A city like Boston can take advantage of these ways to leverage the remittance marketó by getting the business sector, the nonprofit community, and the government itself to focus on the opportunities.
The “Hidden Assets” of Boston’s Immigrants
By Alvaro Lima and Peter Plastrik
While Washington displays ignorance and intolerance toward immigrants, Boston can
enhance its future as a global city by supporting the economic progress of its newcomer
populations. Immigrants here already play an important role in sustaining our competitiveness
and high standard of living. They comprise 29 percent of the city’s labor force, own more than
8,000 businesses in the greater Boston area, contribute over a $1 billion annually in state and
federal taxes, generate $12.3 billion of economic activity in the region, and create more than
97,000 jobs. In addition to these undeniable contributions, immigrants have a remarkable
“hidden asset” that can be leveraged for even more positive impact: using what are called
“remittances,” they send a large portion of their income to their families “back home”
The World Bank estimates that in 2005 immigrants in countries around the world
remitted about $232 billion—a major flow of funds to help households in developing nations buy
food and clothing, pay for housing and health care, and take care of other needs. The amount is
so great that for many developing countries it exceeds the foreign aid they receive. We estimate
that in Massachusetts, Latin American immigrants alone sent $448 million back home last year.
It’s likely that these numbers will continue to grow rapidly, as they have for the last two
decades. Globalization is accelerating international migration, and as more people emigrate,
total remittances will increase. This trend will increase the potential benefits of leveraging the
considerable financial assets of immigrants in new ways that benefit them, their families back
home, and their adopted communities in the United States.
The remittance market has drawn the attention of large financial entities in the US and
overseas, and of immigrant activist organizations. Sending remittances is very expensive for the
immigrants, and lucrative for the financial providers: banks with international capabilities;
money transfer companies like Western Union and MoneyGram; and couriers who collect money
here and physically deliver it to its destination. For now, the money transfer companies
dominate the market—charging exorbitant fees and using unfavorable exchange rates. For
nonprofit organizations serving immigrant communities, one challenge has been to figure out
how to lower these costs—which raises the “buying power” of immigrants.
Remittances are the initial point into the world of financial services for many local
economies and poor individuals/families. Most of them, however, do not continue to move
through the “value chain” of financial services—savings, investment, credit, insurance, etc.; they
remain “unbanked” here and in their home countries.
So far, financial institutions, the NGOs, and governments have largely missed the
significant opportunity to leverage remittance flows in ways that can advance everyone’s
interests. They have been fixated on the profits and costs of remittances. But much more can be
done to help immigrants increase their economic impact. Our assessment is that there are three
promising ways to leverage immigrant funds for development.
1. Create a new source of development capital for communities in developing nations.
Use a small percentage of remittance flows to fund capital investment pools to invest
strategically in developing educational, community, and business assets in the back-home
communities of immigrants. Just 5 percent of the remittances sent to Latin America from
Massachusetts last year would capitalize a $22 million investment fund. Can immigrants afford
this “diversion” away from consumption by back-home households? Studies indicate that not
all remittances are currently spent on “survival consumption”; small portions may be used for
longer-term investments such as education. In addition, if transaction fees for remittances were
lowered, the reduction in cost could be used to build the capital funds we are describing. Not all
of these remittance pools would have to be return-seeking funds; some could be foundations with
financial endowments built out of remittances.
2. Invest in building the wealth-creating capacities of immigrants in the US. Use a
portion of remittance flows to invest in the capacity of immigrants in the US to create even more
wealth than they currently do, supporting business development, increased education, and other
economic development strategies.
3. Create a “bundle” of services to immigrants in the US, based on remittance services.
The number of remittance-sending immigrants in the US is a huge, untapped market for other
product and services. Banks and other organizations are already trying to sell this market on
some other financial services. But immigrant populations have other interests—such as
information and entertainment from their home countries. Helping immigrants to enter the
conventional financial world is an important step towards building the individual, household, and
community assets. Providing other services through this “channel to the market” can further
enrich their lives and create market opportunities right here.
A city like Boston can take advantage of these ways to leverage the remittance market—
by getting the business sector, the nonprofit community, and the government itself to focus on
the opportunities. Doing this could help its many newcomers fulfill their own role as financial
providers for their global families, develop their own assets, and to contribute to their new city.
That’s what a truly global city would do.