Remittances, the Rural Sector, and Policy Options in Latin America

This paper addresses the policy opportunities that remittances bring to rural areas where migration has taken place in the developing countries. The author states that the demand for financial services by households receiving remittance from migrants represents the intersection between the role of MFIs and the rural sector development.

In context of Latin America, the author provides statistics to show that:

• The region is the main remittance recipient area in the world;
• In 2002, it received US $30 billion;
• Most remittance receiving persons are rural based, and women form a majority;
• The actual value of remittances depends on fees charged rather than on exchanges rates.

Caused by a lack of socioeconomic development, poverty and advancing modernization, the effects of migration are country and area specific. The geographic distribution of the remittance receiving households in each country is similar. Urban households make a significant percentage. They use remittance mainly for food, housing, buying land, savings, investment and insurance. Philanthropic hometown associations also fund projects to:

• Contribute to the economic growth of a community;
• Address the immediate economic needs of a given town.

The author suggests that MFIs can play a key role in providing these financial services. Remittances pose a very important financial stream in rural Latin America. They can become a major form of foreign savings energizing the rural sector into a process of modernization. The paper recommends some steps that need to be taken:

• Cost reduction;
• Financial democracy;
• Investment and micro-enterprise incentives;
• Hometown associations as agents of development;
• Enabling regulatory environments.