Remittances & Financial Inclusion

Roberto Baldizon

Central American countries received over $15 billion in remittances in 2014, the majority of which came from the United States. Individuals and households in the region rely on remittances, along with a variety of other sources of income, to help cover daily expenses such as food, housing, education, and healthcare. That remittances enable them to cover these important areas is no doubt positive. However, it is also important to consider how remittances can build prosperity, rather than simply sustain survival, in households and communities throughout the region.

The answer lies in access to usable, reliable, and affordable financial services, this report argues. Financial access can magnify and deepen the positive impacts of remittances at each stage in the remitting process, from access to reliable and affordable remittance services for the sender, to access to banking services and savings strategies for the recipients. Strategies to increase financial access for senders and recipients can have profound development impacts at both the micro and macro levels, especially given the 3.8% expected growth in remittances for 2014.

Key findings of this report include:

• Remittances to Latin America and the Caribbean are expected to reach $63 billion for 2014, and Central American countries are among those with the highest levels of growth, making remittances and financial inclusion a particularly timely issue.
• Enhancing the development impact of remittances goes beyond reducing transaction costs to promoting bankarization and savings.
• Reducing transaction costs to an average of 3.5% for Central American countries would generate an estimated $48 million a year in savings.
• Increasing bank account ownership by five percentage points per country would result in an estimated $46 million in remittances entering the Central American banking system each year through account deposits.
• Mobilizing the existing (mainly informal) savings of remittance recipients would generate an estimated $2 billion in savings for Central America.
• Financial access and asset-building are critical for leveraging remittances for development, but they also apply to Central American development more broadly.