A Technical Guide to Remittances: The Credit Union Experience
The scale, growth and importance of remittances to developing countries cannot be understated. The Inter-American Development Bank (IDB) estimates that $32 billion in remittances was sent to the LAC region in 2002, and it represents “the single most valuable source of new capital for Latin America and the Caribbean…. more important for the region’s economic and social development than foreign direct investment, portfolio investment, foreign aid or government and private borrowing” (Inter-American Dialogue, 2004).
This World Council of Credit Unions (WOCCU) Technical Guide provides a useful introduction to the methods of how money crosses international borders, such as cash-based electronic transfers, card-based transfers, informal mechanisms and account-to-account wire transfers. It discusses the current operating environment for remittances, provides an overview of WOCCU’s International Remittance Network (IRnet) and details how WOCCU has facilitated mass remittance distribution through credit unions by partnering with money transfer operators (MTOs). This system enjoys the advantages of both the credit unions’ proximity to clients in the receiving countries and the MTO’s transferring experience and dense network in the sending countries.
The entrance of credit unions and commercial banks into the remittance market has put pressure on MTOs to lower prices and become more competitive. Receiving institutions are seeing the potential of attracting unbanked clients as credit union members and future savers, borrowers and insurance policyholders. For example, some initiatives are underway in both Mexico and Nicaragua to develop remittance-related savings and credit products that will provide receivers with additional financial service options.
The Guide stresses a number of critical factors that affect the success of the remittance service operations and provides a number of illustrative case studies. The success factors include:
- the number and location of points of service in both the sending and receiving countries
- the quality and security of service and
- the need to comply with government legislation on control of illicit money transfers and money laundering.
Finally, the Guide looks at the future of remittance transfers and the task ahead, in particular, the need to extend the outreach and improve the shared branching network of credit unions in order to continue the provision of low-cost remittance services.