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Remittances: spreading the benefits in El Salvador For generations, poor people around the world have left their homes to seek better wages abroad. Today, the money they send home totals an estimated US$200 billion a year. In Latin America, remittances are worth more than direct foreign investment, official development assistance and foreign aid combined. They have a huge potential to reduce rural poverty. With this in mind, IFAD is exploring ways to lower the transaction costs of sending money home and is working with governments to make sure the money is used productively.
Merlin Peña remembers it well. In the 1980s, civil war had made life almost unbearable for the people of El Salvador. One day, her family packed their belongings and made their way to the United States. Twenty-two years later, Peña is a social worker in a Boston hospital. She may be thousands of kilometres from home, but she has never forgotten her roots. “El Salvador has a lot to offer,” she says. “We have watched as too many professionals and farmers leave the country.” Peña is ‘doing her bit’. Along with other Salvadoran immigrants, she has formed a hometown association (HTA). Its members not only send monthly remittances to their families back home, but have raised enough money to set up a nursery, a school for special education and a home for the elderly. And their plans do not stop there. “Our hope is that part of this money will help reverse this trend [of economic migration],” Peña says. Making the most of the money
The IFAD-supported Rural Development Project for the Central Region (PRODAP-II) also did its bit in El Salvador. With the aid of a steady flow of remittances, the project helped 30,000 farming families boost crop production and diversify their incomes. Ana and Julio Cortez live in the poor rural area of Tronalagua. With the help of a project agronomist, who advised them on investing in their farm, they have created a business growing fruit trees and raising animals, instead of growing just enough maize and beans to feed themselves. Ana and Julio have escaped poverty thanks to their newly generated income and to the US$200 they receive monthly from their children. “Before the children left our house, we had a dirt floor,” Ana says. “With remittances we laid this new one.” Their home is equipped with electricity, running water, a kitchen, telephone and television. Her son, Hector, says, “My four brothers and I send remittances to support our family and perhaps two more employees ... that’s the reason my father has things others don’t have.” IFAD is also investing in a major campaign to educate Salvadoran migrants in using remittances more productively and on the potential role of HTAs in stimulating economic development back home. During an IFAD-sponsored workshop in Los Angeles, the Committee for the Betterment of La Labor HTA requested assistance in constructing a school extension with four new classrooms and bathrooms. The project was prepared with the assistance of PRODAP-II and handed over to local firms and non-governmental organizations (NGOs). Together with additional financing from the Ministry of Education, the extension allowed the school to offer a high school education to the 685 students from La Labor and nearby communities. Almost half the costs were covered by the La Labor HTA and other HTAs. “The easiest thing would be to forget about the people of the village,” says Arturo Montalvo, Vice-President of the La Labor HTA. “In one way or another we find ourselves far away from the district ... however, we will never forget our people and will always try to help them.” Lowering transaction costs
The high cost of sending and receiving money can limit the effectiveness of remittances. To reduce transaction costs and enhance the development impact of remittances, IFAD is currently cofinancing a US$7.6 million programme in Latin American and the Caribbean with the Multilateral Investment Fund of the Inter-American Development Bank (IDB). The programme supports credit unions and microfinance institutions in low-income rural areas in providing better financial services. It also works with expatriate groups to help provide access to investment resources and encourage them to develop markets in their new countries, such as ethnic markets for food and crafts. This builds on IFAD’s experience in linking migrant associations with development projects in their home countries.
In addition, IFAD has established a parallel Financing Facility for Remittances (FFR) in partnership with the Consultative Group to Assist the Poor, the European Commission, the Government of Luxembourg, IDB, Spain’s Ministry of Foreign Affairs and Cooperation, and the United Nations Capital Development Fund. This US$13 million facility aims to reduce the transaction costs of remittances, develop institutional partnerships, bank the ‘unbanked’ rural population and promote innovative remittance and financial services and productive rural investment of migrant capital in the countries of origin. Through a competitive process, the FFR awards eligible institutions grant financing of up to US$250,000 per project. Only non-profit organizations are eligible, although for-profit organizations are strongly encouraged to partner with non-profits in developing joint initiatives. The latest call for proposals was issued in the spring of 2008, and finalists will be selected by the end of the year. While remittances are certainly not a substitute for foreign assistance or sound economic policies at home, they are an increasingly important tool through which poor rural people can pull themselves out of poverty and take charge of their lives. IFAD will continue to help families and communities throughout the world make the most of these resources. Source: IFAD |
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