Regional Remittances Set to Soar More Than 60%

Remittances to the LatAm and Caribbean region are set to exceed $100 billion by 2010, from $62.3 billion in 2006 and $53.6 billion in 2005, according to Donald Terry, manager of the IDB’s Multilateral Investment Fund (MIF). The 2006 number was bigger than all FDI and foreign aid combined and makes LatAm the biggest region in the world for remittances, according to the MIF. The increase is driven largely by a lack of jobs in the region and demographics. Last year’s total includes $7.4 billion to Brazil, $4.2 billion to Colombia and $23.0 billion to Mexico. Around 75% comes from the US, while an increasing amount is flowing from Europe. Better technology and competition is cutting processing fees, which have dropped to around 4%-5%, says Terry. Local banks active in the region have yet to find a way to capture most of this money. Remittances are typically distributed at some point through a bank, coop, credit union or microfinance institution. Few actually become deposits. A big stumbling block, say bankers, is that many of the remitters are working illegally and do not want to open accounts. Until this workforce comes to the formal economy, the opportunity will be lost.