importance to national, 

local, and family economies. When finally 

recognized—perhaps in the past half-dozen 

years—the sheer amount of remittances surprised almost everyone. Now it is time to generate the information and analysis necessary to 

understand these flows, how much they contribute to development, and what policies can 

make them more valuable both to senders and 

receivers and their communities and families.

 Governments should not intervene in 

remittance flows by imposing taxes or 

burdensome regulations. Instead, banks 

should be encouraged to make their services more accessible to remittance recipients. 

There is still too little information to suggest 

the extent to which governments should seek 

to offset the impact of remittances on trade 

and exchange rates or which instruments governments should use. Governments should 

not count on remittances to be the main 

driver of national development—nor to solve 

problems of poverty and inequality. Positive 

government initiatives are needed to deal 

with these challenges. 
Re

Claros, Jose Ignacio. 2006. “Grupos Financieros.” Estrategia y Negocios 77 (May).

Fajnzylber, Pablo, and J. Humberto Lopez. 2007. Close to Home: The Development Impact of Remittances in 

Latin America. Washington, DC: World Bank.

Inter-American Dialogue Task Force on Remittances. 2004. All in the Family: Latin America’s Most Important 

Financial Flow. Washington, DC: Inter-American Dialogue.

Orozco, Manuel. 2006a. “Between Hardship and Hope: Remittances and the Local Economy in Latin 

America.” Washington, DC: Inter-American Dialogue. http://www.thedialogue.org/programs/policy/

trade/remittances/default.asp.

———. 2006b. “International Flows of Remittances: Cost, Competition and Financial Access in Latin 

America and the Caribbean—Toward an Industry Scorecard.” Washington, DC: Inter-American Dialogue. http://www.thedialogue.org/programs/policy/trade/remittances/default.asp.

Orozco, Manuel, B. Lindsay Lowell, Micah Bump, and Rachel Fedewa. 2005. Transnational Engagement, 

Remittances and Their Relationship to Development in Latin America and the Caribbean. Washington, DC: Institute 

for the Study of International Migration, Georgetown University.

Orozco, Manuel, and Eve Hamilton. 2005. “Remittances and MFI Intermediation: Issues and Lessons.” 

In Judith Shaw, ed., Remittances, Microfinance and Development: Building the Links, Volume 1: A Global View. Brisbane, Australia: Foundation for Development Cooperation.

World Bank. 2006. World Bank Development Indicators. Washington, DC.
Board of Directors

Carla A. Hills, Co-Chair, United States

Ricardo Lagos, Co-Chair, Chile

Peter D. Bell, Co-Vice Chair, United States

Enrique Iglesias, Co-Vice Chair, Uruguay

Sergio Bitar, Chile

Fernando Henrique Cardoso, Brazil

David de Ferranti, United States

Lourdes Flores Nano, Peru

William L. Friend, United States

Enrique Garcia, Bolivia

Donna J. Hrinak, United States

Yolanda Kakabadse, Ecuador

Barbara J. McDougall, Canada

Thomas F. McLarty III, United States

Peter McPherson, United States

Roberto H. Murray Meza, El Salvador

Sonia Picado, Costa Rica

Jorge Quiroga, Bolivia

Jesús Silva-Herzog, Mexico

Roberto Teixeira da Costa, Brazil

Elena Viyella de Paliza, Dominican Republic

◆

Peter Hakim, President
Inter-American Dial

1211 Connecticut Avenue, 

Suite 510

Washington, DC 2003

PHONE: 202-822-9

FAX: 202-822-9553

EMAIL: iad@thedialogue.

WEB: www.thedialogue.or