Japan’s Latin American Ex-Pats and their Impact on Remittances
by Jan Smith, Director Financial Services Practice, and Renée-Maude Lebrun, Consultant, InfoAmericas
Until recently, most of the attention on remittances was focused on the US and European channels and little information was available concerning intraregional remittances, or those from Japan. Recent estimates from the Inter-American Development Bank (IDB) reveal that Japan is the second-biggest source of remittances to the region, with Latin American expatriates sending home around $2.65 billion per year to their families at home.
An important characteristic of Latin American migrants in Japan is that they gain access to financial services sooner and more extensively than their counterparts in the United States. The response to which reveals possibilities for the long-term development of remittance products servicing the region.
The Dekasseguis
More than 1.5 million Japanese citizens and their immediate descendents – generally referred to as Nikkei – work in Latin America. Dekasseguis – as those that return to work in Japan they are known as – emerged as an important phenomenon in the mid-1980s when Japan’s economy was growing steadily and demand for cheap labor was rising. In contrast, the economic environment for Japanese ex-pats in Latin America was difficult, with high unemployment and rampant hyperinflation. In 1990, a revision to Japan’s immigration laws accelerated the returning trend resulting in nearly a half-million Latin Americans of Japanese descent working in Japan.
With only about 12% of the Latin American population in Japan working illegally, relatively broad legal acceptance provided to immigrants supports their assimilation into local financial services and contributes to their holding higher-earning jobs.
High Banking Penetration
Nearly 90% of these immigrants possess bank accounts and rely on the banking system to process remittances. This is twice the level of banking penetration as Latin American immigrants in the United States. The use of bank transfers as a remittance vehicle is further bolstered by the fact that about half of the Dekasseguis also have bank accounts in their country of origin. Banco do Brasil, Bradesco, Banespa and Itau all have agencies in Japan catering to these immigrants. This contributes to very low funds transfer fees, averaging 3%, less than half the cost faced by most Latin Americans in the United States. This suggests considerable potential for interbank transfer models within the Americas.
A contributing factor to the relatively high level of per-capita remittances by the Dekasseguis is that they generally have spent more years away from home than their American counterparts. About 25% have spent more than 10 years in Japan and 55% more than five years. This is particularly significant considering that this community has a median age under 35. Thanks to their cultural development as Japanese in Latin America, the Dekasseguis have managed within 10 years to bridge an assimilation process that takes other Latin Americans longer in the United States.
All is not roses for the immigrant in Japan. The allure of higher-earning jobs is largely offset by a much higher cost of living. Most earnings are consumed for immediate living needs and often the remittances that are sent home come from savings from past compensation. Nonetheless, the average Dekasseguis earns about $50,000 per year and sends an average of $8,000 home, about $600 per transfer. These indictors are roughly twice the level for Latin Americans in the United States.
Opportunities
The long term opportunities for financial services providers catering to Dekasseguis and their families in Latin America are considerable. The existing preference for sending remittances via interbank transfers suggests potential for card products and credit linked to remittances. Moreover, the large proportion of remittances that is saved to purchase homes and to start businesses creates opportunities for mortgages and small business credits.