Remittances and Microfinance

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Remittances and Microfinance Opportunities and
Limitations Remittances and Financial
Inclusion Conference, Brussels 19-20 May 2005
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Microfinance International Corp.
MFIC is a private sector company with over 70
individual and commercial investors across the
world. It was founded in 2003 by Atsumasa
Tochisako, former General Rep. of the Bank of
Tokyo-Mitsubishi in Washington, to support
grassroots development, beginning in Latin
America. The company operates a remittance
settlement platform for MFIs that allows MFIs to
process transfers and aims to use float generated
from remittances to make loans to MFIs.
Microfinance International also operates an MFI
in the US, Mi Pueblo Servicios Financieros, which
acts as the US counterpart to the MFIs.
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Remittances and Microfinance

• MFIs are increasingly interested to pay
  remittances as
• recipients are potential prime customers with
  regular US
• income (loans, savings products)
• money transfers can be a link to potential
  expatriate
• customers (mortgages!)
• Commercial banks are often not interested or set
  up to offer
• services other than remittances to recipients
• commissions and FX from remittances create a new
  source
• of revenue and reduce dependence on lending.

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Remittances and Microfinance
However Smaller MFIs often do not have the
infrastructure (technology, branch network) or
operational capabilities (cash, licenses,
treasury management, marketing) to process
remittances. It is therefore more costly to use
MFIs as payers compared with banks or retail
operations. MFIC has worked with GTZ and JICA to
help MFIs meet the operational requirements (and
reduce cost of implementation)
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Remittance Settlement Platform
Platform currently processes transactions between
8 small MFIs in the US, Bolivia, El Salvador,
Guatemala, and Honduras with a total of more than
60 branches. Based on COBIS, a leading banking
software, the system offers full functionality
including security, compliance monitoring and
reconciliation. Centrally hosted and operated, it
can be accessed by MFIs over the Internet and
does not require them to make investments in
hardware or software. MFIC provides the system
and training free of cost to MFIs. We make money
from processing commissions (and are thus
dependent on volumes). System is currently
tested by various banks and credit unions in the
US as a platform to offer a competitive money
transfer service.
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System Structure
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Investment of Remittance Float

• Settlement system with
• Virtual accounts for all MFIs
• Link to the ACH system
• - Treasury management through Bank of America.
• As remittances are usually collected some time
  after they have been sent (average 1.5 days) and
  settlement with paying MFIs takes place
  periodically, remittance funds are constantly
  accumulated in the system (so called Float).
• A portion of the Float stays in the system
  constantly and is thus available for long term
  investments. MFIC uses these funds to make loans
  to participating MFIs.

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Investment of Remittance Float
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Experience so far

• MFIs need support with Marketing and Treasury
  Operations (Cash and FX management).
• Very good customer service. Problems with
  payments due to lack of sufficient funds,
  ineffective procedures and communication require
  high degree of helpdesk interaction.
• Cross Selling success is dependent on
• sufficient understanding of customer needs
• location.

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Next Step Microfinance Clearing House

• MFIC aims to expand its existing remittance
  settlement platform into a full Microfinance
  Clearing House that will allow MFIs to
• process payments (international, regional, and
  local
• remittances)
• purchase US Dollars and trade other currencies
• invest excess funds to and obtain loans from a
  capital market
• created by the system
• operate other network-based services such as
  ATMs and
• payment cards.