Published: November 2, 2006
The Inter-American Development Bank announced last month that Latin American migrants working in the United States will send a record $45 billion to their families back home this year. At that level, remittances represent the largest and most direct poverty reduction program in the region, topping by far the amounts of foreign aid provided by the United States. Most of the cash arrives in monthly wire transfers of about $300 apiece, and is spent on basics like food, shelter and health care. But development bankers estimate that some $10 billion of remittances could be saved or invested -- if people had access to banks and were encouraged to use them.
By banking part of their remittances, recipient families could earn interest, establish credit and provide money for local investment. The result would be more resources to help pay for schooling, starting small businesses or home ownership. Such saving and investment lead to economic growth. And growth at the bottom of the economic scale is the surest way to actually lift people out of poverty.
As it is now, most banks in Latin America that receive remittances simply dole out the sums to recipients, after collecting part of the fee paid by the sender. They make no attempt to turn the recipients into bank customers. Bank officials and the politicians that oversee them need to do more to educate the poor about banking and to offer them services. Banks need to be reminded that such lending can be profitable -- and will further broader national goals for economic growth. To that end, remittances deserve a more prominent place on the agenda at the meetings of the World Bank, the International Monetary Fund and the Group of 8 leading industrialized nations. Unless those billions in remittances are banked, money that could fight poverty is not being used to its fullest potential.