Making the Best of Globalisation: Migrant Worker Remittances and Microfinance

Why microfinance institutions are so well suited to the remmittance transfer sector

The workshop report demonstrates that microfinance banks, credit unions and microfinance programmes are becoming more and more relevant as actors in remittance transfers:

  • Promotional MFIs play a role in this market through intermediation and the collection of savings;
  • Microfinance organizations are increasingly considering engaging in this market segment (e.g. diaspora organizations);
  • MFIs are well placed to handle transfer payments, due to their proximity to remittance-receiving families and their potential to reach out to poor communities;
  • MFIs have the potential to produce positive returns on investments;
  • Networking and the establishment of an appropriate infrastructure are indispensable for successful remittance transfers.

The major external factor affecting the success of such transactions was the macroeconomic climate and the innovativeness of the financial sector. MFIs appear to be particularly well suited to capture and transform remittances for several reasons:

  • They deal with small-scale transactions where personal relations are important;
  • They involve groups and associations of intermediaries;
  • They integrate the formal and the informal sector practices.

Emerging good practices of the few MFIs that had become involved in remittances reveal the importance of a clearly defined social mission and a business-like approach. Other success factors include:

  • A high number of selling points;
  • Increased competition;
  • A wide range of products;
  • Networks and partnerships among MFIs and other organizations.

Final recommendations:

  • Savings-based organizations may be more appropriate in the context of remittance transfers;
  • The role of governments should be to observe, create an inventive-based regulatory framework and possibly provide matching funds to spur local community development;
  • The use of remittances should be influenced by incentives rather than mandatory regulations.