Wednesday, January 4. 2006
In an article on remittances and microfinance, Business Week has correctly pegged remittances as a potentially huge opportunity for “recipients to save money and build credit histories, so they can get mortgages and small-business loans.” Indeed, the predictable income of remittances allows poor borrowers to access more sophisticated products like “micro-mortgages”, previously limited to people with documented income and greater assets.
Opportunity is indeed rich for microfinance institutions (MFIs). On one hand, handling remittances is lucrative. With approximately $52 billion in remittances sent into Latin America this past year ($7 billion more than in 2004) and competition between money-transfer providers driving prices down, MFIs are well positioned to break into the remittances industry dominated by a few big players.
Second, handling remittances is the spring board to more robust microfinance product lines that include insurance, mortgages, and even retirement accounts.
Will remittances spark the evolution of MFIs into “full-service micro-banks”? Large MFIs are often not hindered by legislation that (for good reason) keeps banks in the rich world from offering a broad menu of products including remittances and insurance.
Additional Resources
1) Main article discussed in entry, Business Week online: “Channeling the Remittance Flood.”
2) MicroCapital Blog: “Growing Interest in Tracking Remittances Opens a Door for Microfinance.”
3) MicroCapital Blog: “Latin America and the Caribbean to Receive $55 Billion in Remittances in 2006—Ripe for Microfinance Investment.”
4) MicroCapital Blog: “Possible 7-8% Rise in Worldwide Remittances in Following Years Allows Plenty of Room for Microfinance Investment.”
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