Maximising the developmental impact of remittances – Private Sector Services


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Maximising the developmental impact of remittances – Private Sector Services

  1. 1. Maximising the developmental impact of remittances – Private Sector Services Vincent E. OKELE, President, African Axis (Belgium ) Global Forum on Remittances Tunis, 22 – 23 October 2009
  2. 2. Agenda <ul><li>Definitions </li></ul><ul><li>Rationale </li></ul><ul><li>The challenge </li></ul><ul><li>Addressing the challenge </li></ul><ul><li>Private sector services </li></ul><ul><li>Example: The DiasporaLink Initiative </li></ul>
  3. 3. Definitions <ul><li>DIASPORA INFLOW: Monetary transfers made by the diaspora into their country of origin. As private transfers or as funds invested, deposited or donated. </li></ul><ul><li>REMITTANCES: Monies sent from individuals or households to other individuals or households residing in their country of origin. </li></ul><ul><li>DIASPORA INVESTMENTS: in a start-up, in an existing enterprise or in a business being privatised (Community Sector and Private sector investments) </li></ul><ul><li>FORMAL: bank transfers or money transfers via intermediaries (Western Union) </li></ul><ul><li>INFORMAL : carrying money (self-friends-relatives) or informal services (retail shop, currency dealer). No documentation. </li></ul>
  4. 4. Financial Development Economic development & Growth Investments Rationale: Diaspora inflow and development Economic Gowth & Development Poverty Reduction Remittances Entrepreneur- ship Diaspora Investments
  5. 5. Rationale: Diaspora inflow and development <ul><li>REMITTANCES </li></ul><ul><li>Help reduce the level of poverty and have a greater influence on its severity (in rural areas) </li></ul><ul><li>Are associated with improved schooling outcomes for children (by helping to relax household constraints) and better access to health services for recipients </li></ul><ul><li>Promote entrepreneurship as the extra source of income could be put in new income generating activities </li></ul><ul><li>Help promote economic growth in less financially developed countries by positively impacting financial development </li></ul>
  6. 6. Diaspora inflow into the region: The Challenge 1. The SSA region attracts relatively low volume of remittances through the formal channels Recorded remittances in developing countries: comparative review Source: World Bank At approx. US$ 3.2 billion this represented less than 5% of total remittances to developing countries (US$240 billion) <ul><li>Top 3: China, India, Mexico </li></ul><ul><li>Only Nigeria in the top 25 - Bengladesh, India & Pakistan </li></ul>1
  7. 7. Diaspora inflow into the region: The Challenge The SSA region channels a limited proportion of remittance inflow into private sector investment The SSA region attracts less diaspora private sector investment <ul><li>Less than 10% of received remittances are channeled to income and employment generating activities </li></ul><ul><li>CELTEL (Sudan), Databank (Ghana), Teylium (Senegal), Geometric Power Limited (Nigeria) etc.. </li></ul><ul><li>Compared to the large number of technology firms by the Indian and Chinese diaspora </li></ul>2 3
  8. 8. Diaspora inflow into the region: The Challenge Increase % of R channelled to Savings & income generating activities Increase Volume of Diaspora Investment (Community & Private) Increase Volume of R through formal channels Diaspora Inflow 1 2 3
  9. 9. Addressing the Challenge
  10. 10. Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community Diaspora inflow to the region: Addressing the Challenge
  11. 11. Addressing the challenge: Origin country level <ul><li>Increase volume of official inflow of remittances & channelling into productive sector </li></ul><ul><ul><li>Framework allowing for introduction of innovative financial instruments by domestic financial institutions to capture remittances </li></ul></ul><ul><ul><ul><li>Address the underlying structural weaknesses of the financial system. Ex: Establishment of Deposit insurance (guarantee) scheme </li></ul></ul></ul><ul><ul><ul><li>Repatriable foreign exchange accounts with premium interest rates (and maybe premium FX rates) </li></ul></ul></ul><ul><ul><ul><li>Diaspora bonds (debt instrument issued to raise financing from the diaspora - long term in nature) </li></ul></ul></ul><ul><ul><li>Provide banks and MFIs with refinancing credit lines enabling them to open a lending window to specially target the diaspora </li></ul></ul><ul><ul><li>Establish programs to improve recipient financial literacy </li></ul></ul><ul><ul><ul><li>Information on financial instruments – financial services documentation distributed at the same time </li></ul></ul></ul><ul><ul><li>Encourage competition by allowing market entry of non-bank financial institutions into the market (MFIs, Credit Unions, savings & loan) </li></ul></ul><ul><ul><li>Remittances securitization </li></ul></ul><ul><ul><ul><li>Borrow on international capital market against future remittaces (can potentially raise US$ 17 billion) </li></ul></ul></ul>
  12. 12. Addressing the challenge: Origin country level <ul><li>Facilitate diaspora-led investments </li></ul><ul><ul><li>Establishing specific tax/sectoral/export/tariff incentives </li></ul></ul><ul><ul><ul><li>Preferential tax rates (5yr corporate tax amnesty for startups) </li></ul></ul></ul><ul><ul><ul><li>Concessional rates of duty on imported capital goods </li></ul></ul></ul><ul><ul><ul><li>Creation of a one-window clearance system for diaspora investments. </li></ul></ul></ul><ul><ul><ul><li>Preferential access to capital goods and raw materials import </li></ul></ul></ul><ul><ul><li>Provide business advisory services </li></ul></ul><ul><ul><ul><li>information on available investment opportunities, saving schemes, financial support, business start-up procedures </li></ul></ul></ul><ul><ul><li>Use MFIs to directly support diaspora-led investments </li></ul></ul><ul><ul><ul><li>Grant MFIs the license to take deposits and grant loans </li></ul></ul></ul>
  13. 13. Addressing the challenge: Host country level <ul><li>Engage with diaspora groups (HTAs) </li></ul><ul><ul><li>Informal relationships and social capital should be preserved and supported </li></ul></ul><ul><ul><li>Co-development initiatives encouraged </li></ul></ul><ul><ul><li>Strengthen formally constituted institutions </li></ul></ul><ul><li>Work with origin countries on technical, regulatory and oversight matters to ensure transparency in the remittances market. </li></ul><ul><li>Facilitate increased access to the financial system by migrants </li></ul><ul><li>Establish technical and financial assistance programs providing support to diaspora entrepreneurs (Ex: Co-development initiatives in France) </li></ul><ul><li>Involve the diaspora in economic missions to home countries </li></ul><ul><li>Make provisions for short term work placements </li></ul>
  14. 14. Addressing the challenge : Multilateral institutions – Policy issues <ul><li>Role played by migrants should be recognised and reinforced </li></ul><ul><li>ADI should become an integral part of global, regional and national strategies for poverty reduction </li></ul><ul><li>Measures to encourage the transfer and investment of remittances should be combined with strategic policies that are conducive to good governance and economic growth </li></ul><ul><li>Work with origin/host country public authorities to address diaspora investment with more consistent strategies, policies and legislations including: </li></ul><ul><ul><li>nationality, commercial and financial law, tax law, international family and family property relations, international legal cooperation and litigation </li></ul></ul>
  15. 15. Addressing the challenge : Multilateral institutions – Initiatives/Mechanisms <ul><li>Community sector investments </li></ul><ul><ul><li>Linking up with and supporting diaspora group initiatives </li></ul></ul><ul><ul><li>Encourage diaspora groups to become involved in international-funded local development projects </li></ul></ul><ul><li>Private Sector Investments </li></ul><ul><ul><li>Initiate and support schemes designed to support diaspora-led private sector investments - DMADE (world bank), ADM (USAID) </li></ul></ul><ul><ul><li>Facilitate the involvement of diasporas in existing initiatives and financing program </li></ul></ul><ul><ul><li>Support origin countries’ investment climate improvement efforts </li></ul></ul><ul><ul><li>Support initiatives designed to leveraging remittances for contribution to the origin countries’ economies </li></ul></ul><ul><ul><li>Support initiatives that foster competition on the Remittances market </li></ul></ul><ul><ul><ul><li>Ex: Provide complete data related to international money transfer, including points of service, partners, fees, foreign exchange information and delivery time (DFID, AFD, etc..) </li></ul></ul></ul>
  16. 16. Addressing the challenge : Diaspora Community <ul><li>Origin country level </li></ul><ul><ul><li>Engage with the authorities at local, national and regional levels </li></ul></ul><ul><ul><li>Contribute to promoting good governance and in improving the enabling environment for private sector development </li></ul></ul><ul><li>Host country level </li></ul><ul><ul><li>Actively engage with host country business promotion institutions </li></ul></ul><ul><ul><li>Foster trading links with origin countries. </li></ul></ul><ul><ul><li>Make contributions that will foster a positive image of Africa in host country. </li></ul></ul>
  17. 17. Private Sector Services
  18. 18. Action required at the Origin and Host Country levels as well as the level of Multilateral Institutions and the Diaspora community + Private Sector Private Sector Services: Addressing the Challenge Private Sector (RSPs, MTOs, MNOs Banks, NB financial Institutions)
  19. 19. Private Sector Services: Required actions <ul><li>Analyze client base to gain better understanding of socioeconomic profiles of remittance senders and recipients </li></ul><ul><li>Offer value-added financial services to existing and potential clients </li></ul><ul><li>Deploy appropriate technologies and methodologies to bring unbanked recipients into the financial mainstream </li></ul><ul><li>Build partnerships to increase visibility and marketing of remittances </li></ul><ul><li>Improve financial literacy of existing clients, communicating actively to determine appropriate financial services </li></ul><ul><li>Expand on role of intermediation and consolidation of remittance flows </li></ul>
  20. 20. Private Sector Services: Instruments for leveraging remittances <ul><li>Remittances Services Providers (MTOs + MNOs) </li></ul><ul><ul><li>Internet-based remittance platforms </li></ul></ul><ul><ul><li>Mobile Money transfer : Zap, MPESA, WIZZIT, Mobile Money, Celpay (outreach to local community) </li></ul></ul><ul><li>Financial services providers (Banks, MFIs, Credit Unions, Savings & Loans) </li></ul><ul><ul><li>Senders : savings, pension, investment, education financing, insurance, mortgage </li></ul></ul><ul><ul><li>certificates of deposit, equity and debt funds, mortgage bonds </li></ul></ul><ul><ul><li>Receivers : health insurance, education benefits, small business loans or consumer finance, bill payment </li></ul></ul>
  21. 21. Private Sector Services: Instruments for leveraging remittances - Examples Zenith Bank Nigeria Zenith Diaspora Account <ul><li>combination of current and savings and loan accounts </li></ul><ul><li>Connected foreign currency accounts in USD, Euro and GBP </li></ul><ul><li>Negotiable interest rate balances accounts </li></ul>Nigeria Diaspora-focused Accounts & other services <ul><li>Diaspora Target account (savings accts – can be used as a collateral for loans) </li></ul><ul><li>Diaspora Investment Account (savings and fixed deposit) </li></ul><ul><li>PHB Easy Remit (remit funds from UK, Canada and USA) </li></ul>Ghana Homecoming Account <ul><li>hybrid account which invests in various mutual funds and financial instruments in Ghana and other regulated markets in Africa. </li></ul><ul><li>Sankofa account (1yr), Gye Nyame account (2yrs) and EpacK (3yrs) </li></ul>Credit Foncier du Cameroon Cameroon Diaspora-focused Housing loans <ul><li>Programme to attract Cameroon diaspora investment in real estate </li></ul>Uganda, Kenya & Tanzania Zap (Mobile Money transfer) <ul><li>Customers can receive funds from any bank account in the world into their mobile handset as well as send funds directly to their accounts </li></ul>
  22. 22. The DiasporaLink Initiative
  23. 23. The DiasporaLink Initiative: Objectives <ul><li>Provide a low-cost, secure and regulatory compliant remittances transfer service </li></ul><ul><li>Involve the diaspora community & MFIs as key players in the remittances transfer market </li></ul><ul><li>Provide an integrated set of services to encourage and support diaspora-led investments </li></ul><ul><ul><li>Information and documentation (investment opportunities, sources of finance, national regulations & incentives, etc..) </li></ul></ul><ul><ul><li>Technical assistance - development of bankable project proposals, facilitating of access to finance </li></ul></ul><ul><li>Make available financing facility that would benefit the diaspora entrepreneur (Fund) </li></ul><ul><ul><li>Provide financing support to existing and green-field diaspora-initiated businesses </li></ul></ul>
  24. 24. The DiasporaLink Initiative: Services Diaspora Investment Facility Diaspora Investment Fund Remittances- Linked Financial Products Seed capital for DIF <ul><li>Internet-based P2P remittance service </li></ul><ul><li>Operating on the VISA platform </li></ul>R-linked savings account <ul><li>Information: Investment opportunities sources of finance </li></ul><ul><li>TA to project owners </li></ul>
  25. 25. The DiasporaLink Initiative: Partnerships Diaspora Investment Facility Diaspora Investment Fund Remittances- Linked Financial Products Remit. Services Provider (DiasporaLink AB) Diaspora Organisations (UK, Germany, Sweden, Belgium) Private Sector (Banks, MFIs, Credit Unions, MNOs) Multilateral finance institution Private Sector
  26. 26. The DiasporaLink Initiative: Benefits Economic Development
  27. 27. Contacts 116, Avenue du Prince Héritier 1200, Brussels, Belgium Tel: +3222533008 [email_address]