[Senate Hearing 107-909]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 107-909


                          ISSUES REGARDING THE
                         SENDING OF REMITTANCES

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   ON

    OVERSIGHT HEARING ON ISSUES REGARDING THE SENDING OF REMITTANCES

                               __________

                           FEBRUARY 28, 2002

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  PAUL S. SARBANES, Maryland, Chairman

CHRISTOPHER J. DODD, Connecticut     PHIL GRAMM, Texas
TIM JOHNSON, South Dakota            RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              ROBERT F. BENNETT, Utah
CHARLES E. SCHUMER, New York         WAYNE ALLARD, Colorado
EVAN BAYH, Indiana                   MICHAEL B. ENZI, Wyoming
ZELL MILLER, Georgia                 CHUCK HAGEL, Nebraska
THOMAS R. CARPER, Delaware           RICK SANTORUM, Pennsylvania
DEBBIE STABENOW, Michigan            JIM BUNNING, Kentucky
JON S. CORZINE, New Jersey           MIKE CRAPO, Idaho
DANIEL K. AKAKA, Hawaii              JOHN ENSIGN, Nevada

           Steven B. Harris, Staff Director and Chief Counsel

             Wayne A. Abernathy, Republican Staff Director

                         Aaron Klein, Economist

                  Linda Lord, Republican Chief Counsel

             Madelyn Simmons, Republican Professional Staff

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                      THURSDAY, FEBRUARY 28, 2002

                                                                   Page

Opening statement of Chairman Sarbanes...........................     1
    Prepared statement...........................................    37

Opening statements, comments, or prepared statements of:
    Senator Shelby...............................................     3
    Senator Akaka................................................     6
    Senator Carper...............................................     6
    Senator Miller...............................................     7

                               WITNESSES

Luis V. Gutierrez, a U.S. Representative in Congress from the
  State of Illinois..............................................     3
    Prepared statement...........................................    38
Sergio Bendixen, President, Bendixen & Associates................    10
    Prepared statement...........................................    39
Manuel Orozco, PhD, Project Director for Central America, Inter-
  American Dialogue..............................................    14
    Prepared statement...........................................    41
Raul Hinojosa-Ojeda, PhD, Professor of International and Regional 
  Development, UCLA School of Public Policy......................    17
Susan F. Martin, PhD, Institute for the Study of International 
  Migration, School of Foreign Service, Georgetown University....    20
    Prepared statement...........................................    60

                                 (iii)

 
              ISSUES REGARDING THE SENDING OF REMITTANCES

                              ----------                              


                      THURSDAY, FEBRUARY 28, 2002

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10:10 a.m. in room SD-538 of the 
Dirksen Senate Office Building, Senator Paul S. Sarbanes 
(Chairman of the Committee) presiding.

         OPENING STATEMENT OF CHAIRMAN PAUL S. SARBANES

    Chairman Sarbanes. Let me call this hearing to order.
    Today, the Senate Banking, Housing, and Urban Affairs 
Committee again picks up a theme that we addressed with 2 days 
of hearings earlier this month on the issue of financial 
literacy.
    We are going to turn our attention this morning to the 
question of remittances. Remittances are the payments sent home 
from workers, generally immigrants, but not altogether, living 
in the United States, to family, friends, and communities in 
their country of origin. Those sending remittances are often 
subject to exorbitant costs. And we are examining ways in which 
we can address this situation.
    The particular focus of our discussion today will be the 
findings of three recent studies. One conducted by Sergio 
Bendixen of Bendixen & Associates, entitled, ``Survey of 
Remittances Senders: United States to Latin America,'' was 
based on interviews of Latino immigrants, conducted in November 
and December of last year. The other two entitled, ``Attracting 
Remittances: Market, Money and Reduced Costs'' and ``Enabling 
Environments? Facing a Spontaneous or Incubating Stage'' were 
commissioned by the Multilateral Investment Fund of the Inter-
American Development Bank and were prepared by Dr. Manuel 
Orozco in connection with this week's IDB's Conference Week on 
the subject of remittances. These reports are just now being 
released, and so we are pleased that 
Dr. Orozco is going to be with us this morning.
    We will begin by hearing from Congressman Luis Gutierrez, 
whose long-standing concerns about the remittance market are 
reflected not only in his interest, but also in a bill that he 
has introduced requiring full disclosure of all costs to 
sending remittances.
    We also have with us this morning two distinguished 
academics who are experts in the field--Dr. Susan Martin, the 
Executive Director of the Institute for the Study of 
International Migration at Georgetown University, and Dr. Raul 
Hinojosa-Ojeda, the founding Research Director of the North 
American Integration and Development Center at UCLA.
    I would like to say just a few words about this subject 
before I turn to the Congress. Do you have a vote or anything, 
Luis?
    Representative Gutierrez. No. They will let me know, Mr. 
Chairman.
    Chairman Sarbanes. Good. Immigrants to the United States 
have traditionally sent financial assistance in the form of 
remittances to family members who remained in their country of 
origin.
    As the son of immigrant parents from Greece, I am very much 
aware of this because they, in effect, sent remittances to 
relatives in Greece.
    Until recently, however, the phenomenon has not been 
systematically studied and its implications have not been fully 
realized.
    The 2000 census shows that 30 million people in this 
country today are foreign born. That is the largest absolute 
number in our Nation's history. More than 40 percent of them 
emigrated in the 1990's. The vast majority are citizens or 
legal residents.
    They make a vital and integral contribution to our Nation's 
economic and social structures. Over 15 million immigrants, 
accounting for more than half of the immigrant community, come 
from Latin American countries. In fact, the 2000 census shows 
that the Hispanic population of the United States stood at 
something over 32 million, representing 12 percent of our 
Nation's population.
    As the immigrant population has grown, the volume of 
remittances has increased dramatically. It is estimated that 
over $20 billion is remitted annually from the United States to 
Latin America, and there are substantial remittances to other 
areas of the globe as well, most notably, the Philippines, 
which, of course, the United States has a long-standing 
relationship.
    The rapidly expanding market has enormous significance, 
both to those sending remittances and to the recipients abroad. 
To cite just a few examples: The value of the remittances far 
exceeds United States official development assistance to all of 
Latin America; and in five countries--El Salvador, Haiti, 
Jamaica, Nicaragua, and 
Ecuador--it represents more than 10 percent of the Nation's 
GDP. 
In Mexico, which in 2001 received an estimated $9.2 billion in 
re-
mittances, making it by far the largest recipient country, the 
dollar value of remittances exceeded both agriculture and 
tourism revenues. Indeed, remittances are obviously a major 
factor in the economic development of countries to which we 
have strong ties 
in Latin America.
    Our focus today is the domestic aspect of the remittance 
market. We will consider the market from the point of view of 
those sending the remittances and also an institutional 
perspective. People sending remittances tend to be low-wage 
earners with modest formal education and relatively little 
experience in dealing with this country's complex system of 
financial institutions. Like all people who must make important 
financial decisions about limited resources, they need 
important information and understanding to carry out these 
transactions.
    This requires that they be fully informed about the options 
available to them for sending money home. What fees are 
charged, what exchange rate is offered, what alternative 
remittance methods are available, and what percentage of the 
monies sent will actually be received. The IDB estimates that 
in a $20 billion remittance market, that $3 to $4 billion of 
the $20 billion is used in fees and other transaction costs.
    The reports before us review these various options. They 
examine trends in the market and they review transaction fee 
structures. There is some recent evidence that fees have 
declined somewhat as the market has expanded, and this is 
certainly an encouraging development. But much needs to be done 
and this is one of the important questions we will be examining 
this morning.
    We are very pleased to turn now to Congressman Gutierrez 
from the 4th Congressional District of Illinois. During his 
four terms in the House, he has worked very hard on a number of 
issues, and this is one of them. We are very pleased to have 
you with us this morning. Before I ask you to give us your 
statement, I will yield to Senator Shelby for any comments he 
wishes to make.

              COMMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Thank you, Mr. Chairman. I would just like 
to listen to the witnesses and then comment later.
    Chairman Sarbanes. Congressman Gutierrez, we would be happy 
to hear from you. Thank you very much for coming over to be 
with us this morning.

                 STATEMENT OF LUIS V. GUTIERREZ

               A U.S. REPRESENTATIVE IN CONGRESS

                   FROM THE STATE OF ILLINOIS

    Representative Gutierrez. Good morning, Chairman Sarbanes 
and Members of the Committee. It is with great pleasure that I 
appear before you today. I would ask that my complete statement 
be submitted as part of the record.
    Chairman Sarbanes. Your full statement will be included in 
the record.
    Representative Gutierrez. I appear before this Committee to 
share my views on an issue that has been among my top 
legislative priorities during my tenure--protecting consumers 
from hideous, and often hidden, practices in the international 
money transmitting business.
    Currently, approximately 28 million foreign-born live in 
the United States, the majority of whom are making enormous 
contributions to our stability and security, economic and 
otherwise. These people came here seeking a better way of life 
and, indeed, they are making life better for all of us. At the 
same time, they are also working to make life better for people 
in their home countries, the relatives who use the money for 
basic necessities such as food and shelter, often in times of 
crisis.
    During the past 20 years, remittances to Latin American 
countries has increased not only in volume, but also as a share 
of the national income and total imports. This year, 
approximately $9 billion will be sent to Mexico via 
remittances, representing Mexico's third largest form of 
foreign income. However, such transfers are costly due to a 
range of fees, many of which are hidden.
    Wire transfer companies aggressively target audiences in 
immigrant communities with ads promising low rates for 
international transfers. However, such promises are grossly 
misleading, particularly for those with ties to Mexico or other 
Latin American countries, since companies do not always clearly 
disclose extra fees charges for converting dollars into the 
local currency.
    A few years ago, there was a gas explosion in Guatelejara. 
You could turn on Univision or Telemundo or the radio and the 
wire transfer companies were saying, in this time of need, in 
this time of tragedy, we are waiving the fee. Send money, 
basically for nothing. What they forgot to tell us is that 
there was a 15 percent difference in the conversion fee between 
what they bought the pesos for in Mexico and the actual pesos 
that people were getting.
    If I was a tourist in Acapulco, Mexico, getting a nice tan 
on a nice beach and wanted to use my ATM card, I would get 15 
percent more pesos for my dollars using that ATM than if I were 
an immigrant worker in Chicago making $5.15 an hour trying to 
help my family members back in Mexico. I think that is 
something that we earnestly should address. These are hard-
working people, doing the hardest jobs, the longest hours, for 
the worst pay. And what they are doing is helping their family 
members back in their countries of origin, many times in 
moments of crisis.
    While large wire service companies typically obtain foreign 
currency at bulk bargain rates, they charge a significant 
conversion fee to their customers. Of course, the companies go 
on the futures market and buy the pesos or whatever currency at 
the greatest benefit to them and convert, and then later on--so 
the whole history of, well, it is going to cost them and the 
fluctuations in the market, I think we all know that if we are 
converting billions of dollars to pesos, we are going to buy 
our pesos when they are very cheap in the market. And we have 
the ability to do that because we have the money to do that.
    The exchange rate charged to customers sending U.S. dollars 
to Mexico routinely varies from the rate set by the Banco de 
Mexico by as much as 15 percent. And these profits of 
conversion fees are really causing great harm to immigrants.
    This is why I introduced H.R. 1306, the Wire Transfer 
Fairness and Disclosure Act, a bill that currently has 70 
cosponsors in the House. Through the enactment of this bill, we 
could ensure that each customer who solicits electronic wire 
transfer of money is fully informed of all commissions and fees 
charged on all transactions, and has been quoted the exact rate 
of exchange available to them.
    The bill requires full disclosure of all fees involving in 
any transaction of money wiring services. Finally, the bill 
would also require companies operating and offering money 
wiring services to present each customer with a receipt for 
each transaction.
    During 2000, Latin American and Caribbean countries 
received about $20 billion in remittances from their family 
members working abroad. Those $20 billion were sent through 80 
million separate transactions, each one charging a fee for each 
transaction and conversion fee. In half of these countries, 
remittances, as Mr. Sarbanes so eloquently noted, represent 
more than 10 percent of the GDP of those countries.
    The money sent out to the families abroad was money earned 
through hours of hard work. Their efforts are compensated by 
seeing that the money they send to their relatives somehow 
alleviates some of the immediate financial needs of their 
relatives. For those living abroad, this money is a vital help 
for food, housing, and education. But a sizable portion of 
these savings never make it from the United States to these 
countries. Instead, it is claimed in fees--most in the form of 
punishing exchange rate fees--that remittance services levy on 
immigrants who wire money.
    The fees accompanying remittances made through wire 
transfer companies can sometimes reach 30 percent--and I want 
to underscore, 30 percent--excluding the amount lost through 
the exchange rates. Remittances create dependence and deepened 
economic inequality. Most customers, though, have no 
alternative. Few have bank accounts.
    Most remittance companies advertise low service fees for 
international transfers--but that cost can double because of 
the hidden fee that is charged when dollars are converted to 
foreign currency at poor exchange rates. For instance, let's 
say that it costs 12 cents to buy a Mexican peso. The wire 
transfer companies, however, charge their customers as much as 
a penny more for that same peso. The difference, which is 
called the foreign exchange spread, is pocketed by the 
companies. With enough transactions, Senators, the money adds 
up to hundreds of millions of dollars in profits for these 
companies.
    The two biggest companies who offer wire transfers claim 
almost 90 percent of the $41 billion a year in money transfers. 
Fueling the profits are hefty fees paid by some of the 
country's lowest-paid workers. It truly costs them dearly. 
Using one of the two biggest wire transfer services to send 
$300 from the United States to Mexico, for example, can cost 
$41, which is more than a day's pay at minimum wage to transfer 
the money.
    Currently, Wells Fargo, First Bank of the Americas, credit 
unions, and other financial institutions offer programs to help 
more immigrants become part of the banking system. These 
institutions, by accepting identification cards issued by the 
Mexican consulate, are helping thousands of people around the 
Nation who would be forced to turn to payday lenders and check 
cashing vendors, who in most cases, charge outrageous fees for 
services. At the same time, it protects the unbanked from being 
targets of crime, robberies, and other abuses.
    Finally, we must not forget that by helping consumers from 
being targets of hidden and excessive fees charged by money 
transmitting businesses, we are helping them save some cash 
that could then be used by them as a source of investment and 
future savings in the United States.
    I want to say that there are banks and institutions, 
Members of the Committee, and we should try to find a way to 
help our banking system help those immigrants.
    Today, in Chicago, we have Banco Populare. In the United 
States, we have Bank of the Americas. We have credit unions 
that are accepting the identification card issued by the 
consulate offices of Mexico. They come to their Congressman's 
office and we get them a tax ID number from the IRS and they 
are fully then identified. And I think it is better.
    And then what we do is we give them what everyone on this 
panel would use. I am sure if we wanted to help our mom or our 
dad or our sister, we would say, mom, sister, I am sending you 
the ATM card. Here is the number. Go to any ATM in your country 
and get the best exchange rate you can get from your brother, 
your sister, your family member here in the United States.

    We should find ways to help immigrants. They are working 
hard, and I know that that is the purpose of this Committee. 
Thank you all for allowing me this generous time to speak 
before you.

    Chairman Sarbanes. Well, thank you, Congressman Gutierrez.

    We have been pushing the Treasury to develop this first 
accounts program, to bring the unbanked into the banking 
system. And the Treasury has now put out requests for proposals 
to banks and to community groups to join together in a 
partnership to approach the Treasury to receive some of these 
grants which would help underpin the program and to get it 
launched.

    We think that is potentially a very important initiative. 
Its end objective, of course, is that people who are now 
outside of the banking system and have to function through a 
lot of establishments that are not in the center of the 
financial maintain will be able to actually like everybody 
else, work through established financial institutions. We very 
much hope that initiative will take off.

    I have no questions. We very much appreciate your 
testimony. But I will yield to my colleagues.

    Senator Shelby.

    Senator Shelby. I appreciate the Congressman appearing 
here, Mr. Chairman. I think he is on to something. What we are 
looking for is a little sunshine out there where people can 
know what is happening to their money, and also competition. 
The more competition that is out there, the more they will be 
able to send home. I think you are interested in both, aren't 
you?

    Representative Gutierrez. I think sunshine makes America 
great. Let people know, and the competition will arise.

    Senator Shelby. Thank you.

    Chairman Sarbanes. Senator Akaka.

              COMMENTS OF SENATOR DANIEL K. AKAKA

    Senator Akaka. Thank you, Mr. Chairman. I certainly want to 
thank the Congressman for his statement. He reveals a problem 
that we have all over the country, including Hawaii. As you 
know, we have a large Filipino population in Hawaii.

    Representative Gutierrez. Yes.

    Senator Akaka. They send a lot of money back to the Philip-
pines, so we have that problem, too, and that is my interest in 
this. I have a statement, Mr. Chairman, to make at the proper 
time.

    Chairman Sarbanes. When the Congressman leaves, I will 
yield to my colleagues for statements. We missed that in the 
beginning and I apologize for that.

    Senator Carper, do you have any questions?

              COMMENTS OF SENATOR THOMAS R. CARPER

    Senator Carper. Just a word of welcome, thank you for 
joining us this morning.

    Representative Gutierrez. Thank you.

    Senator Carper. It seems to me in listening to your 
testimony, and reading about it beforehand, there are any 
number of ways that people who are living in this country can 
send money back home, through avenues that are fair to them and 
to their loved ones at home.
    Most of the people I understand who are sending money back 
to their families and relatives actually have banking 
relationships that are established here in this country. I 
understand that if they were to more frequently use those 
existing banking relationships, that they and their families 
would be better off ?
    Representative Gutierrez. They should, but many of them are 
part of the unbanked of America. They do not use banking 
facilities, and many of them, needless to say, are undocumented 
workers here in this country. The people who pick the apples 
that we have for breakfast or the clean dish that we eat it 
from, or the clean floor that we walk on--and they are afraid 
of the system. So there is a fear.
    What I have seen is, as banking institutions come forward, 
so do they. There is a part of outreach that has to happen, 
both from the banking institutions and the community. Let's 
face it, there is a lot of fear many of them are undocumented. 
There are between five and eight million undocumented workers 
in this country sending money back to their relatives in their 
countries of origin.
    Senator Carper. Thank you. Thanks for joining us this 
morning.
    Chairman Sarbanes. Senator Miller.

                COMMENTS OF SENATOR ZELL MILLER

    Senator Miller. Thank you, Mr. Chairman, for holding this 
very timely and important hearing.
    Something has to be done about the outrageous costs of 
these wire service transfers. I appreciate Representative 
Gutierrez for helping us and leading us toward a solution.
    My question is, is it true that the families back in Mexico 
do not know the original amount that the person in the United 
States intended to send?
    Representative Gutierrez. Yes, that is true. Let me just 
briefly share with you.
    There was a resident of Chicago in Mexico who called his 
wife and said, honey, send me $300. I need $300. His wife 
promptly took the money down and she paid the $18 that was 
supposed to be the wire transfer fee. So she gave $318. She 
said, my husband is going to get $300. He called her back 
furious and said, honey, I did not ask you to send me $250, I 
need $300. When he got back home and saw the receipt, he could 
see the exchange rate in front of him.
    Senator Miller. Right.
    Representative Gutierrez. He said, my wife must not have 
sent me the $300 that I asked for. He in turn filed, along with 
others, a lawsuit which was settled out of court, in which 
MoneyGram and Western Union settled. They gave money to the 
Mexican-American Legal Defense Fund and they gave money to 
numerous organizations. They are promising to pay back millions 
of dollars. Their advertising has changed somewhat. And when it 
went to court, it was settled and the companies recognize it. 
We have to stay on top of them.
    I think Senator Shelby's point about sunshine is a very 
good point because then, Senator Miller, people would know what 
they are getting charged, and then they can move around, as we 
get more sophisticated as consumers.
    Senator Miller. Thank you.
    Chairman Sarbanes. Well, Congressman, thank you very much.
    Representative Gutierrez. Thank you.
    Chairman Sarbanes. I do want to note for the record, this 
initiative you undertook in Chicago with your citizen 
workshops, to help prospective citizens really meet all the 
various legal requirements. I gather that model is now being 
followed or copied by a number of your fellow Congressmen in 
other cities across the country. I think that was a terrific 
innovation and I did not want you to leave without commending 
you for it.
    Representative Gutierrez. Thank you, Senator. I think we 
all know as public officials how hard it is.
    I have a townhall meeting on housing or on Social Security 
or on Medicare and I say, come on down. And people do come 
down, 40 or 50 of them. Yet, 3 weeks ago, Senator, I had a 
townhall meeting on becoming a citizen and 700 people showed 
up. Seven hundred people with $250 checks, and another $15 to 
take their pictures. When was the last time anybody called a 
community forum and people showed up with $265 to attend a 
community forum of a politician.
    They do. Why? Because they are dying to become citizens of 
this country and all you have to do is extend a hand and say 
you are ready to help and they come forward. And I think that 
is one of the greatest American traditions that we have and one 
that obviously you exemplify, Senator Sarbanes, and so many of 
us here in the Congress of the United States.
    Thank you so much for having me this morning. I look 
forward to working with each and every one of you.
    Chairman Sarbanes. Thank you very much.
    If we could now go to our next witness. I think that we 
will take everyone as one panel. There may be votes. And that 
way, we can get people's testimony in before that occurs. We 
had originally been thinking of doing two separate panels, but 
I think this makes more sense.
    Senator Akaka, do you have a statement you would like to 
make?
    Senator Akaka. Yes, Mr. Chairman.
    Chairman Sarbanes. We would be happy to hear from you.
    Senator Akaka. Mr. Chairman, I want to thank you very much 
for conducting this very important hearing.
    As we know, we have discovered the importance of financial 
literacy and education for people in our country, and 
particularly, today for remitters. And so this is a very, very 
important hearing.
    Today, we will examine remittances and issues raised during 
the Committee's initial hearings on financial literacy.
    Immigrants nationwide often send a portion of their hard 
earned wages to relatives in their communities abroad. In many 
cases, the total cost of remittances can be 10 to 20 percent of 
the value of the transaction. People who send remittances are 
often unaware that the fees and exchange rates used in the 
transaction reduce the amount to the recipient.
    The State of Hawaii, as I mentioned earlier, is home to 
significant numbers of recent immigrants from many nations, 
including the Philippines. And in Hawaii today, Filipinos 
represent the third largest group. The Philippines is one of 
the largest destinations for remittances from the United 
States. The gross value of remittances to the Philippines is 
presently at $3.7 billion, and a large portion of that amount 
comes from the people of Hawaii.
    The examination of the issue of remittances is extremely 
timely as immigrants have less money to send to their families 
during the current economic recession. Consumers cannot afford 
to be un-
educated regarding financial service options and fees placed on 
their transactions.
    Remittances can be used to improve the standard of living 
of recipients by increasing access to health care and 
education. Funds are also collected by voluntary hometown 
associations and used for community development projects, as we 
will learn more about during this hearing.
    Many immigrants are unbanked, as was mentioned, and lack a 
relationship with a mainstream financial services provider. The 
unbanked are more likely to use the check cashing services, 
which charge an average fee of over 9 percent. They are also 
more likely to utilize the services provided by payday and 
predatory lenders. The unbanked miss the opportunities for 
saving and borrowing at mainstream financial institutions. If 
unbanked immigrants use the remittance services offered by 
banks and credit unions, they may be more likely to open up an 
account.
    I thank the witnesses for appearing today and look forward 
to hearing their recommendations. Again, Mr. Chairman, thank 
you for conducting this hearing.
    Chairman Sarbanes. Thank you, Senator Akaka, and it is a 
very important perspective you have brought.
    Senator Carper, did you have a statement?
    Senator Carper. No, thank you, Mr. Chairman. I just want to 
thank the witnesses for being with us today.
    Chairman  Sarbanes. Senator Miller.
    Senator Miller. I have no statement, Mr. Chairman, thank 
you.
    Chairman Sarbanes. All right. We are happy to turn to the 
panel. We will hear first from Mr. Sergio Bendixen, President 
of Bendixen Associates, a public opinion polling firm.
    He has overseen hundreds of studies, many involving the 
Latino population. Before he began his career in polling, Mr. 
Bendixen was Political Analyst for Telemundo/Univision and for 
CNN, the Spanish Services CNN.
    Prior to that, he worked here in the Congress as Chief of 
Staff and Press Secretary for Congressman Lehman of Florida, a 
very dear friend to many of us. And I also want to note that he 
was the National Campaign Manager for our colleague, Senator 
Alan Cranston, who served with such great distinction on this 
Committee for many years and Alan's presidential campaign.
    We are very pleased to have you here this morning, sir. The 
full statements of our witnesses will be included in the 
record, and we very much appreciate the effort that has 
obviously gone into that.
    If you could summarize in, say, 5 to 10 minutes, then we 
can get all of the presentations in. We will have some time for 
questioning as well. So please go ahead.

                  STATEMENT OF SERGIO BENDIXEN

                PRESIDENT, BENDIXEN & ASSOCIATES

    Mr. Bendixen. Thank you very much, Mr. Chairman, and 
Members of the Committee, for the opportunity to testify on an 
issue that is so important to millions of immigrants, Latin 
American immigrants, that live in this country, and to the 
economic future of Latin America.

    The poll that I am going to talk about today was 
commissioned by the Multilateral Investment Fund of the Inter-
American Development Bank. I want to assure you that the 
highest standards of public opinion research were adhered to.

    We talked to 1,000 Latin American immigrants during late 
November, early December of last year. The margin of error for 
the poll was 3 percent and we did everything in our power to 
simplify the questions as much as possible. We tested and 
retested the questions to make sure that this universe, this 
sample, which comes from a low socioeconomic level, understood 
every question. The poll, as you can see here, is made up of 
100 percent adults 18 years or older. They were all born in 
Latin America, now living in the United States, and they all 
had family in Latin America.

    Let me summarize the major findings. I should also mention 
the countries of birth and that 67 percent came from Mexico. 
The other third came from almost every country of Central 
America, South America, and the Caribbean, very similar to the 
census.

    We can be pretty certain that this is a very representative 
sample of Latin American immigrants living in the United 
States. Of course, we did not interview Puerto Ricans, who did 
not have this type of a problem in terms of cash remittances.

    My first major finding, and this may not be a great 
surprise to you, but there is a large percentage of Latin 
American immigrants who belong to the lowest socioeconomic 
level in our society.

    As you can see from this graphic, 41 percent, the largest 
group, make less than $20,000 a year. That is about $300 a week 
that they have to live on. Another 23 percent make between 
$20,000 and $30,000. Only 21 percent we might consider to be 
middle class and lower middle class at that, making a little 
more than $30,000 a year.

    Chairman Sarbanes. What are the dates of this poll? Did you 
say at the outset?

    Mr. Bendixen. Late November, early December of 2001.

    These people work in menial jobs, the least attractive 
jobs, as hotel maids, parking attendants, restaurant busboys, 
day laborers, agricultural workers. Latin American immigrants 
are some of the hardest workers in the country, yet receive 
some of the lowest wages.

    Point number one, this is a very low socioeconomic group, 
and as you can see here, they also have a very low level of 
education. Only 10 percent of them have a college degree and 71 
percent have a high school diploma or less.
    We asked this sample of 1,000 respondents representative of 
the Latin American immigrants in the United States whether they 
sent money to their family in Latin America. Sixty-nine percent 
said yes, 7 out of 10. A little more than 2 out of 3 said, yes, 
that they sent it. This represents about 10 million people, 10 
million Latin American immigrants that are involved in this 
process. And as you can see from this graphic, the people that 
send the most money are the youngest--73 percent of those 18 to 
34 say they send money to their family--and the poorest. It's 
remarkable.
    The ones that make less than $20,000 a year send more money 
to Latin America than the ones that are now basically middle 
class, the ones that make over $40,000. It is the youngest and 
the poorest that are sending the most money, and the money most 
often.
    As you can see from this graphic, they send it pretty 
regularly. Our analysis of the results show that the average 
Latin American immigrant sends money to their family seven 
times a year. And 
almost half, 44 percent, send it every month religiously to 
their 
family. It is very, very impressive.
    As you all can imagine, this is not something that just 
started recently. Fifty-four percent of those that we 
interviewed, a little more than 5 million people, say that they 
have been doing this for 5 years or more. So this is something 
that has been happening now for quite some of time.
    Finally, we asked them, how much do you send every time 
that you send money?
    The average figure that we came up with was $200 every time 
that there is a cash remittance sent. That is how much they 
send. That is the average or the mean remittance. And as Dr. 
Orozco will tell you in his report, which analyzed the whole 
matter from a more academic point of view, basically, he came 
up with the same results in terms of the $200 and in terms of 
the seven times a year. I think we can be pretty certain that 
these results reflect what is going on in terms of the cash 
remittance process.
    How do they send this money to Latin America? Forty-one 
percent said that they use the international money-transfer 
companies--Western Union, MoneyGram, were the companies that 
were mentioned the most. Another 29 percent said that they use 
international couriers, special delivery systems, and sometimes 
even their families or their friends that travel back to Latin 
America. But only 20 percent said that they use the more 
traditional financial process. In other words, banks and credit 
unions.
    We have 80 percent of the people sending money to Latin 
America through either the money-transfer companies or through 
couriers or special delivery companies.
    It is fascinating to see that cost is a major factor here. 
People that send their money through the international money 
transfer companies, when they send $200, most of them know how 
much they are paying in fees here in the United States. Forty-
two percent said that they were paying between $10 and $20. The 
small group that sends their money through banks and credit 
unions, are paying a lot less. They are paying less than $10 
every time they send $200. There is a huge cost differential 
between the people that use the money-transfer companies and 
the banks and the credit unions in terms of the initial fee.
    Now, we go to what I think is the most significant finding 
of the study. An overwhelming majority of Latin American and 
Hispanic 
immigrants are unaware, they do not know, as Congressman 
Gutierrez was pointing out, that their families in Latin 
America receive less money than what they send from the United 
States. And when these Latin American immigrants are informed 
that their families get a lot less than what they send because 
of the exchange rates, because of the surcharges, the fees, the 
commissions, when they are told the truth about what is going 
on, they feel that the costs are excessive and it is unfair.
    Let's look at the numbers quickly. Fifty-eight percent of 
the people we interviewed that send money regularly to their 
families in Latin America said that they thought that their 
families, when they pick up the money, they get the full 
amount. And another 
9 percent just did not know. Only one third of the people we 
interviewed knew that their families got less than what they 
sent. But the other two-thirds are ignorant--they just do not 
know.
    As the Congressman was saying, full disclosure is such an 
important issue.
    Chairman Sarbanes. This is less after they paid the fee. 
They know they are paying the fee.
    Mr. Bendixen. Everybody knows about the fee.
    Chairman Sarbanes. So the fee is over and above what they 
are sending. Correct?
    Mr. Bendixen. The specific question was, when your family 
picks up the money in Mexico or Peru or Ecuador--we plugged in 
the name of the country where they were from--do they pick up 
the full amount, the $200 that you sent--we again plugged in 
the amount of money that they said that they sent--or do you 
think that they get less?
    And 58 percent thought they received the same amount. Only 
33 percent thought they got less. As you can see, there is a 
big difference between the country of origin. Mexicans seem to 
be better informed. Almost half knew that their family gets 
less money when they pick up the money in Mexico.
    But Dominicans, Central Americans, South Americans, 10 
percent or less knew that their families, their moms, their 
wives, pick up a lot less money when they pick it up in those 
countries.
    There is a very great difference in terms of the level of 
information that exists in terms of the amount of money that is 
paid. And here's the question about, when we informed them 
about the fact that they not only pay their fee, the initial 
fee here in the United States, but that they also, that there 
are extra charges and lower exchange rates in Latin America. We 
asked, do you think it is fair? Do you think the costs are 
excessive? Or do you think the service is worth it because the 
money arrives fast and it is safe? While 59 percent said it is 
not fair, the costs are excessive. Only 25 percent thought it 
was fair.
    Finally, the last major finding, only 56 percent of Latin 
American immigrants residing in the United States have a bank 
account. The other 44 percent do not. This is interesting. It 
is high compared to Latin America, where only 20 percent of 
people have a bank account. But, as you know, it is much lower 
for the general population in the United States, where it is 
85, and higher, in terms of people having a bank account.
    Let's see who has one and who does not.
    It is the noncitizens who do not have it. Fifty-four 
percent do not have a bank account. The younger immigrants, 68 
percent do not have a bank account. The poorest ones, the ones 
that make under $20,000, that do not have a bank account. And 
if you remember, those are the people that send the most 
remittances.
    As you might remember from when we were looking at that 
point, it was the young and it was the poor and it was the 
noncitizens that send the most money, the most often.
    There is a tremendous relationship and an important 
relationship or correlation between the people that have bank 
accounts and the methods that they use to send money to Latin 
America.
    The last graphic--``Why do not you have a bank account?'' 
Most people told us that they did not think they needed one 
because they do not have anything to put into it. 
Unfortunately, they need more information because there is a 
lot of other things that you can do with a bank account. Others 
brought up process issues--they did not have proper documents, 
the process was too complicated, they do not speak English, and 
they do not trust banks.
    I think some of the Argentineans we interviewed said they 
do not trust banks.
    [Laughter.]
    To finish up, let me give you very quickly a couple of my 
recommendations, having looked at this study.
    Latin American immigrants should be informed accurately 
about the full cost of transferring money to their home 
countries. This should be done in a way that is easy for them 
to understand, keeping in mind the low educational level.
    Full disclosure should unleash market forces that hopefully 
will result in a significant reduction in the cost of sending 
money to Latin America.
    It is unconscionable to me, and I am giving you my personal 
opinion, that the poorest of the working poor in our society, 
most of them making less than $300 a week, are paying somewhere 
between 10 and 15 percent surcharge every time they send money 
to their family in Latin America.
    The second one, and I know that your Committee is working 
on this, the banking community of the United States should 
seriously consider funding a massive PR campaign to inform the 
Latino immigrant community of the benefits of opening a bank 
account, including the significant savings in the cost of money 
transfers to their home countries, if they use the banking 
system.
    Hopefully, the banking industry can also look at some of 
the process issues that make it difficult for immigrants to 
open up a bank account in the United States.
    Again, thank you so much for the opportunity to present my 
testimony, and of course, I will be here for questions later.
    Chairman Sarbanes. Well, thank you very much. Those charts 
are very useful and helpful.
    We will next hear from Dr. Manuel Orozco, who received his 
doctorate from the University of Texas, in Austin. He is 
currently the Project Director for Central America for the 
Inter-American Dialogue, and before he was a Professor of 
Political Science at the University of Akron. We are very 
pleased to have this author of some very important studies here 
with us today. Dr. Orozco, we would be happy to hear from you.

                STATEMENT OF MANUEL OROZCO, PhD

              PROJECT DIRECTOR FOR CENTRAL AMERICA

                    INTER-AMERICAN DIALOGUE

    Mr. Orozco. Thank you very much, Mr. Chairman. I am very 
happy to be here to discuss this particular issue, which is of 
relevance to millions of immigrants and relatives.
    I guess the way to start this is perhaps starting with what 
Senator Akaka mentioned regarding financial literacy. This is 
an issue that deals with what I call economic citizenship. 
Financial literacy is one component that is very relevant to 
this issue.
    But, in general, as you mentioned before at the beginning 
of this discussion, remittances have signified a significant 
value for the recipient countries in many ways. You mentioned 
that in some cases, in some countries, the value of remittances 
represents about one-tenth of the national income of different 
countries. It is not only the issue of the aggregate volume of 
remittances that bears significant relevance, but also, what it 
signifies in many ways.
    In this sense, it is important to realize that remittances 
have been a major component of the process that has been taking 
place in Latin America, especially in Central America and 
Caribbean countries. And it is through that labor migration and 
through 
remittances that these countries have been able to incorporate 
themselves into the global economy in a more sustained manner 
sometimes than in cases of foreign trade. And the issues that 
the remittances have this relevance at the level of the 
national econ-
omies, but also it is a flow that continues growing in a steady 

manner.
    If we look at the process on a month-by-month basis, we 
will find out that it is something that continues significantly 
for various countries. This is just a sample of the monthly 
flows that have been going from remittances, from 1999 to the 
present. And it is something that has been going on for many 
years.
    But, I guess more importantly is the issue that, on the one 
hand, we are talking about, as Sergio mentioned, low-income 
people, people who earn $20,000. This is on average. The 
average income of Latinos is about $25,000 a year. They are 
sending about 10 percent of their income to their home country. 
Yet, the money-transfer process, the process of sending money 
continues to be costly, but also imperfect. There is a strong 
relationship here with the issue that this is an imperfect 
market in which cost is penalizing the sender, but it is also 
penalizing the recipient.
    We did a study basically of about a hundred companies 
sending money to Latin American. We dropped a few companies, 
about 20 of them, because they were out of the market by the 
time we did the study. So we ended up with about 70 or 80 
companies.
    Some of the findings showed very important issues. One of 
them has to do with, definitely, there has been a decline in 
the cost of sending money. Three years ago, it used to cost 
about $30 to $40 to send the average amount, which is $200.
    We paid attention to three amounts to send two remittance 
types--$150, $200 and $300--and then we paid attention to the 
$200 figure because that is the average that people say that 
they send. There we saw that there has been a decline. However, 
the range of the cost continues to be high.
    First of all, the range goes from $7 to $26 for sending 
$200. We have seen that fee charges decrease with competition, 
and this varies from country to country. For example, in the 
case of Mexico, where competition has been growing 
significantly, there has been a decline in charges. We also see 
that banks and credit unions are getting involved in the money-
transfer system. However, they are still relatively engaged in 
the process, and there are different reasons why this is taking 
place.
    But it bears paying attention, particularly when we are 
talking about that half of the population is unbanked. And in 
other cases, we have seen that the percentage of people 
unbanked is probably higher than that. Yet, the costs continue 
to be high.
    If we look at about nine different countries that 
immigrants send remittances to, as you can see in the chart, 
the cost of sending remittances is significantly high--it is on 
average--and this is important to stress, the average amount is 
10 percent, the value of the principle.
    Yet, if we look at the fact that the companies that have 
the largest market share happen to be also the companies that 
charge the highest fees, the fees that go above the average, we 
are talking about. But, as you can see, the most expensive 
country in this case is Cuba. There is a strong relationship 
between market and cost here. There is a monopoly over the 
money-transfer process on the receiving end. Only the state of 
Cuba is the one in charge of distributing the remittances.
    But we see in other countries that costs continue to be 
high, and this is an important issue. We can ask, in 
relationship to what is this high? Because some people can say, 
well, sending home $200 for $20 might not be very expensive, 
but first, if we think in terms of the sender, who is earning 
about $1,500 a month, at the household level, and has to incur 
$20, that is a lot of money.
    Second, that the real cost, the operating cost of sending 
remittances for about a $200 figure ranges from $2 to $5. Then 
there is a $15 differential that we do not know where it is 
going. In relation to that, we have the exchange rate issue, 
which is also of significant importance.
    I am an immigrant, too, and I send money to my parents once 
a month. We send them remittances. My mother doesn't know that 
she is being penalized, not only by the exchange rate, but 
sometimes by other fees through the way in which we are sending 
her the money. They are middle-class people, and yet, they do 
not know, and many Latin Americans do not know how much they 
are being penalized by these costs.
    There are different kinds of hidden costs that people do 
not realize. In the rural areas, for example, you are charged 
sometimes an extra fee because it is in the rural sector. The 
other issue is that if you are sending money in places, for 
example, like Wyoming, the cost of sending remittances is far 
higher than sending it from California. So this issue is of 
major importance.
    The other issue is that, definitely, money-transfer 
companies are the ones that charge more money. As you can see 
here, 60 percent of banks or credit unions charge under $10. 
But yet, they are the least involved in the process.
    On the other hand, we see that over 60 percent of money-
transfer companies charge about 10 percent of the value of the 
remittance to be sent. So there is a major cost incurred by the 
sender.
    The question is, what can we do about these issues? I think 
there are different ways to approach this problem. I think the 
point of departure deals with the banking component. 
Definitely, we need to find ways to bank the unbanked. But not 
only to deal with the unbanked. The reality is that even the 50 
percent group of people who have bank accounts do not know that 
they can get better deals through their financial institutions. 
And again, this is an issue of financial literacy that applies 
not only to the unbanked, but also to the banked.
    We do not know as Latinos--actually, not only as Latinos. I 
think as minorities--we really know very little about the 
benefits of banking. And there are different reasons why. 
Sometimes banks really do not care very much about the little 
people. But also, there is a lack of education.
    The most important institution that could help migrant 
communities, credit unions, are still unfamiliar, relatively 
speaking, with the process of attracting or reaching out to 
migrants to get into the credit union system.
    So, we need to focus in ways and with strategies to bank 
the unbanked. There are other strategies that we can think of. 
One of them that is very important is that we need to oversee 
money-transfer companies.
    As I say, this is an issue of financial literacy of 
economic citizenship, but it is also an issue of corporate 
responsibility. Large companies that send money abroad through 
their businesses often charge accounts charges that they do not 
even report to you about the exchange rate, and this is a very 
serious problem.
    I think it is about 1 in 10 companies that really reports 
the exchange rate that they are applying in the money transfer.
    There are other issues that bear importance. One of them 
has to do with establishing bank liaisons between U.S. banks 
and banks on the receiving side.
    Finally, we did some projections about what would be the 
impact in terms of the effect in reducing transaction costs. 
And just to give you an illustration of that, we want to pay 
attention with the first point, which is that if we were to 
reduce the charges of sending money by 50 percent or reducing 
it to $7, the flow of remittances could increase by 7 to 10 
percent. This would amount to about 
1 to 3 percent of the GDP of the recipient country. So this is 
quite significant. We are talking about hundreds of millions of 
dollars. 
I am talking here about the receiving side. But the sending 
side would also benefit once it would be incorporated. You 
would be able to save more money, definitely, from the charges, 
but also, you would be able to enjoy the benefits of being 
banked.
    Thank you very much.
    Chairman Sarbanes. Thank you. Very interesting testimony.
    We will now hear from Dr. Raul Hinojosa-Ojeda, the Founding 
Research Director of the North American Integration and 
Development Center at UCLA. Previously, he worked with 
Representative Esteban Torres to create the North American 
Development Bank. Dr. Hinojosa received his Doctorate in 
Political Science from the University of Chicago, and he has 
worked with many community and immigrant groups focusing on 
financial education, particularly on this issue of remittances.
    We are very pleased to hear from you, sir.

             STATEMENT OF RAUL HINOJOSA-OJEDA, PhD

                 PROFESSOR OF INTERNATIONAL AND

                      REGIONAL DEVELOPMENT

                  UCLA SCHOOL OF PUBLIC POLICY

    Mr. Hinojosa-Ojeda. Thank you, Senator. And I really 
commend the Committee for this work that they are doing right 
now. I think it is extremely important, and I would like to 
make three points.
    One of them about the importance that I think this issue of 
remittances is going to increasingly play on a worldwide scale 
as we begin to confront the issues of global poverty. I would 
like to say something about that.
    The two other questions, one is, while disclosure and cost 
reductions I think are important, I think the focus really has 
to be on this financial intermediation, the increased banking 
and strategies for that. And I would like to point out some 
strategies that we are working on in California with Mexico and 
Central America that could help us move in that direction.
    First of all, in terms of the importance of this issue, we 
are now launching a new world trade organization round on trade 
liberalization where most of the argument is that it is going 
to be able to reduce poverty through increased trade. And that 
is true, in fact.
    A lot of the work that I have done as a professor at UCLA 
is comparing relative impacts of trade liberalization to other 
policy approaches, such as movement toward improved immigration 
laws and the intermediation of remittances. I can report to you 
that our research is showing that we have been seriously 
underestimating this important area for policy, especially when 
you compare it to perspectives like trade liberalization as an 
attack on poverty.
    Migration and remittance is a more direct way to attack 
poverty worldwide and to improve the conditions in immigrant 
sending regions and to reduce the pressures for low-wage 
migration.
    An example right now is that there are 30 million 
immigrants here in the United States. If you do a full 
accounting of that, that really turns into close to $1.5 
trillion of value-added. That is, in a sense, one of the 
largest countries in the world right there. And if you add up 
all the immigrants worldwide, this turns into actually one of 
the third largest countries in the world collectively.
    The policy alternative, and in my testimony, there is much 
more detail on that, that I think we have to continue to focus 
on, is legalization of status, moving immigrants out of the 
shadows is good for both the United States as well as the 
immigrant-sending regions. And orderly, legal process of growth 
of immigration based on the demand that we have in the United 
States and other developed countries is extremely beneficial, 
both to us, as well as these developing regions. That right 
there produces a much bigger kick in terms of global growth 
directly toward poverty than all trade liberalization 
discussions.
    Finally, the improved intermediation and development 
leveraging through remittances, which I think we are only 
beginning to scratch the surface on, is much more significant 
than the types of financial flows that will come through direct 
foreign investments and multilateral institutions directly 
helping the poor.
    Having said that, I turn to the issues specifically about 
remittances and their costs and intermediations. And although I 
completely support Congressman Gutierrez's approach, we have 
been doing this in California for a number of years, trying to 
pass this type of legislation that would increase the 
disclosures and lower the costs, the key issue is increased 
banking and intermediation.
    I commend the Committee and the work that they have done on 
first accounts. I think we need to go beyond that. Let me tell 
a little bit about what I think.
    The real key issue here is that the banking community 
itself, 
and even the credit union community, I do not think have yet 
understood the full extent of the business opportunity that 
this 
represents.
    We are trying to set up an accounting system of the 
migration and remittances between the United States and Latin 
America. The full savings amounts that would be represented by 
remittances is highly under-estimated. Most people think that 
remittances are really just a quick pass-through for 
consumption. The reality of it is, if you do the accounting 
properly and you create institutions to capture this flow, it 
actually produces quite a large amount of money available for 
securitization that banks on both sides of the border could 
very much look at as a business opportunity. The other issue is 
in terms of the financial services that are potentially 
offered.
    Most of the survey instruments that are quoted say that 
remittances, only about 1 percent of them are used for 
investments.
    Well, actually, that is a mischaracterization. Our research 
is showing, it depends on how you ask the question. The real 
issue is, and we are doing household surveys at community 
levels in the immigrant-sending regions in Mexico and Central 
America--two issues.
    First, if you did not have the remittances, most of them 
will say, how do you use it? Yes, I spend it on consumption. 
What it does not tell you is that that frees up a lot of other 
resources for investment purposes and for other types of 
economic activity.
    The second is what it does for the community as a whole. 
This increases flows of funds into these immigrant-sending 
regions, which are very much available for investment. So what 
we are seeing now is that in some communities where better 
financial intermediation occurs in places like Mexico, 
remittances over the last 10 years have significantly reduced 
poverty and marginalization. In some they have not. The key 
issue is what type of financial intermediation institutions are 
available.
    Another quick point is insurance. In fact, what we know now 
theoretically and on the research is that most migration occurs 
primarily for the purposes of gaining some savings and 
investment for the future, as well as insurance to reduce 
volatility that most people experience in the immigrant-sending 
regions. These are avenues and opportunities for financial 
institutions. Some banks are finally beginning I think to get 
at that.
    Let me turn to my third point. And that is, these new 
policy alliances out at UCLA that we are trying to develop in 
two areas. One is new financial mediations and another is the 
leveraging of development funds through the hometown 
associations.
    On the first issue in terms of new transnational banking 
alliances, we are working with California-based credit unions, 
as well as California-based banks. The Citicorp just recently 
bought Bonamex, for example, and they have a unit called the 
California Commerce Bank from which all the research that we 
have shown actually has the cheapest mechanism available, which 
is you set up an account on the United States side and you set 
up an account on the Mexican side. And the transfer from one 
account to the other is on the order of about $5.
    Wells Fargo just set one up with Bancomo. They are charging 
$10. And actually, if you go into the technology of this, there 
is still quite a bit of reduction that is still available.
    But that model where you create bank accounts on the United 
States side and on the Mexican side or on the Central American 
side, linked, I think is clearly what meets the objective that 
we want to achieve, which is getting people into financial 
intermediation on both sides of the border and then really 
making this a leverage possibility for savings and investment.
    And we are working with hometown association networks in 
California to work with the banks and the credit unions. The 
credit unions--people like them. They can potentially also 
reduce costs. But they are actually not very involved at this 
point in this market. There really needs to be a great deal of 
interest. I think your Committee pushing light on this could 
make a big effort on that.
    Finally, something that Manuel mentioned in his excellent 
paper, is the increasing role on the organized immigrant 
networks in the United States. In fact, history, we even know 
that this was very important, back in the last century with the 
Italians, and you mentioned the Greeks.
    The Spanish networks in Europe, through their credit 
unions, was fundamental for why we now in Spain have closed the 
income gaps dramatically within Europe. Whereas, in North 
America, they have remained exactly as unequal as they were 40 
years ago. So this issue of working with the immigrant networks 
and helping improve their financial opportunities is 
fundamental, both for the rich countries, as well as the 
immigrant-sending countries.
    The hometown associations are taking the lead and showing 
how to do this. They are raising money at unprecedented rates. 
In California, we are now estimating that there has been in the 
last 5 years over $50 million raised by the hometown 
associations directly mobilizing social investments and 
increasingly productive investments in their immigrant-sending 
regions, in their hometowns, their villages.
    Which, actually, if you compare, they outstrip government 
support for many of these projects by a 10:1 margin. In fact, 
governments are now turning in Latin America to these financial 
flows as something that they want to leverage and they want to 
match on a 3:1, 2:1 basis, to try to increase these types of 
activities.
    This is something that the United States should be thinking 
about as well. In fact, when Senator Bob Graham was Governor in 
Florida, he created something called the Florida Association 
for Volunteer Action Corps in Central America and the 
Caribbean, a long name. But what they were able to do is 
actually match U.S. NGO's that want to work with the immigrant-
sending regions.
    I think that this is an interesting model that has been 
supported in Republican and Democratic Administrations in 
Florida, something that we should look at at a Federal level 
that I think would make a lot of sense in terms of putting 
light on these types of new initiatives, as well as new 
financial institutions.
    The IDB I think is doing a phenomenal job in terms of 
leading the way in terms of how the Washington international 
financial institutions can also play a role.
    But I think it is something that is going to be a major 
inter-
est of the developed countries in the future if we are going to 
deal 
with the fundamental challenge of this century, which is the 
clos-
ing of these large income gaps between developed and developing 

countries.
    Chairman Sarbanes. Good. Thank you very much.
    Our concluding panelist will be Dr. Susan Martin. She is 
the 
Executive Director of the Institute for the Study of 
International Migration at the School of Foreign Service here 
at Georgetown University. Dr. Martin also served as the 
Executive Director of the U.S. Commission on Immigration 
Reform. She has taught at Brandeis and at the University of 
Pennsylvania. She actually is a leader in the subject of global 
migration and has had a particular focus as well on the 
remittances issue.
    Dr. Martin, we are pleased you are here with us this 
morning.

               STATEMENT OF SUSAN F. MARTIN, PhD

       INSTITUTE FOR THE STUDY OF INTERNATIONAL MIGRATION

        SCHOOL OF FOREIGN SERVICE, GEORGETOWN UNIVERSITY

    Ms. Martin. Thank you. Well, the difficulty of being the 
fourth in a line-up of experts is that many of my points have 
been taken. But I think part of my role here has been to----
    Chairman Sarbanes. We put you there because we figured you 
would be the clean-up hitter.
    Ms. Martin. I will try.
    [Laughter.]
    I will also try to place some of what we have been hearing 
about Latin America into a global perspective.
    Chairman Sarbanes. That would be very helpful, yes.
    Ms. Martin. According to the most recent statistics from 
the International Monetary Fund, globally, remittances now 
exceed $100 billion per year. Remittances flow either in terms 
of transfer of funds back to home countries or actual 
compensation of foreign workers into home country banking 
accounts. Sixty-two percent of that $100 billion now go to 
developing countries.
    I agree completely with my colleagues about the importance 
of remittances as a potential tool for development of those 
countries. For many of the countries, it exceeds foreign direct 
investment, foreign trade, and clearly exceeds very 
significantly foreign development aid that is provided on a 
government-to-government basis.
    During the course of the last decade or so, I have looked 
at the remittance flows and their impact on countries as 
diverse as Mexico or the Dominican Republic in this hemisphere; 
the Philippines, where it clearly is one of the most important 
inputs and financial resources, Yugoslavia, where in the 
rebuilding of Serbia after the fall of Milosovich, remittances 
are again coming up as a very important issue, and in Africa. I 
have looked at it in places like Mali, very recently, just a 
few weeks ago, in fact, and Somalia and Somaliland, over the 
course of the past decade. So it really has an impact that is 
very significant, and not just in this hemisphere, but 
globally.
    And while we are one of the major sources of remittance 
flows, many of these countries are receiving remittances from 
the European countries, Canada, Australia. So it is a global 
source of transfer, both in terms of where the immigrants are 
who are sending money back, as well as their families in 
developing countries.
    I would argue that this is likely to increase in the 
future, this remittance flow, largely because, as I see it, 
immigration will increase. International migration will be 
increasing in the future.
    The International Organization for Migration, in some work 
that I have done for them, has estimated that, currently, there 
are more than 150 million international migrants in the world 
today, again, spread pretty much over the globe. That number 
has doubled 
in the last 30 years or so, so we have already seen a 
significant 
increase.
    Why I think it will go up is because of the type of 
economic integration that we clearly have seen emerging, that 
is bringing labor markets together and making it much more 
likely that companies will be recruiting from a global labor 
market rather than just from a domestic labor market.
    This is combined with the transportation and communications 
revolution that we have also seen that allows people to move 
themselves much more cheaply and easily than ever before.
    They know what opportunities exist elsewhere and they now 
have greater capacity for acting on that knowledge. Those same 
factors also will affect more directly the remittance flows 
because with the ease of transportation and communications, 
migrants who move to other countries, whether they are thinking 
about it as temporary movement or as permanent relocation, are 
able to maintain ties with their families and with their 
communities for much longer periods of time than was possible 
before they were able to communicate as cheaply as they are 
able to do today. Those ties are what keeps the remittance 
flows coming because migrants have the emotional and social 
ties that require them to keep sending funds.
    So, as I said, I think that this phenomenon that is now 
emerging as an important issue will grow in importance in the 
years ahead.
    Within the research community, there has been some marked 
shift in our thinking about remittances. If you looked at any 
of the literature from even 10 years ago, it was mostly 
negative. It mostly talked about the problems of remittances, 
the heightened dependency in communities that received 
remittances on this flow, the need for sustaining migration in 
order to be able to keep the flow of funds coming in, the 
inequalities that remittances created and the excessive 
consumerism that was associated with that, as families that 
received remittances were able to buy more and to have 
bigger houses, have more opportunities than their neighbors. 
The development impact--the possibilities for increased economic 
opportunities from remittances--was dismissed as almost 
nonexistent.
    I agree with my colleague that we are now seeing that the 
effects are much more complicated and that there are many more 
positive elements. Even when remittances are used for 
consumerism, if people are buying products locally, that is 
stimulating local markets. It is stimulating local production 
of goods, and it is providing multiplier effects that can 
stimulate economic development in the receiving communities 
that are getting these remittance transfers.
    We are also seeing, as Raul mentioned, a lot more communal 
transfers of funds through hometown associations. And this is 
not just an American, Western Hemisphere phenomenon. When I was 
in Mali a few weeks ago, I visited health centers and schools 
that had been built by migrant remittances from hometown 
associations--in this case, of Malians living in France who 
were sending their remittances back in order to support the 
infrastructure of their home communities. We are also seeing 
increased used of these funds for supporting income-generation 
activities--small factories and other types of opportunities.
    What we hope is that people will be able to make the choice 
in these communities as to whether they would stay in a good 
economic situation or migrate, and they would not be forced 
into migration as the only way in which they can sustain their 
own family lives. To make remittances a better tool for 
development, we need to build on the positive aspects and to 
deal with some of the problems that my colleagues have talked 
about, particularly in terms of the high transfer costs.
    If these remittances are to be a vehicle for development, I 
think we have to keep in mind that it is one of the most 
regressive ways in which we can promote development because it 
means the poorest people here and in other developed countries 
are the ones who are providing the support to developing 
countries for economic opportunities, and it is coming out of 
the pockets of people who, frankly, just do not have that many 
resources to spend.
    And it is well to ask what they are not spending their 
money on here in terms of education, in terms of opportunities 
that they might build on here to increase their economic 
activities and their economic status.
    I think it is very important that we keep this issue in 
balance and try to reduce the cost to the migrants. Remittances 
transfer is something that they are going to do in any case. 
Reducing transfer costs will leave them more money for 
investment here, so that it is not just a large outflow of what 
might be a quarter or so of their income.
    So let me go to some of the recommendations that I would 
make for being able to lower transaction costs, but also 
increase the reliability of the transfers that are occurring.
    Certainly, more competition is an essential ingredient of 
this entire process. But there is a danger that some of the 
increased competition will be on less-than-reputable companies 
entering a market that is growing. These companies may not have 
the financial 
reserves, the actual ability to transfer the funds. Such 
competition will create greater abuse rather than lower costs 
if the new companies are not actually reliable in their 
transfer. We have to be very careful that our increased 
competition does not hurt the consumer rather than help them.
    Certainly getting credit unions and banks into the process 
is a good step so that we are bringing in the already-
regulated, reputable institutions. These actions can help lower 
costs and increase the development potential since they can 
invest in the developing countries to which the funds are being 
sent. That is not a very easy process, though, and will require not 
only getting those institutions here involved in it, but also 
strengthening the banking system and credit unions in the developing 
countries to be able to be the counterparts in receiving the funds.
    A lot of my interviews with migrant communities overseas 
have shown that they are not using the banking system because 
the banking system either does not exist or is so corrupt in 
their home countries, that they are afraid to have their money 
enter that system. We have to think about the strengthening of 
the banking system on that end, not just getting them involved 
on our end.
    Financial literacy is clearly also an ingredient that we 
need in order to be able to pull more people into the banking 
system. There are very good models that have already been 
tried. We should be building on those models. And they are 
sometimes in very unexpected places. We have been working with 
a group in Rogers, 
Arkansas, a bank there that has an extremely good financial 
literacy program. It has gotten the agreement of corporations 
that are hiring migrants in Arkansas to be able to provided the 
classes on-site at no cost to the worker.
    It has helped the companies to anchor their workers in 
these communities in Arkansas. It has helped the bank that has 
the financial literacy to have the lion's share of the 
immigrant business and increase its profits. And it certainly 
has helped the migrants to be able to avoid predatory lenders 
to buy homes and to remit at lower costs. So it has a lot of 
benefits all around on that.
    The truth-in-transfer, the sunshine provisions, again, I 
would recommend as well. It is important that people have the 
information that they need in order to remit. It is important 
that that information is available at the other end of the 
line, again, so that you have the circle completed. Not only 
will people know what they are sending and what it is costing 
to send, but they also know what they have received and can 
make the comparison.
    In addition to these things, which are to increase 
reliability and to reduce costs, I think that there are things 
that we could be doing to encourage greater development use of 
the remittances.
    The hometown associations that we have talked about are a 
very good vehicle for using remittance transfers. There is 
great need for technical assistance to ensure that the money is 
being invested properly in things that have the biggest bang 
for the bucks. Often, the hometown associations will provide an 
ambulance to their local village. But there are no spare parts 
to repair the ambulance once it breaks and, therefore, the 
villages are no better off after having had this investment.
    The Inter-American Foundation is doing some very good work 
in providing that technical assistance. Support of those 
programs I think would be an important ingredient.
    And finally, I think we could be applying more pressure on 
some of the wire transfer companies to invest part of their 
profits in the economic development of the communities here 
that are sending 
remittances and the communities abroad that are receiving the 
remittances. As good citizens, they should be contributing much 
more to the economic development of the consumers that are 
providing their profits.
    So, I think there are a variety of things that can be done 
to increase reliability, reduce cost on the transfers, and also 
to increase the development potential of the use of 
remittances.
    Thank you.
    Chairman Sarbanes. Thank you very much, Dr. Martin.
    This has been an extremely helpful panel. I have a couple 
of questions to ask, and then I am going to yield to my 
colleagues. I want you to lay out for us a clear picture of how 
this works. Let me pose this question. Is the enterprise here 
that receives the money from the immigrant that is being sent--
I take it usually in cash. Is that correct?--The same 
enterprise that then pays out the money in the receiving 
country?
    Mr. Orozco. Yes. Let me use one institution just for the 
sake of an example: Western Union. The agency has a network of 
agencies in the United States and then establishes a network of 
agents, or what is called a distribution network of agents, in 
the recipient side.
    For example, you go to Adams Morgan, where there is a cash 
checking office and a Western Union office. Western Union 
offers you the cash checking and you pay $10 to cash your 
paycheck, and then the money that you just cashed, you are 
going to send it in remittances and pay $20 to do that. Then 
the money arrives in the home country at a Western Union agency 
and then the customer usually comes to pick up the money to the 
Western Union agency, and that is where they get--for example, 
$200, they get $190, $195, because of the exchange rate which 
they are not aware of most of the time.
    Chairman Sarbanes. Do they get fees charged in the country 
to which the remittance has been sent as well, or is there just 
the fee charged--as you say, I am the immigrant. First of all, 
I get hit by cashing my paycheck. I have to pay a fee to cash 
my check, and that is combined in the same office, I take it.
    Mr. Orozco. Yes.
    Chairman Sarbanes. Then I say, all right, I want to send 
$200 to Mexico. And they say, well, that will be $20 fee to 
send that. So, I give them $20 and the $200. Now my relative 
goes to pick this money up at the office in Mexico. Is there 
another fee taken out at that point to do that?
    Mr. Orozco. No. The only fee is the exchange rate. The only 
penalty that you get is the exchange rate. However, for 
example, in 
El Salvador, with the disorganization of the economy, a bank 
was charging a $1 commission fee because in lieu of the 
exchange rate. In other places, if you are in a remote area, 
you are likely to pay as a customer another extra amount of 
money in addition to whatever fee you pay here.
    Chairman Sarbanes. Now suppose I have a bank account. I am 
an immigrant. I have a bank account and I am going to work 
through the banking system. How does that work?
    Mr. Orozco. Well, in theory, the way it works is, say, I 
want to transfer $200 on a monthly basis to my mother's bank.
    Chairman Sarbanes. Well, first of all, I go to the bank, I 
deposit my check. So that goes into my account. I do not pay a 
fee to get the money reflected by the check moving through the 
system.
    Mr. Orozco. Yes.
    Chairman Sarbanes. So, I do not do that. Okay. Then say I 
want to send $200 out of my account to such and such a person 
at such and such a place. What happens?
    Mr. Orozco. Well, that is when it gets tricky. The way 
things stand right now, if you go to a bank, you might be 
charged about $30 to $40, because banks generally do not do 
these kinds of small money transfers.
    First, they are going to ask you what is the identification 
number of the bank in relation to the bank account of the 
recipient side. An immigrant will be overwhelmed by the whole 
thing.
    So, instead, that is why the immigrant goes to a money 
transfer because they think it is more convenient. However, if 
the bank has a relationship with a recipient bank--for example, 
Harris Bank in Chicago has a relationship with BancoAmer 
Mexico. You go to any two branches in Chicago. The branches are 
bilingual and you have an account there and you want to send 
$200. You only pay about $10 to send it. That is half of the 
average amount, and it goes straight into BancoAmer. The person 
receives the money in their account or they can cash the money 
immediately.
    Mr. Hinojosa-Ojeda. The key thing here, and I agree with 
Manuel, is that the possibility of how these bank-to-bank 
transfers can work are very rarely being taken advantage of 
right now. Most of it is from one bank account to another. If 
you do it individually, the banks, it is a hassle for them. 
They do not want to do it. They will charge you a lot of money.
    A couple of these instances are occurring where they are 
making you create an account on the United States side and then 
they will create an account on the Mexican side, which is a 
very cheap transaction for the banks. They will on average 
charge you $10 from one account to another.
    Like I am saying, the review that I have done, Bank X 
charges $10, which is the cheapest one that you can get. What 
can also happen if you have an ATM card attached to that bank 
account in the United States, you can directly withdraw from 
that account, which is what Representative Gutierrez was 
talking about, being on the beach in Acapulco. You and I, we 
would only be charged $1.50 for taking money directly out of 
our bank account in the United States. Some people are 
beginning to provide that type of direct service through ATM, 
but then they do not have an account on the Mexican side.
    That architecture, however, is potentially there for these 
linked accounts. There is new technology that is available to 
make that occur, as was at the point of purchase. But rarely 
are we seeing banking institutions at this point competing for 
providing that service.
    Chairman Sarbanes. I want to ask about that, but I will 
come back to that.
    Senator Akaka.
    Senator Akaka. Thank you very much, Mr. Chairman. Again, I 
want to thank the witnesses for the information. It will be 
valuable to this particular Committee.
    The charts shown were interesting. In Mr. Bendixen's 
survey, it showed that 56 percent of immigrants have bank 
accounts, and yet, only 20 percent of remittances are sent 
through banks or credit unions. This is my interest.
    Further, Dr. Orozco's study shows that this is forwarded by 
evidence that you have and that it is cheaper to send 
remittances through banks and credit unions. Again, why do 
immigrants with access to banking systems not rely more heavily 
on banks to send their remittances? That is my question.
    Mr. Bendixen. Let me try to answer quickly. First, 
remember, the youngest of the immigrants and the poorest of the 
immigrants who send the most money most often are the ones that 
are in the 44 percent who do not have bank accounts. So that is 
part of the answer.
    The other answer, I think Dr. Orozco alluded to it and 
spoke about it. Many of the banks, and correct me if I am 
wrong, are not really ready, do not offer the cash transfer 
process to customers for smaller amounts.
    So it is a combination of the two. The people that send the 
most do not have the bank accounts, and the ones that do have 
the bank accounts, their banks, many of them, are not really in 
the business.
    Senator Akaka. Is that possibly due to traditional ways of 
handling money? I mean, it appears that the older people do not 
send as much, and possibly, it is because they do not bank 
their money. They keep it at home and use what is called a 
cash-and-carry way of handling their money.
    Mr. Bendixen. I think a lot of the older people and the 
people that actually make more money are people that have been 
here a longer period of time. And even though I think Latin 
Americans tend to be concerned about their families back home 
on an ongoing basis, definitely it is the more recent arrivals, 
the younger and the poorer that send more. That is part of it.
    Senator, if I may, I wanted to add one piece of information 
to what was said by my colleagues to your question. It is a 
very interesting fact that I learned at the IDB conference on 
Tuesday.
    In Spain, there are tens of thousands of Ecuadorans who 
send money back to their country, basically through a 
relationship between credit unions in Spain and in Ecuador. The 
cost of sending $200 from Spain to Ecuador is $3. The cost of 
sending $200 from the United States to Ecuador is about $25.
    So without being an expert on the process itself, there 
must be a way to do better.
    Ms. Martin. Could I add one element to it?
    Senator Akaka. Dr. Martin, please.
    Ms. Martin. Part of the problem in terms of the banking 
system is the weaknesses on the other end.
    If you go to almost any village, almost any place in the 
world, the chances are that you will see a Western Union sign. 
They are all over the place. The most remote town in Mali has a 
Western Union outlet. And it is reliable and people can go to 
an agent here and then their families can pick up the funds 
where they live very readily and with a great deal of 
reliability. The funds will be there very quickly. On the other 
hand, if you go through a bank, you won't find an ATM in most 
of these communities. And there won't likely be a banking 
outlet there, either.
    It becomes much more difficult for the receiver of the 
remittances who are more likely to be the parents, the wife who 
has been left behind, the children, to actually get physical 
control of the funds. So until the banking system becomes much 
more vibrant in these countries, it is going to be very 
difficult to be able to use banking universally as the 
mechanism for the transfer. It will grow, and I think the 
technology is going to be seen increasingly, and we probably 
would not be having this same conversation 10 years from now. I 
think it will be markedly different.
    There is a transition period that we are going to have to 
go through. Migrants say all the time that if they have a 
regular transfer, they will often use informal channels because 
they know that those can get there. If they have an emergency, 
they use Western Union. And even the banks in many developing 
countries say, we cannot compete at this point with either the 
informal mechanisms or with the Western Unions or MoneyGrams. 
They just do not have the reach.
    Senator Akaka. Dr. Orozco.
    Mr. Orozco. Thanks. Actually, let me get back a little bit 
to your question.
    Although the service shows 20 percent, which I think is a 
very representative sample, what the respondent is saying 
actually is not specifically that they are using their banks to 
transfer money. In many cases, they are referring to foreign 
banks operating as money-transfer agencies that charge less 
money, but still, you are not using your credit union or 
whatever. So the actual percentage of people who are using 
their banks to transfer money might be 
estimated at 5 percent, much lower, significantly lower.
    But then, again, you get back to the issue that Susan was 
talking about, that the banking issue has to do with financial 
literacy on both sides.
    We do not use the service here. First, because we do not 
know, for lack of better knowledge. If we knew that there were 
better ways to do it, we would be using banks. Second, the 
banking institutions are generally not migrant-friendly and it 
is very intimidating for an immigrant who speaks with broken 
English and says, I would like to send an remissa, and the bank 
teller gets annoyed. The forms that they ask you to fill out 
might be extremely intimidating, and there is another reason. 
And that has to do, unfortunately, with culture.
    The banking industry in Central America, the Caribbean, and 
Mexico is an oligarchic banking industry. It doesn't care about 
the little people. So, they never cared to educate in financial 
literacy those people.
    Now that they have migrated, they come with that baggage 
and the relatives, as well as the people here do not really get 
to trust much in the banking. So it is a very cumbersome 
problem and that is why banks do not get involved. They really 
don't care. But yet, for example, in El Salvador, Western Union 
is not the largest. It doesn't have the largest market share. 
It is the banks, operating here as money-transfer agencies.
    Yet, over there, they do not offer any incentive to the 
recipient to use the banking industry. So that is a major 
problem. They are profiting, yet El Salvador transfers $2 
billion. The banking industry in El Salvador is transferring 
about 60 percent of that. Western Union is only getting 20 
percent of the pie.
    Yet, they do not create any incentives for people to bank. 
And it is true that there are difficulties in getting into the 
rural areas to get into a banking institution. There are many 
institutions like credit unions in the developing countries 
that do offer some access to it. We need to create the network 
basically here and there.
    Senator Akaka. Mr. Chairman, my time is up. I have another 
question, but I will wait for the second round.
    Chairman Sarbanes. All right. I will go to Senator Miller.
    Senator Miller. I want to thank you again for your 
testimony. It has been both enlightening and disturbing. There 
is no doubt that we have a problem of major proportions here. I 
want to talk about what we do exactly, where do we head?
    I want to talk about financial literacy in general. I think 
there is strong general agreement that we have to have more 
financial literacy programs for newcomers to the United States.
    My first question is, is there already a system or entity 
in place that could run such a financial literacy program? Is 
this something that should be run by a private entity? Or a 
public entity? Where do these programs come from? You mentioned 
the one that is working so well in Arkansas, Dr. Martin. But 
what is the role of the Government in this?
    Mr. Orozco. Excellent question.
    Mr. Hinojosa-Ojeda. Well, do you want to tell us about 
Arkansas? I will tell you about California.
    Ms. Martin. Right. Let me start with the curricula that are 
available. And there is enough experience now that we do not 
have to reinvent the wheel in terms of what the components are.
    The particular Arkansas situation was an interesting one. 
The background is that, if you looked at the 1990 census, 
Rogers had very few foreign-born. By 2000, it is I think maybe 
15 or 20 percent foreign-born. And if you looked at the school-
age kids, it is even higher. There has been a major influx of 
immigrants into that particular area, largely following 
employment and in the poultry processing, meat processing 
areas.
    It was a very transient community, lots of backlash within 
the native community about these young men who had no ties, no 
roots in the community. Some of the community leaders got 
together and they tried to figure out how to deal with the new 
population and how to get it more anchored and reduce some of 
the transients.
    It happened, and this is the circumstance. Sometimes things 
are very unplanned. But one of the few Spanish-speaking people 
who were already in the community had come from Cuba many years 
ago and was a bank officer. His concept was that if more of the 
workers could buy houses and bring their families, they would 
anchor. And it was really a homeownership project, initially.
    And they decided to support his interest and a number of 
corporations agreed to have him come in and provide financial 
literacy classes. So this was a totally private-sector.
    The Federal Reserve has actually become very interested in 
the concept, as has the regulators for the savings and loans 
and other banking institutions. And they are now talking about 
ways that they can support a similar curriculum in other 
communities.
    So, I think that this is an area where a public/private 
partnership would be extremely useful. I was interested in 
hearing about the Treasury Department having grants because I 
think that if more of the grants were ones that involved 
community-based organizations, financial institutions, and 
businesses, so that you get the three partners into this, then 
you are more likely to have greater effect than if any one 
component tried taking it on because there is a lot of 
complexity to the issues.
    I think you need the expertise of the financial 
institutions, but you need the contacts that the community 
groups and the businesses have with the actual recipients of 
the training.
    Senator Miller. Let me ask my other question before my time 
runs out. I thank you for that response. It is along the same 
line.
    Dr. Orozco recommended an oversight board to guarantee this 
corporate transparency and accountability that we need to have 
on a nationwide basis. And Dr. Martin, you talked about a 
regulatory framework that would better insure wire-transfer 
companies. They have adequate resources and better procedures 
and that thing for conducting business.
    Again, are we talking about something like a self-
regulating organization, an SRO, private companies, or are we 
talking about some kind of Federal entity on this? What is your 
thinking on that, anyone that wants to address that?
    Ms. Martin. Do you want to start it, or shall I?
    Mr. Orozco. Well, I am a strong believer in free markets 
and I think we need to start by allowing the institutions to 
self-regulate themselves. But more importantly, to make, for 
example, the Better Business Bureau, more aware of this 
process, of the money transfer. They are very unaware of what 
is happening.
    So, we need watchdogs from both sides, from civil society, 
NGO's working on these issues. There are many NGO's working on 
financial literacy, by the way.
    You do that, but you also encourage the money transfer 
companies to self-regulate themselves. If there is no 
compliance to the rules and the standards that will ensure an 
accountable process, then we should move to the next stage, 
which is getting the Government involved in some kind of 
regulation, enforced regulation.
    Senator Miller. We nudge, not legislate.
    Mr. Orozco. I beg your pardon?
    Senator Miller. We push or nudge instead of legislating.
    Mr. Orozco. Yes, I think so.
    Ms. Martin. I would agree that that is probably the stage 
we are at now, to see whether self-regulation will help. I am 
frankly skeptical that if the trend toward greater competition 
were of companies entering continues, that it will be very easy 
to deal with some of the potential abuses.
    I refrained from raising this very directly, but given the 
activities in terms of some of the money-transfer companies 
also transferring funds for terrorists and the connection to 
drug laundering as well, the Congress may want to develop a 
regulatory framework to address all these issues. There is a 
major crisis in Somalia now because remittances are not coming 
in. And they are not coming in because the companies that were 
used by just normal migrants were also the ones that were being 
used by al Quaeda.
    We have a problem in that respect and that might be a 
vehicle for ensuring the integrity of the companies that are 
established, some of which we frankly just do not know very 
much about.
    Mr. Hinojosa-Ojeda. I would like to say, Senator, the 
nudging, it is a very relative term. I actually think that the 
threat of legislation in California has clearly focused their 
attention a great deal. I think that the threat or the 
formulating of clear guidelines of what is being articulated 
through the legislature and the demands should definitely go 
forward. And I think that we do not necessarily want to create 
huge bureaucracies, but I think that the pressure has to be 
kept on.
    The lawsuits that were raised have done a great deal, and 
there are a couple of different ways. I think it has attracted 
a great deal of new players into the field, that they recognize 
that while they are making that much money, maybe I can. 
Hopefully, that is a temporary process. So, I would not give up 
on a strong Government role during this transition period.
    Senator Miller. So a strong nudge.
    Mr. Hinojosa-Ojeda. Yes.
    Mr. Bendixen. From another point of view, the Latin 
American immigrant to the United States may be the easiest 
constituency in the country to communicate with. According to 
the IDB study, they get 90 percent of their information from 
television, and we are talking about two networks--Univision 
and Telemundo.
    So depending on what you all decide to do, I think a public 
information campaign through Spanish-language television would 
be a way to get to these 10 to 15 million people in a fairly 
efficient way.
    Senator Miller. Excellent idea. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Sarbanes. Senator Akaka, would you like to ask 
other questions.
    Senator Akaka. Mr. Chairman, I am glad my colleague brought 
up financial literacy. I was going to ask Dr. Martin further 
about that since that is one of the reasons for our hearing 
today. As we look at how to reach, maybe through television, 
these folks out there that need to learn more about how to do 
these things, we should look at ways where they do not have to 
pay out so much money.
    A recent symposium, the Chicago Federal Reserve Bank on the 
subject of remittances, concluded that: ``Significant marketing 
and financial literacy efforts are needed to introduce emerging 
remittance vehicles to low-income immigrants.'' I think that is 
very, very significant. So let me just throw out a question. Do 
you agree with that statement? And if so, do you have any ideas 
as to how we can approach and even achieve that? And I am 
talking about emerging remittance vehicles that can be 
introduced.
    Mr. Hinojosa-Ojeda. Well, I wanted to say one thing, 
Senator. I think that part of what is happening right now is, 
we need financial literacy on both sides of the equation, if 
you will, both among the immigrant communities and, frankly, 
among the banking communities. So, I think that part of the 
issue right now, we are in a very interesting period where new 
initiatives are just emerging, new products are in the process 
of being developed every day.
    That is why I like the first account's approach. And maybe 
in the next round would be more focused on remittances, it 
could be a very useful thing where you would encourage the 
bringing together of particularly like the type of thing that 
we are trying to do--bring hometown associations who are very 
committed to this, who study this as much as I do, where we are 
putting together focus groups with the credit unions and 
teaching the credit union management as to what are the needs 
of the immigrant community.
    This type of cross-fertilization to develop new products is 
I think the type of thing that right now is really needed and 
could be very useful. And then we have some really good 
products that could then distribute through Telemundo and 
Univision. They could be very useful in getting this type of 
word out.
    But, frankly, we still do not have the products out. We 
need to get the banking community sitting with the clients and 
even beginning to understand that much more than we have, and 
take advantage of a lot of new technologies which are now 
available. All of this I think is really still uncovered 
territory.
    Senator Akaka. I am glad you are talking because I was 
going to ask you a question about globalization and public 
goods from below. Particularly, I was interested in the 
leadership of hometown associations. I do not know whether we 
will have time for comments on that, but I think that certainly 
leads into these new vehicles that can be for the future.
    Mr. Hinojosa-Ojeda. Very briefly, I would agree entirely 
with what Susan said, that the critical issue at this point is 
to bring in technical assistance to help this, what we are 
calling social capital, transnational social capital, to really 
become much more effective. And they are ready to do that.
    We have set up what you are referring to as a grant from 
the MacArthur Foundation where we work with institutions in 
Mexico and Central America and in the United States to work 
with the networks on both sides of the border and provide them 
the technical assistance from local institutions. They can be 
an incredible vehicle and we have a lot to learn from them. 
They can be much more efficient.
    Yes, I think that has to be part of the strategy. It is 
much more difficult to pull off. The biggest issue is the 
Inter-American Development Bank, for example, can lend or 
provide grants, but only on the Latin American side.
    The U.S. Treasury has first accounts, but it can only do it 
on the United States side. Whereas, these are transnational 
networks. So the governments have to catch up in terms of how 
to provide this type of support in a collaborative fashion. 
Maybe something Treasury-IDB jointly in terms of making these 
types of transnational grants available for these partnerships, 
would make sense.
    Senator Akaka. Dr. Martin, do you have a thought?
    Ms. Martin. Yes, on both points. I agree completely on the 
point on the training of financial institutions. We have had a 
grant over the last few years to develop best practices in 
financial institutions in dealing with immigrant homeownership 
issues because immigrants tend not to have credit ratings. They 
cannot afford the normal mortgage packages that are available.
    We have been looking at ways to overcome some of those 
barriers so that immigrants can buy homes at a much higher 
rate. And that largely is a project that the Fannie Mae 
Foundation is funding that is aimed at the financial 
institutions themselves.
    We are developing a training curriculum right now for them 
as to what are these best practices that other banks have been 
using in order to be able to interact. And almost all of the 
things that are in it are things that would also apply in terms 
of remittances.
    It is the relationship with the immigrant community. Simple 
things like having some bilingual staff that can communicate 
with the new population. But it is also creating new, more 
affordable packages and creating the relationship with the 
consumers.
    I think that is an extremely important component and 
something that this Committee could really be very helpful in 
terms of encouraging the financial institutions to be the 
recipient of this type of information because they do not even 
know often enough to know that they need it.
    In terms again of the hometown associations, this is an 
extremely exciting area because it is a way that you actually 
have people-to-people development rather than imposing ideas 
from on top that this is the best strategy for building this 
dam or this major infrastructure development kind of thing.
    Rather than having an imposed concept, this is really 
letting the people in these communities figure out what it is 
that they need for their economic development with assistance 
that you are both talking about.
    I think it is a much more lively vehicle for making foreign 
aid actually work. I would love to see more matching from our 
end of these resources as a way to actually stimulate economic 
development. I think the money goes a lot further. It has a lot 
more community-level impact, much less likelihood of it being 
diverted into unnecessary purposes because the communities are 
actually taking control of it.
    And I think what the IDB is doing right now is extremely 
valuable. As I mentioned, the Inter-American Foundation is also 
trying to support some of these activities.
    The more that we can do as a Government to stimulate it, to 
support this type of development activity, I think that we can 
sell it to the American public that this is matching people's 
resources and it is not likely to be wasted and can really have 
a lot of bang for the bucks.
    Senator Akaka. Thank you very much, Mr. Chairman.
    Chairman Sarbanes. Let me ask just a couple of questions 
and then we will wind up.
    Why doesn't some financial institution look at all of this 
and say, there is a lot of money involved here? The way it is 
all being done now, there is a considerable spread. We could 
come in there and we could do all of this at a lesser cost and 
still make a lot of money for ourselves. Why doesn't one of 
them pick up on that and say to the immigrant community in 
California, Chicago, wherever, where there is a sizable 
community, come to our institution. This is how we do it. We 
are going to benefit out of this. Why doesn't that 
happen?
    Mr. Orozco. I get at least one phone call a week from a 
bank, and like three phone calls from money-transfer agencies. 
They are all interested in it. Citibank is going to come up 
with something very powerful, apparently. VISA is also very 
interested, et cetera.
    The issue is that it comes to the know-how. How are we 
going to market the product to this population group? We have 
the means, but we do not know how to do it.
    I think this is what they are talking about, hometown 
associations can provide the linkage. Also, assistance 
organizations like immigrant rights groups that are the ones 
that definitely offer this kind of financial literacy programs, 
can link up with the private sector, with banks, in order to 
channel and educate them that that is the way they should go.
    Definitely the potential is there and banks are interested. 
They just have not reached that second stage of getting 
involved in a 
liaison with an institution that can explain to them how to do 
it.
    Chairman Sarbanes. I was interested in the Spanish-Ecuador 
example. I wonder if any of you could submit to the Committee 
some models of how it is done elsewhere and how a system works 
that results in a higher percentage of the remittance passing 
through to the recipients, because I think Dr. Martin in 
particular pointed out that this is a worldwide phenomenon and 
a lot of other countries have significant immigrant populations 
that are engaged in sending remittances. And for all I know, 
they may do it somewhat differently and perhaps more 
successfully.
    Mr. Hinojosa-Ojeda. Well, this Ecuadoran situation is 
actually something that is being supported by the Inter-
American Development Bank. They are actually doing another very 
interesting support for a Japanese-to-Brazil transfer. There 
are a couple of these.
    The issue is not that the technology is not available or 
even that the techniques are not available. I think what is 
really significant here is that, from the U.S. banking point of 
view, I think that the problem that you mentioned, Senator, is 
one that these financial flows are only beginning to appear on 
their radar scope, and you would be surprised--I am surprised, 
anyway--at how slowly the bureaucracies have been in these 
institutions to figure out how to approach this problem.
    We still have a long way to go because I think that if we 
see this as a quick-buck market opportunity that says, well, 
let's set up our own Western Union type operation, which, by 
the way, I agree with Susan Martin, is not an easy thing to do. 
They have spent a lot of money on the infrastructure to do 
that.
    Chairman Sarbanes. Yes, I think that is important, and I am 
glad that you mentioned that because it adds to the situation. 
It is a very complicated situation and I think your point is 
well taken, 
that they have all these outlets out there that provide for 
easy 
accessibility.
    Mr. Hinojosa-Ojeda. The key issue that the banks have to 
focus on, and actually, some of the small banks in Central 
America, because it is a much bigger business of theirs, have 
actually thought about this, is what we are really talking 
about here is life-cycle 
financing for the migrant stream that starts with remittances, 
but people then eventually have a great deal of other financial 
services needs that they are going to be evolving into over 
time.
    It is that broader perspective which is the market where 
banks come in. They do not set up banking institutions in the 
United States just to do check cashing. They want to be 
providing a whole range of financial services.
    What I think that people are only now beginning to 
understand is that there is a demand for this broader range of 
financial services, as I was trying to suggest, for investment, 
for insurance, and that we are only scratching the surface when 
we are saying money wire transfer. That is only one part of 
this business of what is going to be growing into the future. 
And to the extent that the banks get interested in that, then 
that is where the investment comes in, which I think, frankly, 
we in North America set up a very poor path of the development 
of remittances through this check cashing operation and wire 
transfers.
    A lot of money was spent on that infrastructure. But if you 
look at how other countries did it, they went directly to some 
type of credit unions or some types of banking institutions 
directly investing for the long term in those populations, and 
we ended up with much more efficient institutions in other 
parts of the world than in North America, which I think we 
ended up with a very expensive, bloated and, in the end, 
something that is not really very efficient for the long term 
needs of either the sending or receiving communities.
    Chairman Sarbanes. I have one question on the hometown 
associations and that type of investment. It is a complicating 
factor. Suppose someone said to AID, well, you should gear your 
aid programs to these hometown associations because you will 
get a match. You will get some leverage. You will have 
community interest. Presumably, they best judge what the local 
community needs, although I guess that could be argued.
    But what does it do to an overall development strategy? And 
to what extent does it skew where the development goes? So if 
you have a good hometown association who has some people over 
here in this country who want to put it together, they want to 
send money back and everything. Then your government policy 
moves in the direction of matching that. What happens to all 
those communities that do not have hometown associations which 
may, in fact, be in greater need of the development program?
    Ms. Martin. I was by no means suggesting that it is a 
substitute for other forms of development aid. I think it can 
be a complement to that aid.
    In giving other countries as examples, the French 
government has established a new agency that they refer to as 
the codevelopment agency, the agency for codevelopment. And 
what they mean by it is that it is French funds matching 
migrant resources to help in development.
    It is one component of development. It is not a substitute 
for other ways in which they interact. But there are annual 
consultations between the French government and, for example, 
the Malian government, to talk about what are the various 
development needs in the particular regions that have produced 
large-scale immigration to France.
    Then they have discussions with the hometown associations 
in Paris and elsewhere with regard to their interests. And they 
try to combine their support in a way that addresses the needs 
that the government has identified, but also works with the 
local communities in France to do it.
    It is an evolving model. There are some weaknesses to it. 
It is not something that you would just apply. But I think that 
there is a lot of thinking going on now as to how international 
development agencies can work with the remittance streams to 
promote devel-
opment, again, not as a substitute, but as a complement to 
other 
development activities. Overall, we spend so little money on 
foreign aid and economic development, that I think we should be 
adding on, certainly not substituting.
    Mr. Hinojosa-Ojeda. The hometown associations understand 
exactly your point, Senator, so now the real term is going 
beyond the specific hometown associations. We have created 
federations in California and nationally that are now 
federations of hometown associations for the State of Ohaka.
    They are now beginning to look at the regional issue and, 
in fact, pooling resources precisely for these types of things 
where the decision of where the money goes is becoming more 
sophisticated. It is not only tied to make sure that my family 
benefits, but also there is a need that people are recognizing 
that there is a regional issue.
    But the key thing here is keeping it very close to the 
ground, people who understand the problematic and who have come 
out of that problematic, getting them involved. That is what 
everybody says is crucial in the development aid game. Here we 
have them living, our constituents, in the United States. It is 
an incredible resource to be able to work with them.
    Chairman Sarbanes. Does anyone want to add anything?
    Mr. Bendixen. Very quickly, one of the fascinating things 
about the Latin American immigrant in the United States, for 
good or for bad, they do not believe in the melting pot theory. 
They are hanging onto their language, to their culture, to 
their sports. And because of that, you would be amazed at the 
breadth and the reach of these community organizations, these 
municipal organizations. Almost every community from Latin 
America is represented by one of them. So your question about 
whether some people would be left out, not a lot would be left 
out. They are tremendously well organized. It is one of the 
ways that they hang onto their culture.
    Chairman Sarbanes. Well, this has been a very helpful 
panel. I think it is important to get some appreciation of the 
dimensions of this issue. Some of those figures that have been 
produced here are absolutely staggering, the total amount, how 
much it represents in the GNP of particular countries. The 
amount of flows are really quite large, indeed. And as Dr. 
Martin points out, when you compare it with our aid flows, the 
aid flows----
    Mr. Orozco. There is no comparison.
    Chairman Sarbanes. Yes. They just pale into insignificance.
    Thank you very much. You have been a very good panel.
    Mr. Orozco. Thank you.
    Mr. Bendixen. Thank you.
    Ms. Martin. Thank you.
    Chairman Sarbanes. The hearing stands adjourned.
    [Whereupon, at 12:15 p.m., the hearing was adjourned.]
    [Prepared statements for the record follow:]
             PREPARED STATEMENT OF SENATOR PAUL S. SARBANES
    Today the Committee returns to the question of financial literacy, 
which was the focus of 2 days of hearings earlier this month, and takes 
up the issue of remittances. Remittances are the payments sent home 
from workers, generally immigrants, living in the United States to 
family, friends, and communities in their country of origin. Those 
sending remittances, remittors, are often subject to exorbitant costs; 
if remittors had more financial education they would be able to send 
remittances at a fraction of the costs they currently pay.
    The particular focus of our discussion today will be the findings 
of three recent studies. One, conducted by Sergio Bendixen of Bendixen 
and Associates, entitled ``Survey of Remittances Senders: United States 
to Latin America,'' was based on interviews of Latino immigrants, 
conducted in November-December of last year. The other, entitled 
``Attracting Remittances: Market, Money and Reduced Costs'' and 
``Enabling Environments? Facing a Spontaneous or Incubating Stage'' 
were commissioned by the Multilateral Investment Fund of the Inter-
American Development Bank (IDB) and were prepared by Dr. Manuel Orozco 
in connection with this weeks IDB's conference week on the subject of 
remittances. These reports are just now being released, and we are very 
pleased to have Dr. Orozco among our witnesses.
    We will begin by hearing from Representative Luis Gutierrez, whose 
long-standing concerns about the remittance market are reflected in his 
bill requiring full disclosure of all costs to sending a remittance, 
and we will conclude our discussion with two distinguished academics 
who are experts in the field: Dr. Susan Martin, Executive Director of 
the Institute for the Study of International Migration at Georgetown 
University, and Dr. Raul Hinojosa-Ojeda, the founding research director 
of the North American Integration and Development Center at UCLA.
    Immigrants to the United States have traditionally sent financial 
assistance in the form of remittances to family members who remained in 
their country of origin. Until recently, however, the phenomenon has 
not been systematically studied and its implications have not been 
fully realized.
    The 2000 census shows that 30 million people in this country are 
foreign born, the most in our Nation's history. More than 40 percent 
immigrated in the 1990's. The vast majority--22 million--are citizens 
or legal residents.
    They make a vital and integral contribution to the Nation's 
economic and social structures. Some 15.4 million immigrants, 
accounting for more than half of the immigrant community, come from 
Latin American countries. The 2000 census shows that the Hispanic 
population of the United States stood at something over 32 million, 
representing 12 percent of the U.S. population.
    As the population has grown, the volume of remittances has 
increased dramatically. It is estimated that over $20 billion is 
remitted annually from the United States to Latin America, and there 
are substantial remittances to other areas of the globe as well, 
notably the Philippines. The rapidly expanding market has enormous 
significance, both to remittors in the United States and recipients 
abroad. To cite just a few examples: the value of remittances far 
exceeds United States official development assistance to all of Latin 
America; and in five countries--El Salvador, Haiti, Jamaica, Nicaragua 
and Ecuador--it represents more than 10 percent of GDP. In Mexico, 
which in 2001 received an estimated $9.2 billion in remittances--making 
it by far the largest recipient country--the dollar value of 
remittances exceeded both agriculture and tourism revenues.
    Our focus today, however, is the domestic aspect of the remittance 
market. We will consider the market from a remittor's and also an 
institutional perspective, and we will do so against the background of 
the testimony presented at our earlier hearings on financial literacy. 
Remittors tend to be low wage earners, with modest formal education and 
relatively little experience in dealing with this country's complex 
system of financial institutions. Like all people who must make 
important financial decisions about limited resources, remittors must 
have the financial literacy that enables them to grasp the crucial 
details of their transactions. But that requires that they be fully 
informed about the options available to them for sending money home--
what fees are charged, what exchange rate is offered, what alternative 
remittance methods are available, and what percentage of the money sent 
will actually be received. In a $20 billion market, the IDB estimated 
between $3 to $4 billion was lost in fees and other transaction costs.
    The reports before us review those options, examine trends in the 
market and review transaction fee structures. There is recent evidence 
showing that fees have declined somewhat as the market has expanded, 
and this is certainly an encouraging development. But there is clearly 
much to be done. This is one of the important questions we look forward 
to reviewing with our witnesses, to whom we now turn.

                PREPARED STATEMENT OF LUIS V. GUTIERREZ
                   A U.S. Representative in Congress
                       From the State of Illinois
                           February 28, 2002

    Good morning, Chairman Sarbanes and Members of the Committee. It is 
with great pleasure that I appear before this Committee today to share 
my views on an issue that has been among my top legislative priorities 
during my tenure in the Congress: Protecting consumers from hideous--
and often hidden--practices in the international money transmitting 
business.

    Currently, approximately 28 million foreign-born live in the United 
States, the majority of whom are making enormous contributions to 
America's stability and security, economic and otherwise. These people 
came here seeking a better life and--through their hard work, their 
wages and, I should add, their taxes--these people are making better 
lives for all of us in America. At the same time, they are also working 
to make life better for people in their home countries, for relatives 
who use that money for basic necessities such as food and shelter-- 
often in times of crisis.

    During the past 20 years, remittances to Latin American countries 
have increased not only in volume, but also as a share of national 
income and total imports. This year, approximately $9 billion will be 
sent to Mexico via remittances, representing Mexico's third largest 
form of foreign income. However, such transfers are costly due to a 
range of fees, many of which are hidden.

    Wire transfer companies aggressively target audiences in immigrant 
communities with ads promising low rates for international transfers. 
However, such promises are grossly misleading, particularly for those 
with ties to Mexico or other Latin American countries, since companies 
do not always clearly disclose extra fees charges for converting 
dollars into local currency.

    While large wire service companies typically obtain foreign 
currency at bulk bargain rates, they charge a significant conversion 
fee to their customers in the United States. The exchange rate charged 
to customers sending United States dollars to Mexico routinely varies 
from the rate set by the Banco de Mexico by as much as 15 percent. The 
profits from these ``currency conversion fees'' are staggering, 
allowing companies to reap millions of dollars more than they make from 
service fees.

    This is why I introduced H.R. 1306, the Wire Transfer Fairness and 
Disclosure Act, a bill that currently has the support of 70 members. 
Through the enactment of this bill, we could ensure that each customer 
who solicits an electronic wire transmission of money is fully informed 
of all commissions and fees charged on all transactions, and has 
clearly been quoted the exact rate of exchange available to them.

    This bill requires full disclosure of all fees involved in any 
transaction of money wiring services, including the exchange rate being 
offered by the company wiring the money. The disclosure shall be made 
public and posted in all windows and exterior and interior signs, as 
well as in all advertising. Finally, the bill will also require 
companies operating and offering money wiring services to present each 
customer with a receipt for each transaction, clearly stating the rate 
of exchange rate being offered by the company.

    During 2000, Latin American and Caribbean countries received about 
$20 billion in remittances from their family members working abroad. 
Those $20 billion were sent through 80 million separate transactions, 
each one charging exorbitant amounts in transaction and conversion 
fees. In half of these countries, remittances represent more than 10 
percent of the GDP.

    The money sent out to the families abroad was money earned through 
hours upon hours of hard work. It was saved with a great deal of 
sacrifice by mostly low-income taxpayers of the United States. Their 
efforts are compensated by seeing that the money they send to their 
relatives somehow alleviates some of the immediate financial needs of 
their relatives.

    On average, Latin American migrants wire home around $250 a month. 
Depending on the cost of the service they use, their relatives may 
receive as little as $200. For those living abroad, this money is vital 
to help pay for food, housing, education, to start new businesses, and 
save for the future. This will enrich communities in other countries, 
creating a steady income and jobs for people who might otherwise 
migrate to the United States to find work.

    But a sizable portion of these savings never make it from the 
United States to these countries. Instead, it is claimed as fees--most 
in the form of punishing exchange rates--that remittance services levy 
on immigrants who wire money. Mexico, for instance, which receives more 
than a third of the remittances from the United States, or many other 
developing countries rely on wire transfers from abroad as a key source 
of domestic income.

    These remittance's fees made through wire transfer companies can 
sometimes reach 30 percent, excluding the amount loss through the 
exchange rates. Remittances create dependence and deepened income 
inequality. Most customers, though, have no alternative. Few have bank 
accounts. Immigrants that use banks or credit unions to transfer their 
money benefit from lower wages.

    One's inability to enter the banking system results in a higher 
cost of borrowing, a lack of access to home mortgages and other basic 
services, and a range of problems. Without access to banking services, 
the unbanked are forced to turn to payday lenders and check cashing 
vendors, who in most cases, charge outrageous fees for services.

    Most remittance companies advertise low service fees for 
international transfers--but that cost can double because of hidden 
fees, charged when dollars are converted to foreign currency at poor 
exchange rates. For instance, let's say it costs about 12 cents to buy 
a Mexican peso. The wire transfer companies, however, charge their 
customers as much as a penny more for that same peso. The difference, 
called the foreign exchange spread, is pocketed by the companies. With 
enough transactions, the money starts adding up.

    The two biggest companies who offer wire transfers claim almost 90 
percent of the $41 billion a year in money transfer business. Fueling 
the profits are hefty fees paid by some of the country's lowest-paid 
workers. The vast majority are immigrants who send money back home to 
families they have left behind. And it truly costs them dearly. Using 
one of the two biggest wire transfer services to send $300 from the 
United States to Mexico, for example costs $41--which is more than a 
day's pay at minimum wage. It is important to note that the same 
transaction done through the International Remittance Network (Irnet), 
which is an electronic funds transfer service for credit union members, 
costs only $14.

    Currently, Wells Fargo, First Bank of the Americas, credit unions, 
and other 
financial institutions offer programs to help more immigrants become 
part of the banking system. By accepting identification cards issued by 
the Mexican consulate, these institutions are helping thousands of 
people around the Nation who would be forced to turn to payday lenders 
and check-cashing vendors, who in most cases, charge outrageous fees 
for services. At the same time, it protects the unbanked from being 
targets of crime, robberies, and other abuses.

    Finally, we must not forget that by helping consumers from being 
targets of hidden and excessive fees charged by money transmitting 
businesses, we are helping them save some cash that could then be used 
by them as a source for investment and future savings.

    Thank you, again, Mr. Chairman, for giving me this great 
opportunity to be here today. I welcome any questions you and the other 
Members may have.

                               ----------

                 PREPARED STATEMENT OF SERGIO BENDIXEN
                    President, Bendixen & Associates
                           February 28, 2002

    Thank you, Mr. Chairman, for the opportunity to testify this 
morning on an issue that is of great importance not only to millions of 
Hispanic immigrants in the United States but also to the economies of 
most Latin American nations.

    My name is Sergio Bendixen. I own a public opinion research company 
based in Miami, Florida that specializes in polling Latinos in the 
United States. I have 20 years of experience in the field. I was 
retained last year by the Multilateral Investment Fund of the Inter-
American Development Bank to conduct a national survey of Latin 
American immigrants residing in the United States on the subject of 
cash remittances to their home countries.

Poll Methodology

    One thousand respondents were interviewed by telephone during 
November and December 2001. They were all Latin American immigrant 
adults residing in the United States with family in their home 
countries. Even though a large majority of the poll respondents were 
from Mexico, immigrants from 17 other countries in South America, 
Central America, and the Caribbean also participated in the study. The 
margin of error for the full sample of the study is approximately 3 
percentage points. It should also be emphasized that a special effort 
was made to simplify and pretest the polling instrument so that 
immigrants with little formal education clearly understood each 
question. More than 90 percent of the interviews were conducted in 
Spanish.

Major Findings

    1. A large plurality of Latin American immigrants belong to the 
lowest socioeco-
nomic group in our society. Our poll indicates that 41 percent of our 
representative sample has a pretax annual family income of less than 
$20,000. Another 23 percent has an annual income between $20,000 and 
$30,000. Only 21 percent can be considered to belong to the middle 
class with an annual income above $30,000. The remaining 15 percent did 
not answer the poll's income question. The educational level of Latin 
American immigrants is also low. Forty percent have not completed high 
school and only 10 percent are college graduates. These immigrants work 

mostly in minimum wage jobs and receive few benefits from their 
employers. They work in the least attractive and most menial jobs as 
hotel maids, parking attendants, restaurant busboys, agricultural 
workers, etc. Latin American immigrants are some of the hardest workers 
in our society; yet receive some of the lowest wages.

    2. Sixty-nine percent of all Hispanic immigrants send money to 
their family in Latin America according to our study. Even though 
census numbers are somewhat inaccurate for this population, we 
calculate that there are 10 million Hispanic immigrants in the United 
States that are involved in the cash remittance process. It is 
important to note that the younger immigrants (18 to 34 years of age) 
and those from the lowest socioeconomic group (annual income below 
$20,000) are much more likely to send cash remittances than older 
immigrants or those that have achieved middle-class status. The study 
also reveals that the average Latin American immigrant sends cash 
remittances to his family seven times a year. Moreover, 44 percent told 
our interviewers that they send money to Latin America every month. And 
as we all know, this is not a new economic phenomenon. Fifty-four 
percent of our sample reported that they had been sending money to 
their home countries for more than 5 years. Finally, our poll indicates 
that the average cash remittance is approximately $200. Our study's 
estimate of the total annual amount of cash sent by Latin American 
immigrants to their families is $15 billion.

    3. The largest segment of the Latino immigrant community-- 41 
percent utilizes the best-known international money transfer 
companies--Western Union and Money-
Gram--to send cash remittances to their countries of origin. Another 29 
percent use the smaller money transfer companies or couriers that 
specialize in deliveries to Latin America. Many also send their cash 
with friends or family members traveling back home. Only 20 percent 
utilize the more traditional financial institutions--banks and credit 
unions--to send money to Latin America. Ten percent of our sample did 
not answer this poll question. It is also important to note that most 
of the poll respondents accurately answered that the transfer fee paid 
in the United States to Western Union or MoneyGram to send $200 to 
Latin America is between $15 and $20. The study also reveals that 
immigrants that use banks or credit unions for their money transfers 
benefit from lower fees. This group reports spending less than $10 to 
send $200 to Latin America through their bank or credit union.

    4. An overwhelming majority of Hispanic immigrants are unaware that 
their families in Latin America receive less money than what they send 
from the United States. About two-thirds of them are ignorant of the 
additional commissions and fees charged and of the lower exchange rates 
used in Latin America that result in their family's receiving a lesser 
amount of money than what they send to them. Fifty-eight percent told 
our interviewers that their family receives the full amount sent from 
the United States. Another 9 percent said that they do not know whether 
their family receives the full amount or less. Only 33 percent of 
Latino immigrants seem to be aware of the extra charges that are 
discounted from their cash remittances to Latin America. Mexican 
immigrants are the only group that is somewhat well informed on this 
issue. Forty-eight percent are aware that their family receives a 
lesser amount. But more than 90 percent of South Americans, Central 
Americans, and Dominicans are ignorant about the ``exit charges.'' When 
these immigrants were informed that besides a fee paid in the United 
States, international money transfer companies often provide 
unfavorable exchange rates or discount additional commissions or 
charges in Latin America, a large majority of them felt that the fees 
paid for the service are excessive and unfair.

    5. Only 56 percent of all Latin American immigrants in the United 
States have a bank account. Even though this rate compares favorably to 
rates in Latin American countries (about 20 percent have bank 
accounts), it is considerably smaller than the rate for the general 
population of the United States (over 80 percent). The percentage with 
bank accounts shrinks to 46 percent for immigrants that are not U.S. 
citizens, to 38 percent for those with annual incomes below $20,000 and 
to 32 percent for Latino immigrants between the ages of 18 to 24. It is 
important to remember that these are the immigrant demographic groups 
that are most heavily involved in the cash remittance process. Latino 
immigrants mention that the main reasons they do not have a bank 
account are: ``Do not have proper documents.'' ``The process is too 
complicated.'' and ``Do not speak English.''
Recommendations
    1. Full disclosure. Latin American immigrants should be informed 
accurately about the full cost of transferring money and of the 
services provided by the international money transfer companies. This 
should be done in a way that is easy to understand for a population 
that does not have a high educational level. Full disclosure should 
unleash market forces that, hopefully, will result in a significant 
reduction in the cost of sending cash remittances to Latin America 
through international money transfer companies. It is unconscionable 
that the poorest of the working poor in our society--most of them 
making less than $300 per week--are paying approximately a 12.5 percent 
surcharge every time the send money to their family in Latin America.
    2. The banking community of the United States should seriously 
consider funding a massive public relations campaign to inform the 
Latino immigrant community of the benefits of opening a bank account--
including the significant savings in the cost of money transfers to 
their home countries. The banking industry should also study and 
consider reforming some of the ``process'' issues that make Latino 
immigrants reluctant to open a bank account in the United States.
    Mr. Chairman, that concludes my testimony and I would be happy to 
respond to any of the Committee's questions.
    Thank you very much.
                               ----------
                PREPARED STATEMENT OF MANUEL OROZCO, PhD
                  Project Director For Central America
                        Inter-American Dialogue
                           February 28, 2002
Introduction
    Like other people, Latin American immigrants have and fulfill 
family obligations. One important duty is provide a financial 
assistance to their relatives in their country of origin. Therefore, 
using a money transfer mechanism is vital to immigrants. However, for 
these immigrants and for the Latin American remittance recipient 
relatives, money transfer charges as well as exchange rate 
differentials generally continue to be very high, seriously 
constraining how much support immigrants can offer their families.
    Fees charged and exchange rates incurred to send and receive 
remittances can add up to 15 percent of the amount sent. It is in the 
interest of nations and families receiving remittances to increase the 
quantity and flow of remittance monies. Increases can be achieved in 
part by reducing the share lost to transaction costs, and in part by 
increasing the gross flow of migrant remittances and investments.
    Competition among both existing financial service companies and 
potential new remittance transfer entrepreneurs needs stimulating. 
Greater competition lowers prices and increases services offered to 
actual and potential customers who send remittances abroad. The private 
sector transferring remittances can contribute to increased remittance 
flows by lowering transaction costs and offering development 
alternatives to individuals and groups through their services. More 
importantly, remittances can serve as an instrument to incorporate 
migrants into the financial and banking system.

Background
    The majority of Latin American immigrants residing in the United 
States, honor a commitment to their families and communities by sending 
them remittances. Latino immigrants who earn less than $25,000 a year 
tend to send somewhere around $200 a month, that is, nearly 10 percent 
of their income. Thus, the cost of remitting money is of great 
significance to migrants. Moreover, money recipients, who are generally 
families earning below average incomes, also value the remittance they 
receive and are affected by any cost incurred through unfavorable 
exchange rates.
    Today's total remittances from the United States to Mexico, Central 
America, and the Caribbean are estimated to be at least $15 billion 
annually. In comparative terms, remittances tend to be more than 10 
times greater than United States foreign aid to these countries; they 
are equivalent to 5 percent of Mexico's exports, 70 percent of El 
Salvador's exports and nearly one quarter of Nicaragua's national 
income. El Salvador, the Dominican Republic, Jamaica, and Guatemala are 
among the major remittance recipients in the Caribbean Basin. In 2001, 
the combined amounts remitted to these four nations added up to over $5 
billion, which is equivalent to 50 percent of those countries' trade 
through the Caribbean Basin Initiative.

                                   Table 1. Remittances to Latin America, 2001
----------------------------------------------------------------------------------------------------------------
                                                                      Remittances (in    As percent   As percent
                              Country                                     dollars)         of GDP     of exports
----------------------------------------------------------------------------------------------------------------
Colombia...........................................................       600,000,000
Cuba...............................................................       800,000,000*            5           40
Dominican Republic.................................................     1,807,000,000            10           27
El Salvador........................................................     1,972,000,000            17           60
Guatemala..........................................................       584,000,000             5           16
Honduras...........................................................       400,000,000           7.5           17
Mexico.............................................................     9,273,747,000           1.7          6.5
Nicaragua..........................................................       600,000,000            22           80
Jamaica............................................................       959,200,000            15           30
Ecuador............................................................     1,400,000,000             9           20
      Total........................................................    18,295,947,000
----------------------------------------------------------------------------------------------------------------
Source: Central Banks of each country except for Cuba (ECLAC), Colombia (World Bank) Ecuador (The Economist,
  January 2002), Nicaragua (author's estimates). * Data for 1999.


    Remittances continue to flow to Latin America without showing signs 
of decline. As Figure 1 shows, monthly flows of remittances in selected 
countries have continued an escalating trend in the past 3 years. 
Within this context, governments and businesses are important agents in 
stimulating the flow of remittances. Businesses sell services 
facilitating the transfer of remittance funds, but transfer charges to 
consumers continue to vary.



Reducing Charges on Sending Remittances
    The players within the remittance industry constitute a crucial 
piece in the puzzle of economic development. This testimony is based on 
a report that analyzed more than 70 money transfer companies. Data 
gathering was conducted to estimate fees charged, exchange rates used, 
services offered, and types of distribution networks in place. Money-
remitting companies in nine different countries were studied, but 
central focus was placed on four countries: Guatemala, El Salvador, the 
Dominican Republic, and Jamaica. The other countries that were analyzed 
were: Mexico, Haiti, Colombia, Nicaragua, and Cuba.
    This report's findings show that:

 In the past 3 years, charges have declined significantly in 
    some countries.

 Transfer costs incurred by customers range from $7 to $26 for 
    sending $200.

 Fee charges decrease with competition. Remitters to Mexico, El 
    Salvador, and Guatemala charge lower fees than companies sending 
    money to Jamaica and the Dominican Republic. For countries, like 
    Cuba or Haiti, where there are more market restrictions, charges 
    are higher.

 Distribution networks demanding lower commissions tend to 
    promote the decline in charges. The use of electronic interfaces 
    also helps in reducing costs.

 A growing number of companies offer money transfers in 
    dollars. This practice does not guarantee that received remittances 
    will be not involve disadvantageous exchange rate charges as banks 
    can sell dollars at adverse exchange rates. (This topic requires 
    further study and is beyond the scope of this report.)

 Banks, credit unions, and credit and savings cooperatives are 
    increasingly opening money transfer franchises and are offering 
    some of the lowest charges at about $9. However, these institutions 
    continue to have a small and limited reach. 
    In some cases, the home country distribution networks are not well 
    established 
    within the credit union system.

Transfer Charges: Changes and Challenges
    Perhaps one of the most significant changes in the remittance 
market is the decline in transfer costs. Three years ago the cost of 
sending remittances to different Latin American countries averaged 
about 15 percent of the amount sent. Those transfer costs have now 
declined. In 1999, for example, Western Union charged $22 for 
transferring up to $200. By 2001 that charge was dropped to $15.
    Although there is a relative decline in the price for customers, 
fees plus the exchange rate applied to the amount received in local 
currency still show a wide range in prices. For example, immigrants pay 
from $6 to $26 to send $200. Figure 2 demonstrates the wide fee range 
incurred by senders and recipients. One important aspect appearing in 
Figure 2 is price elasticity. Remittance charges decline with volume 
sent, and particularly observed in charges for amounts ranging from 
$150 to $300. This finding is important as it shows that prices tend to 
decline when customers send greater amounts; only 15 percent of 
companies charge over 9.5 percent for $300. However, the majority of 
customers send less than $200 a month in remittances and therefore do 
not enjoy the benefits of price elasticity in the $300 amount (See 
Table 2). This means that the majority of senders tend to pay over $15 
in fees. Table 3 shows the fee per amount sent.




    Table 2. Percent Distribution of Remittances  Sent by Immigrants
------------------------------------------------------------------------
                Amount sent                      Percent of senders
------------------------------------------------------------------------
Up to $150................................                          42.2
$151 to $250..............................         22.4 (22% sends $200)
$251 to $300..............................                          17.0
Over $300.................................                          18.4
------------------------------------------------------------------------
Source: IADB Survey on remittances.



                                                          Table 3. Fees Charged on Amount Sent
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                              Fee Charge Scale
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                               Over $15        Between $10.01 and        Under $10.00          Total
                                  Amount                                       (percent)        $15.00 (percent)          (percent)          (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
$150.00..................................................................           24.8                     37.2                 38.0           100.0
$200.00..................................................................           35.7                     31.8                 32.6           100.0
$300.00..................................................................           54.3                     24.8                 20.9           100.0
                                                                                    38.2                     31.3                 30.5           100.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: Data compiled by the author.


    These charges represent a significant cost to clients in the money 
transfer industry, where senders tend to be relatively poor Latin 
American immigrants, for at least three reasons. First, Latino 
immigrants are generally low-income people. According to the U.S. 
Census nearly 33 percent of Latino (or Hispanic) households earn less 
than $20,000 a year. Second, about 46 percent of Latin American 
immigrants are not incorporated into the financial systems through 
banks. About two-thirds of immigrants cash their salary checks in 
check-cashing stores that charge exorbitant fees. Many of these same 
immigrants then use what remains of their income to send remittances 
back home. In this common scenario, immigrants are penalized in both 
receiving and sending their earnings. Third, the real cost of sending 
money is not higher than $6. This means that costs of receiving and 
sending income remains a challenge to the majority of immigrant 
remittance senders.


                                                            Table 4. Household Income by Race
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Household Income
---------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Between $20,001 and $35,000
                         Group                              Under $20,000 (percent)                  (percent)                 Over 35,000 (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hispanic/Latino.......................................                     32.5                               24.9                           43.0
Non-Hispanic White....................................                     11.3                               16.6                           72.1
--------------------------------------------------------------------------------------------------------------------------------------------------------
Source: U.S. Census Bureau, CPS March 2000.


    The companies that charge above 9.5 percent tend to have a 
significant market share in the recipient countries. Specifically, 
while only 24 percent of companies charge fees above 9.5 percent of the 
principal, they have the largest market share. Therefore, these fees 
affect a larger number of immigrants. According to the IADB survey on 
remittances, 41 percent of senders used Western Union and MoneyGram.

   Table 5. Remittance Companies Charging  Over $15 on $200 Remittance
------------------------------------------------------------------------
                  Charge                               Company
------------------------------------------------------------------------
Over $20..................................  Uno Money Transfers; Ria
                                             Finance Service; CAM;
                                             Caribbean Airmail; Grace
                                             Kennedy Remittance Services/
                                             Western Union (Jamaica)
                                             Western Union; Vimenca/
                                             Western Union (D.R.);
                                             Remesa Agil; RIA Express;
                                             BPD International (D.R.);
                                             Jamaica Air Express
                                             Couriers; Paymaster/
                                             MoneyGram (Jamaica).
Between $17.51 and $19.99.................  MoneyGram; La Nacional/
                                             Caribe Express (D.R.);
                                             Mateo Express (D.R.);
                                             Pronto Envio; Quisqueyana
                                             (D.R.); Gigante Express
                                             (home delivery) (ELS, GUA);
                                             Girosol; Jamaica National
                                             Overseas; King Express (to
                                             the Interior).
Between $15 and $17.50....................  (GUA); MoneyGram--Bancomer
                                             (MX); Rapid Remittance/Vigo
                                             (MX); Ria Enviaw/Banco Mex
                                             (MX); Ria Enviaw/telegrafo
                                             (MX); ServiMex (MX).
------------------------------------------------------------------------


Country Differences
    The price of sending remittances varies significantly from one 
recipient country to another, and the level of market competition for 
sending money to a specific country serves as a key determinant of that 
country's average price range. When the 
results are disaggregated by country, the price of sending ranges from 
$7 to $26. 
Mexico is the country with the lowest fees among the nine countries 
studied. It is also the country with the greatest market choices for 
customers. The competition in Mexico ranges from small businesses to 
large corporations. Significantly, among the reasons for expanded 
competition is the entrance of the banking industry into the remittance 
market. Bancomer, Banamax, and Bancomex are major competitors in the 
industry, offering direct money transfer services (like remittance 
agencies) and/or working jointly with money transfer companies such as 
MoneyGram and Ria Envia. The major competitor, Western Union, has 
gradually lost its market share in Mexico due to the entrance of many 
new competitors. The competitive market may make it more difficult for 
remittance companies to survive. As prices have gone down in Mexico, 
many companies have been unable to stay in the competition.
    Following Mexico is El Salvador, which also exhibits greater 
competition and is the second largest remittance recipient in the 
Hemisphere. While Western Union remains a dominant player for El 
Salvador with about 15-20 percent of market share, it also has to 
compete with other companies. Its first major competitor is Gigante 
Express, a courier company that mostly sells and sends money orders, 
and which has also nearly a quarter of the market share. Second, 
competition exists with commercial banks. BanSol, BanComercio, Banco 
Agricola, and Banco Cuscatlan operate in the United States as money 
transfer agencies and compete with Western Union and Gigante Express. 
Banco Agricola, the largest bank in El Salvador, has about 10 percent 
market share. The bank offices in Los Angeles transfer nearly $200 
million a year. BanComercio has almost the same market share as Banco 
Agricola.
    The Dominican Republic has more than 15 well-established companies 
remitting from the United States. These companies are grouped into a 
conglomerate through an association named the Associacion Dominicana de 
Empresas Remesadoras de Divisas, Inc. The members of this association generally have similar prices. As Table 8 shows, remittances to the 
Domincan Republic tend to have relatively higher prices than other 
countries with similar characteristics (high volume, significant 
competition, and immigrant demographic concentration). These companies generally offer two kinds of charges: $8+5 percent (when sending in 
dollars) and $5+5 percent (when sending in local currency) of the amount 
sent. Remittance companies in the Dominican Republic usually offer a home delivery service as part of their fees. In other countries, home delivery 
generally incurs an extra dollar fee. The Asociacion claims that their 
charges offset price fluctuation. This claim is bolstered by the fact 
that the standard deviation of the fees is the lowest among the 
different countries studied, that is, $3.7. In other countries the 
standard deviation is over $5, except for Mexico.
    In Jamaica, money transfers also tend to be more expensive. Western 
Union, through its arrangement with the local firm Grace Kennedy, 
controls the majority of Jamaica's remittance market. With about 
200,000 transfers a month coming from the United States, Grace Kennedy, 
manages somewhere between 65 percent and 70 percent of the market 
share. Another competitor with operations in the United Kingdom and the 
United States is Jamaica National Overseas, which is part of 
Jamaica National Building Society. In 2001, Jamaica National Overseas 
transferred $95 million from the United States, which amounts to 10 
percent of the market share. These results show that there are 
differences among countries for the charges to transfer money. 
Competition among remittance sending companies is a key variable 
explaining the country differences. However, there may also be other 
factors involved, such as the type of institution participating in the 
money transfer process or the technologies employed.
Difference Between Sending In Local and
Foreign Currency and Exchange Rate Issues
    Charges vary depending on whether money is sent in local or foreign 
currency. Money transfer institutions tend to charge more when the 
amount is sent in U.S. dollars (as the company loses the ability to 
profit with the foreign exchange). Conversely, if the money is sent in 
local currency at lower fees, the recipient loses a percentage of the 
remittance in the foreign exchange rates.

                                    Table 6. Fee Charged and Type of Currency
----------------------------------------------------------------------------------------------------------------
                                                         Fee Charge Scale
 
-----------------------------------------------------------------------------------------------------------------
                                               Over $15     Between $10.01 and      Under $10.00        Total
                                              (percent)      $15.00 (percent)        (percent)        (percent)
----------------------------------------------------------------------------------------------------------------
Local currency............................          22.6                  49.1               28.3           100
Dollars...................................          56.3                  18.8               25.0           100
 
Dollars...................................          56.3                  18.8               25.0           100
Did not want to provide an answer.........          28.6                                     71.4           100
 
Did not want to provide an answer.........          28.6                                     71.4           100
Money Order...............................          33.3                  66.7                              100
 
Money Order...............................          33.3                  66.7                              100
                                                    37.7                  34.2               28.1           100
 
                                                    37.7                  34.2               28.1           100
----------------------------------------------------------------------------------------------------------------


    According to company officials in different countries and 
businesses, most remitters request the money be sent in the country's 
local currency. Because of the exchange rate losses, remittance 
recipients' relatives receive less than the (monthly average) $200 that 
is sent to them. On average, recipients lose nearly $60 a year from the 
unfavorable exchange rates. Since the average household income for 
Central American and Caribbean families is below $200 a month, the 
price of sending and receiving remittances amounts to more than an 
additional month's income.

               Table 7. Average Fees Charged to Send $200
------------------------------------------------------------------------
                 Country                     Local C.         Dollars
------------------------------------------------------------------------
Mexico..................................          $11.60              NA
El Salvador.............................          $15.06            Same
Guatemala...............................          $15.17          $18.00
Dominican Republic......................          $17.56          $19.50
Nicaragua...............................          $18.71            Same
Haiti...................................          $20.60          $21.00
Colombia................................          $16.67            Same
Jamaica.................................          $19.25              NA
Cuba....................................          $25.58              NA
------------------------------------------------------------------------

                                                          
                                                          
Remitting Institutions
    Despite average prices of over 8 percent of the amount sent plus 
over 2 percent in the exchange rate applied, there are some businesses 
that offer lower priced transfers (i.e., 4 percent of a $200 
remittance). Banks, for example, tend to charge less than $10 for 
transfers, whereas money transfer companies charge more. Nearly 60 
percent of banks but only 30 percent of money transfer companies 
charged $9 or $10 for any transaction under $200 (See Figure 4). These 
companies tend to be located in El Salvador, Mexico, and Guatemala, the 
most competitive markets.
    There are numerous reasons why banks offer lower charges. The home 
country offices of banks involved directly in money transmission: (a) 
are generally the largest banks in the country, (b) have the capacity 
to acquire capital upfront to back the outflow of transactions, (c) 
have an already-existing distribution network, (d) are better known by 
the sending clientele, and (e) concentrate on attracting volume from 
demographically concentrated areas where migrants of the bank's country 
reside. Smaller players such as money transfer companies often have to 
find an investment partner as well as banking or other financial 
institutions to arrange distribution schemes and are therefore likely 
to incur extra costs.



    Nevertheless, the availability of banking institutions involved in 
money transfers is limited and in most cases banks do not provide an 
inexpensive service, merely a cheaper one. In addition, banks often 
respond to the presence or absence of competition, and do not 
necessarily offer a lower fee service. For example, Jamaica and the 
Dominican Republic have banking institutions with branches operating as 
money transfer companies in the United States. However, their charges 
are not necessarily lower than the other nonbanking institutions 
remitting to these countries (See Table 8).

                  Table 8. Financial Institution Charging Less Than  $10 for a $200 Remittance
                                          [as percent of total charges]
----------------------------------------------------------------------------------------------------------------
                                                                  Money Transfer Company        Bank of CU
                             Country                             -----------------------------------------------
                                                                   Under $10   Above $10   Under $10   Above $10
----------------------------------------------------------------------------------------------------------------
Colombia........................................................          25       75.00          NA
Cuba............................................................                                  NA
Dominican Republic..............................................           8       92.00
El Salvador.....................................................       27.27       73.73          75
Guatemala.......................................................       42.86       57.13         100
Haiti...........................................................                                 100
Jamaica.........................................................       16.66       83.33
Mexico..........................................................       41.17       58.83       66.66       33.33
Nicaragua.......................................................       36.36       63.63
All countries...................................................       25.53       74.47       57.14       42.86
----------------------------------------------------------------------------------------------------------------

    As noted, prices set by companies vary significantly. Operating 
costs to transfer money include service to the customer through a point 
of sale with an agency; use of the electronic interface to transfer the 
amount; availability of capital to back the money upfront, 
establishment of a distribution network on the receiving side; and 
customer service. Generally for money transfer companies, the cost of 
executing an individual transaction runs somewhere between $3 to $6 per 
transfer (some analysts argue the costs are even lower). Banks already 
have an infrastructure in place in the home countries, therefore their 
costs may be lower. One company which charges $10 to remit to Mexico 
and Central America explained that their company spends 40 percent on 
transfer costs and the agent, another financial institution, retains 
50 percent of the fees. In addition to the remaining 10 percent, this 
company uses the foreign exchange rate as a source of profit. Their 
primary means for this business to increase profits was to increase 
volume and keep costs down. In contrast, other companies share less 
than 50 percent of the fees with the agents. Furthermore, some 
remittance businesses cut out the need to pay agents by opening their 
own agencies and only need to cover overhead expenses. These entities 
are likely to have lower expenses.
    At least one third of companies transfer remittances at $9 and $10, 
and some offer $7 transactions, which still make a profit (even without 
including the exchange rate applied). Companies charging more than $10 
and often over $14 per remittance transfer cannot explain why their 
costs are considerably higher. Western Union generally argues that 
their charges are higher by virtue of offering a ``premium service,'' 
that is a service that is 100 percent guaranteed in terms of location, 
speed, reliability, and safety. Western Union does have a sophisticated 
and widespread company infrastructure. They have agencies throughout 
the United States and partner companies in Latin America. This capacity 
has rendered this company the remittance institution with the highest 
revenues in the Western Hemisphere. Latin America is Western Union's 
most important market after the United States, Canada, and Western 
Europe, and represents over 20 percent of the company's revenues. The 
company does appear to have two advantages over many of its 
competitors. First, are Western Union's extensive geographical 
locations. Second, but more ambiguously, Western Union may offer better 
customer services than some of the competition. For example, Western 
Union operating as Vimenca or Grace Kennedy notifies recipients that 
their money has arrived and provide toll free numbers to their clients 
so that they can inquire about the status of a transaction. However, 
other companies have proven capable of offering very similar services 
to Western Union while charging lower fees.

Conclusion and Recommendations
    Although remittances are regarded as an important source of income 
by recipient countries, charges continue to be high. With prevailing 
advanced technology in which money transfers can (and do) cost very 
little or nothing to the most savvy senders and recipient, it is worth 
asking how these advantages can be extended to common remitting 
immigrants. For example, a person with a U.S. bank account could allow 
his or her relatives in the home country to withdraw cash with an ATM 
debit card sent by the account holder while only paying for the use of 
the ATM.
    Expanding sending methods as well as competition (or leveling the 
playing field) are factors that help reduce money transfers. Moreover 
educating customers about costs and charges is another important 
method. In Latin America there is a need to greater facilitate money 
transfers of any kind, be they remittance, savings, investment, or 
consumption. A comprehensive effort to support senders and recipients 
should foster an environment in which remittances are less costly and 
can also have a developmental leverage.

Motivate Unbanked Migrants in the United States to
Use Formal Financial Institutions
    Only six out of 10 Latin American immigrants use, or consider 
themselves to have meaningful access to, bank accounts. The effects of 
being unbanked are significant. People are not only susceptible to 
higher costs and difficulties on a daily basis, but also they lack the 
ability to establish credit records and obtain other benefits from 
financial institutions. Helping migrants to enroll in the banking 
industry would help ensure lower fee transfers. Some Government and 
private institutions are already engaged in that effort and could 
target a strategy linking remittance transfers with banking options as 
a way to attract migrants into the financial system.
Create a Board That Provides Oversight for Remittance Companies, and in
Particular Their Fees and Exchange Rates
    As with a large range of organizations, oversight boards are 
important institutions that help guarantee corporate transparency and accountability as well as compliance with standards for products and 
services. The United States needs such an institution on a nationwide 
basis for money transfers. A remittance oversight organization could 
include representatives of money transfer companies as well 
as customers and other independent and knowledgeable parties. It could 
serve as or establish an independent board that reviews practices and 
other issues relating to remittances to Latin America (and elsewhere).

Establish a Customer Rights Office on the Recipient Side to Educate 
        Recipients About Costs and Better Measure Effectiveness and 
        Efficiency of Services
    Remittance recipients are seldom aware of many of the practices and 
methods of the remittance companies. For example, many senders do not 
know about the different exchange rates that prevail among many 
companies. Furthermore, there is no independent research or checks on 
effectiveness or efficiency of the various services. Nongovernmental 
organizations could contribute significantly by educating money 
recipients about being informed customers.
Money Transfer Company Partnership with Small Banks and Credit Unions
    The experience of Quiesqueyana, Vigo, and RapidMoney of partnering 
with small banks and credit unions points to important options to help 
reduce costs (see annex). These three companies offer an alternative to 
remittance recipients that enhance their use of this income source through lower fees or access to an ATM for cash or a VISA debit card for purchases. Expanding these alternatives will also increase market competition and 
improve an imperfect remittance market.

Bank Partnership with Banks and Credit Unions
    Another important strategy to help lower charges is to increase 
bank-to-bank agreements in the United States and Latin America 
regarding money transfers. Currently, banks generally charge over $30 
for an international wire transfer. However, when the prospect of 
increased volume is considered, banks often show interest and are 
prepared to lower these fees. Harris Bank and Wells Fargo are important 
examples of this type of initiative. These banks arrange money 
transfers through Mexico's Bancomer. Money recipients in Mexico are 
also encouraged to use the banking industry by the mere act of 
receiving their currency at a bank rather than at a money transfer 
agency.
Expand Debit Card Use and Motivate Recipients to Open Dollar Accounts
    Debit card access to shared bank accounts is one way to greatly 
reduce transfer charges. But it is important that credit unions and 
banks encourage money recipients to have credit union or bank accounts 
as well. Credit unions and other banks can enhance the welfare of 
remittance recipients by encouraging them to opening accounts and earn 
interest on their money. The percentage of Central American and 
Caribbean people with bank accounts is generally below 20 percent 
(except in Jamaica which has a much higher percentage). Banks and financial 
institutions are key development agents and, as they reach out more to society, the multiplying effect on development increases.

                             *  *  *  *  *

        ATTRACTING REMITTANCES: MARKET, MONEY AND REDUCED COSTS
     Report Commissioned by the Multilateral Investment Fund of the
                    Inter-American Development Bank
                            January 28, 2002
Introduction \1\
    This report analyses four Central American and Caribbean countries 
from the perspective of what governments and other actors are doing to 
promote an enabling environment conducive to economic exchange between 
immigrants residing in the United States and their homeland. The report 
examines which policies and practices are most conducive to enabling an 
environment that attracts foreign currency to Latin America while 
keeping the expense of the money transfers as low as possible from the 
perspective of the senders, recipients, and developing countries. As 
the report explains, there is a growing interest among government and 
private sector groups to reach out to migrants as economic agents. To 
that effect efforts are being made to establish an environment 
conducive to economic exchange.
---------------------------------------------------------------------------
    \1\ Many thanks to Kenneth Blazejewski for research support in the 
preparation of this report.
---------------------------------------------------------------------------
    Central American and Caribbean countries are gradually being 
integrated into the global economy. Migration, mostly to the United 
States, has significant economic 
effects in these countries. In particular, worker remittances flow 
continuously from United States-based migrants to support at least 10 
percent of the households in Central American, Caribbean, and other 
countries. This influx of foreign capital is of enormous benefit to 
entire societies, however, and not just the direct beneficiaries. Some 
of these wider benefits can be seen in the consumer spending they 
encourage and the foreign currency they provide to governments.
    Governments are important agents of economic change and through 
policies and regulations can attract migrant capital and decrease the 
price of remitting money. Governments need to consider what policies 
they might adopt to achieve these goals. These may include increasing 
migrant understanding of alternative sending methods, encouraging or 
requiring the market to offer cheaper methods to transmit remittances, 
and developing policy initiatives that enable and encourage an 
environment that attracts more worker remittances or investment.
    From the business perspective, competition among both existing 
financial service companies and potential new remittance transfer 
entrepreneurs needs stimulating to lower prices and increase services 
offered to actual and potential customers who send remittances abroad. 
The private sector transferring remittances can contribute to increased 
remittance flows by lowering transaction costs, and offering 
development alternatives to individuals and groups through their 
services.
    Four countries are studied in detail for this report on enabling 
environments. These countries are El Salvador, the Dominican Republic, 
Jamaica, and Guatemala. The study is based on more than 50 interviews 
in the four countries. Government, private sector, and nonprofit sector 
institutions were consulted and their representatives interviewed to 
assess the extent to which regulations, policy and private initiatives, 
and other incentives have been put into motion to transfer migrant 
currency (in the form of remittances, savings, investment, or 
donations) to home countries more cheaply and/or efficiently.
    The future scenarios to better attract and increase foreign migrant 
currency look positive for most of these countries. There are a number 
of initiatives in the making, many of which will materialize in ways 
that will enable an environment to transfer remittances at lowered 
charges and expand economic activities in savings and investment by 
migrants. The first section of the report analyses the continued trend 
of contact between migrants and their home countries. The second 
section analyses whether there is an environment that allows migrants 
to economically engage their home country, or to at least send foreign 
currency at low costs. Finally, the report offers concrete 
recommendations to further enable and promote the environment for 
remittance transfers.
Background
    In addition to sending remittances, migrant workers provide other 
important sources of revenue and economic stimulation to their 
countries of origin. This first form of economic engagement has 
historically been remittances. However, these cash flows are by no 
means the only benefit to the countries of origin. There are at least 
three other forms of economic support. First, in addition to cash, 
migrants bring consumer goods to their families and communities. 
Second, nationals living abroad visit their home countries, often 
regularly, expanding or revitalizing the tourist industry and related 
economic sectors such as airlines and other forms of transportation. 
Third, immigrants purchase products from their countries of origin 
while in the United States thereby stimulating growth in the so-called 
``nostalgic industries.'' Fourth, immigrants may and sometimes do 
invest in businesses in their native lands, including but not 
exclusively in the nostalgic industries. Finally, many migrants provide 
financial support to facilitate development and philanthropic 
initiatives through Home Town Associations (HTA's), which donate cash, 
goods, and in-kind services to communities in the countries of origin.
    In most of the countries under study, economic connectivity between 
migrants and their native country is a recurrent process. Tourism for 
El Salvador and the Dominican Republic has a strong component of 
nationals living abroad. In the Dominican Republic, for example, nearly 
40 percent of tourists who arrive in the country are Dominicans living 
abroad, predominantly in the United States. Their average length of 
stay is more than 15 days and they spend around $65 a day. From the 
John F. Kennedy Airport alone, annual flights to Santo Domingo carry nearly 
140,000 people. Another 95,000 travel from Miami (See Table 1 below). 
The situation is similar in El Salvador. Over 40 percent of people 
arriving into the country are Salvadorans. Grupo Taca, an airline 
carrier that serves Central America, flies 21 times a day from the 
United States to El Salvador. The same pattern is observed in countries 
such as Nicaragua and Mexico. At least 20 percent of tourists arriving 
to Mexico are Mexicans residing in the United States. The wealth 
generated by these flows is significant.

                               Table 1. National Origin and International Tourists
----------------------------------------------------------------------------------------------------------------
                                                                 Total
                                                                Tourists    Nationals     Percent        Year
----------------------------------------------------------------------------------------------------------------
Dominican Republic..........................................    2,169,977      845,102      0.38945         1999
Jamaica.....................................................    2,231,765      103,379      0.04632         2000
Mexico......................................................    9,793,900    2,203,100      0.22495         1997
----------------------------------------------------------------------------------------------------------------
Source: Banco Central, Republica Dominicana, http://www.bancentral.gov.do/; Bank of Jamaica, Statistical Digest
  October 2001, Table 36.1; Banco de Mexico, www.mexico-travel.com.

    Moreover, in a smaller proportion perhaps, migrants have become a 
new market attracting exports from their home countries. Ethnic imports 
to the United States, in the above-mentioned nostalgic industries, 
including items such as local beer, rum, cheese, and other foodstuffs, 
have gained more attention among producers in Central America and the 
Caribbean. For example, exports to the United States of El Salvadoran beer tripled from $1 million to $3.3 million between 1999 and 2000. 
By October 2001, exports had increased to $3.5 million, and promised to 
reach $4 million by the end of the year (USTR 2002). In many cases, home country producers have also established businesses in the United States to cater to the migrant community.
    Another important development in the nostalgic trade industries is 
migrant investment in their home countries to manufacture foodstuff 
such as cheese, fruits, and vegetables. A number of migrants residing 
in the United States have set up businesses back in their home 
countries to establish stores of various kinds. One particular example 
of such a company is Roos Foods, Inc., a food manufacturer that 
produces and sells processed milk products in Central America and to 
Central Americans and Mexicans residing in the United States. Roos 
Foods operates in the United States but with franchises in Nicaragua 
and El Salvador. This trend of migrant investment in home countries 
will likely continue in the coming years.
    Moreover, investment is not limited to individual enterprises. A 
recent survey of migrants residing in the United States commissioned by 
the Inter-American Development Bank asked how interested they were ``in 
investing in a fund that would benefit the economic development'' of 
their country. Thirty-eight percent of respondents said that they were 
somewhat interested or very interested (IADB 2001). These patterns of 
continued and of increasing economic interaction bring into focus the 
need to examine the extent to which there exists an environment that 
facilitates a relatively uncomplicated process through which migrants 
can strengthen their relationships with their home countries, starting 
with a low cost method to transfer remittances. Specifically, are there 
factors facilitating or enabling an environment for migrants to work as 
active economic agents? Is there an enabling environment that helps 
businesses compete in the remittance market and lower transaction 
costs? The following sections seek to answer these questions.
An Enabling Environment
    With increased labor migration, governments, civil society, and the 
private sector are now faced with the prospect of attracting more 
worker remittances, migrant 
association donations, migrant capital investment, as well as trade 
opportunities. Governments and businesses need to ask themselves what they 
can do to help lower the costs of remittances and attract more money. What policy and regulatory changes would be most helpful? What stands in the 
way of those changes? Would regulation of courier agencies and other 
remittance transfer businesses reduce costs? Can governments and 
financial institutions help channel greater amounts of remittances 
through the banking system?
    An enabling environment is one that facilitates with ease economic 
interaction among players. Five factors that enable a particular 
economic environment are:

 the presence of a significant number of economic players;

 communication and networking efforts;

 readily available information about transactions;

 policy, business initiatives, and ventures aimed at key 
    economic sectors; and

 resource availability to enhance initiatives and motivate 
    players.

    Within this context, governments and businesses (as well as 
nongovernmental groups, which lie largely beyond the scope of this 
report) can promote initiatives that not only address cost reduction in 
the transfer of remittances, but also enable other elements of an 
economic environment that is attractive for migrant transfers of 
various kinds. Factors that may hinder or enhance migrants' decisions 
to increase, diversify, and strengthen the impact and value of 
transfers include (but are not limited to) the following:

 Cost and delivery. These factors are affected by many forces, 
    including prevailing monopolies or ineffective oversight over money 
    transfers.

 Exchange rates.

 Banking regulations. For example, allowing those working in 
    the United States to keep dollar accounts with favorable interest 
    rates in their home countries would likely increase remittance 
    flow, as well as enhance how those remittances are used, 
    encouraging savings and investment.

 Granting trading licenses to individuals who already have 
    enough foreign exchange to import or export commodities. These 
    initiatives can attract savings coming from remittances received by 
    local entrepreneurs.

 Nonexistent or insufficient incentives to attract immigrant 
    investment and/or donations. Governments can create incentives 
    through policies such as facilitating favorable loan interest rates 
    to migrant groups or reducing import duties for hometown 
    associations' donations. Banks and credit unions can offer 
    strategies to attract remittances, savings, and other investments 
    to their institutions and support the development of the receiving 
    community.

    This project reviewed current policies governing foreign currency 
transfers to Latin America, as well as the outreach efforts to migrants 
by the banking industry in selected Latin American countries. The 
report finds that, overall, there are no major obstacles for migrants 
to transfer resources (remittances, donations, or investments), or for 
companies to engage with the diaspora. On the other hand, however, 
there are few major or widespread initiatives to increase and enhance 
the quantity, range, and value of flows. Among other concerns, there is 
a need for outreach and marketing to migrants. Except in El Salvador 
where a nascent program exists, and in Jamaica where a new trade policy 
links the country to its diaspora, there are no strategies in place. 
Private sector initiatives to engage their fellow compatriots also 
offers promising opportunities, but they are in their early stages and 
involve few players. The report now reviews the state of the 
environment vis-a-vis migrant opportunities to economically engage 
countries of origin.

El Salvador
    According to U.S. census figures, there are at least one million 
Salvadorans in the United States. The Central Bank of El Salvador 
estimated that Salvadorans sent nearly $2 billion in remittances in 
2001. In addition, as noted above, Salvadorans travel to El Salvador 
frequently and maintain an economic relationship with their families, 
communities, and country whenever possible. El Salvador's economy was 
dollarized on January 2001, which has reduced speculation in worker 
remittances. Nevertheless, the costs of money transfer remain high 
overall.
    Government institutions as well as the private sector and civil 
society are seeking initiatives and strategies to enable an attractive 
environment for migrants to engage economically with El Salvador. 
Helping to reduce costs and attract more remittances are among their 
priorities. The government's priority is to draw economic resources and 
investment to El Salvador, including those of migrants, rather than to 
focus on remittances. The business sector remains focused on extending 
and enhancing the remittance business in its own right.
    Government initiatives-- Central Bank authorities stress that there 
are few regulations about foreign currency, particularly since El 
Salvador adopted the dollar as the country's legal tender. Individuals 
can open dollar accounts, and banks are allowed to do so both for 
nationals or foreigners. One significant change has been that dollar 
deposit accounts increased by 6 percent since early 2001. The Central 
Bank must keep records of incoming foreign currency and identify its 
sources. To that effect the Bank uses a procedure to review foreign currency operations, which compiles figures from reports provided by banks, foreign exchange businesses, and other institutions authorized to carry out 
international financial operations.
    The Salvadoran government has sought to reach out to its diaspora, 
but the efforts do not always have the necessary follow-through. In 
2000, the Ministry of the Economy sought to adopt a strategy aimed at 
cultivating migrants as potential investors. The Ministry created a 
``trading cluster'' with the purpose of linking Salvadoran enterprises 
with diasporic business partners. This strategic alliance approach 
serves as a departure point to promote trade at larger scale. By 
January 2001, the strategic alliances emerging from the Ministry's 
initiative had reached monthly deals of $100,000 to purchase 
agricultural goods such as beans. Later in the year, however, such 
efforts seemed to have lost momentum. The Office of Competitiveness at 
the Ministry stressed that these were important efforts and El Salvador 
should think of these strategic alliances as economic beachheads. 
Nevertheless, as of late 2001, there were no continued initiatives in 
place and that no follow-up to the previous effort.
    The Foreign Affairs office also engaged in outreach efforts with 
expatriate Salvadorans as part of an initiative emanating from the 
Vice-President of the Republic. The Direccion General de Atencion a la 
Comunidad en el Exterior (hereafter, the Directorate) created in 
January 2000, is an office that coordinates with other government 
agencies outreach efforts with Salvadorans living abroad. The 
objectives of the office have been to link the Salvadoran government 
with the community living abroad, carrying out initiatives that 
strengthen the relationship between the diaspora and El Salvador. The 
office has paid attention to four areas: Economics, cultural issues, 
community organizing, and migration. Much of the office's work has 
involved networking with the diaspora, particularly with hometown 
association leaders. It has also promoted development in a number of 
areas. One initiative was to promote diasporic assistance to housing 
reconstruction following the early 2001 earthquake that devastated 
parts of the country. Another project has been the 
office's role in facilitating communication between hometown 
associations and local governments in order to engage the former in 
small development projects. To that effect the Fondo de Inversion 
Social para el Desarrollo Local de El Salvador, a government agency, 
has linked with hometown associations to carry out small development 
projects in rural sectors of the country. Construction projects have 
been at the core of this relationship in which hometown associations 
participate as joint partners providing material for basic 
infrastructure and assisting with property acquisition. Other efforts 
by the Directorate have been to facilitate the tax-exempt status of 
goods donated by Salvadorans living abroad.
    In 2002, the Directorate will promote a portfolio of development 
projects identified with the assistance of the Ministry of Agriculture. 
These are generally low-budget investment projects involving less than 
$30,000 (and which average about $10,000). These projects would be an 
attractive incentive to migrants interested in either 
investing or in donating capital. Another important initiative is the 
creation of a $300,000 matching fund to implement joint partnership 
activities with hometown associations. This matching fund represents an 
incentive to attract HTA's to engage in or expand development 
initiatives for their communities of origin.

         Table 2. Projects Proposed by the Outreach Directorate
------------------------------------------------------------------------
                                                                No. of
                    Project                        Amount      Projects
------------------------------------------------------------------------
Chicken farms.................................       60,355            7
Fish farms....................................       56,690            2
Gardens.......................................       27,500            6
Handcraft.....................................       10,500            1
Organic.......................................       10,500            1
Other.........................................       12,700            2
Vegetables....................................        9,200            1
Social........................................       18,500            2
Fruit.........................................       10,800            2
------------------------------------------------------------------------
Source: Outreach directorate.


    Private sector initiatives--Businesses in El Salvador have 
recognized the value of remittances as an economic instrument that 
enhances a company's profits. However, there remain significant areas 
for businesses to improve the products and services they provide to 
both migrants and recipients. For example, the banking industry in El 
Salvador has significant international operations and many banks 
already offer money transfers. The four largest banks in El Salvador 
(See Table 8) have branches in the United States. Money transfers to El 
Salvador are competitive and a leading company, Western Union, despite 
controlling a significant portion of the market with 254 agencies, 
competes regularly with the banks and courier agencies.
    Although many banks offer remittance services, banks have largely 
failed to offer recipients opportunities and incentives to open bank 
accounts and save their money. As in most countries, there is an 
assumption among some banks that because most money recipients are low-
income individuals who predominantly use the money for consumption, 
they are not potential bankable customers. That belief impedes banks 
from offering sufficient incentives to senders and recipients or 
training them to use the banking industry.

                  Table 3. Top 10 Banks in El Salvador
------------------------------------------------------------------------
                                    Assets in 2001
               Bank                    (in U.S.        Branches in the
                                       dollars)              U.S.
------------------------------------------------------------------------
Agricola S.A.....................     2,546,526,000  BancoAgricola,
                                                      branches in
                                                      California and
                                                      Washington.
Cuscatlan de El Salvador S.A.....     1,931,919,000  New York.
Salvadoreno S.A..................     1,405,586,000  BanSol, branches in
                                                      California and
                                                      Washington.
De Comercio de El Salvador, S.A..       923,568,000  Bancomercio
                                                      branches in
                                                      California and
                                                      Washington.
Scotiabank El Salvador, S.A......       401,220,000
Hipotecario de El Salvador, S.A..       253,488,000  Works with Western
                                                      Union.
Capital S.A......................       237,593,000
Credomatic S.A...................       205,365,000
De Fomento Agropecuario..........       172,439,000  Works with Western
                                                      Union.
Citibank N.A.....................       165,366,000
------------------------------------------------------------------------
Source: Estrategia y Negocio, Diciembre 2001-Enero 2002.


    Despite this assumption of ``unbankability,'' most bankers agree 
that some of those receiving remittances open bank accounts at some 
point in their economic lives. For example, in Banco Hipotecario, bank 
officials estimated that 20 percent of money recipients open accounts 
and enjoy the benefits of banking. Banco Agricola estimates that 30 
percent of remittance senders and 10 percent of recipients have bank 
accounts. Banco Agricola offers three services to senders; remitting to 
a savings account through agencies in the United States, remitting to a 
relative's account (or providing a cash payment), and bill payments. 
However, neither of these banks has incentives to actually attract 
recipients into the banking industry or to offer them or the sender 
standard banking benefits, such as housing loans or other types of 
financial opportunities.
    Cooperatives have more initiatives and outreach to remittance 
senders and recipients, but the cooperatives are less widespread than 
the banks. The Federation of Salvadoran Savings and Credit Cooperatives 
(Fedecaces) initiated the IRnet system, which provides international 
wire transfers among credit unions, in coordination with the World 
Council of Credit Unions. This important initiative, which has enormous 
potential benefit to senders and recipients of remittances (as well as 
others), continues to be limited due to lack of resources. Two major 
impediments are the small number of people who are members of credit 
unions and the need to develop computer software that would allow for a 
more efficient money transfer system. Despite these constraints, the 
program has been able to attract clients into its money transfer 
system. Fedecaces has also made use of 26 points of service in El 
Salvador in addition to its central offices and the participation of 18 
cooperatives.
    Fedecases' relationship with other financial institutions 
underscores arguments this report makes about best practices and the 
advantages of enabling environments that facilitate flows, customer 
empowerment, and related economic and social benefits. Originally, 
Fedecases would only transfer remittances from a U.S.-based credit 
union such as L.A.-based Comunidades. In order to expand its service in 
the United States, it then arranged to send money through three money 
transfer companies; Vigo International, Rapid Money, and Viamericas, 
all companies which charge lower prices than their business 
competitors. Fedecases' remittance service tripled from the moment in 
expanded its activities with the money transfer companies. Prior to 
this expansion, between January and September 2001, the Fedecaces 
transferred $483,068. Because of its new expanded reach, remittance 
transactions in the last 3 months of the year were almost double those 
of the previous 9 months, resulting in a year-end total of $1,203,583. 
Also notable is that the average remittance transaction was $400, which 
is about double the usual transfer amount. Fedecaces' 
approaches are apparently consolidating their customer base as 
Fedecaces' officials report that every month 10 percent of recipients 
decide to associate with the cooperative.
    Other institutions have explored opportunities to engage with their 
home country diaspora. Two examples are the Banco Multisectorial and an 
NGO, Infocentros. Banco Multisectorial is an organization that provides 
funding for housing and other development projects, usually through 
other institutions. It has provided credit to sell homes in El Salvador 
to Salvadorans living abroad. However, partly due to the lack of 
outreach and marketing strategies and partly due to Banco 
Multisectorial's lack of knowledge about the Salvadoran population 
abroad, only $2 million was financed. Infocentros is a Salvadoran NGO 
that offers training to use and access to the Internet. They have 
``infocentros'' which are computer centers like Internet cafes, and an 
infrastructure already in place. This organization is exploring using 
its infrastructure and expanding its offices throughout the country to 
offer money transfer services through low-cost, Internet-based, 
transactions to Salvadorans residing abroad. This initiative could 
offer other important benefits to the recipients such as educating the 
recipient community about new technologies.
    El Salvador is clearly working to build a better economic 
relationship with its diaspora. However, banking institutions need to 
better explore the opportunities of attracting migrant capital, as well as making efforts to bank the unbanked in El Salvador. Overall, positive 
efforts and initiatives are being set in place, but further dialogue on economic interaction with Salvadorans living abroad needs to take place between private sector entrepreneurs and government.

Dominican Republic
    There are nearly one million Dominicans in the United States, the 
majority of them residing in New York and Florida. In 2001, these 
Domimicans sent $1.8 billion in remittances to their home country. 
Despite this volume, the third largest amount among Latin American 
countries, charges for transfers are higher than for El Salvador, 
Guatemala, and Mexico. Moreover, there are no specific initiatives in 
the Dominican Republic to establish linkages with the Dominican diaspora, 
although government officials and private sector groups are eager to 
initiate such economic schemes. Greater knowledge and understanding of 
the money transfer market and the development of policy initiatives by 
the government could stimulate active engagement with Dominicans living 
abroad.
    Government initiatives-- Government officials in the Dominican 
Republic value remittances as an important source of income for the 
economy. Central Bank analysts estimate that between 1995 and 2000, 
after tourism, family remittances represented the second source of 
foreign currency earnings, reaching $7.3 billion, or 8 percent of the 
country's GDP. Central Bank officials also maintain that since the 
onset of economic liberalization, dollar transfers may be made freely 
and regulations on foreign currency only occur for transactions above 
$5,000. Foreign exchange businesses and money transfer companies must 
comply with regulations when handling transfers exceeding $5,000. Bank 
obligations are limited to verifying that transactions are registered 
as remittances and both banks and nonbank financial institutions must 
report the remittances they handle.
    Notwithstanding the enabling provisions of economic liberalization, 
the government and private sector could do much more to promote a money 
transfer environment that is effective, inexpensive, and attractive to 
migrants as well as implement other measures to enhance economic 
relationships with expatriate Dominicans. Tourism is a case in point. 
Despite the fact that nearly 40 percent of tourists who traveled to the 
Dominican Republic in 1999 were Dominicans who spent an average of $741 
during their typical 15 day stay, the Tourism office has no program in 
place to reach out to this sector. Although tourism officials recognize 
that promoting ``internal tourism'' for Dominicans living abroad would 
bring important benefits to the country, they admit that their approach 
is to promote ``international tourism.''
    More broadly, there is no government consensus as to how to 
interact with and relate to Dominicans overseas. In the Foreign Affairs 
Ministry, for example, an official was concerned about the difficulties 
and risks of having an economic strategy targeting migrants living 
abroad. Nevertheless, an outreach policy is considered necessary and to 
that effect, the Foreign Affairs Ministry created an Overseas Affairs 
Office. Moreover, the Office of Investment Promotion in the Dominican 
government has a clear understanding that partnering with Dominicans 
living abroad will enhance the country's development opportunities, but 
has no policies in place to define an appropriate strategy or 
orientation. In other words, the recognition by this office that the 
government and private sector must create conditions to attract migrant 
capital investments has yet to translate into policy or practice.
    Private sector--Generally, Dominicans suspect that the costs of 
sending remittances may be high. However, the Associacion Dominicana de 
Empresas Remesadoras de Divisas, Inc. has an effective public relations campaign that contends that their prices are fair. Moreover, though some businesses in the Dominican Republic are aware of current market behavior 
and high prices, they often feel they should not get involved. Remittance 
companies themselves could also offer development contributions to the 
communities receiving remittances, such as donations or joint ventures 
with communities living abroad. Vimenca, Western Union's representation 
in the Dominican Republic, with near a 30 percent market share, 
explains that they offer various charity donations and would be 
interested in participating in other projects. Mr. Freddy Ortiz, 
President of the Remittance Association agrees on the importance of the 
developmental contribution that the Association's member companies can 
provide.
    Although banks are relatively uninvolved in the remittance 
business, there are some exceptions. Banco Bancredito is involved in 
the money transfer system but only to a very limited extent and with a 
small number of customers who are remittance recipients. Although 
Bancredito has 51 branches throughout the Dominican Republic, it only 
received a little less than $4 million a year in remittances from the 
United States. Most of these transfers arrive into dollar savings 
accounts kept by Dominicans living in the United States. The bank 
recognizes that it could seek to attract or offer incentives to new 
customers to have dollar accounts. Banco Mercantil, which works mostly 
with trade, is interested in the remittance market and offers a money 
transfer scheme through a debit card in conjunction with Quisqueyana, a 
remittance company with offices in the United States. Customers in the 
United States go to Quisqueyana offices and transfer the money to the 
bank, while the recipient in the Dominican Republic receives a card, 
referred to as a CashPin, that can be used regularly to withdraw 
remittances. This new venture represents an important advance in money 
transfers because it enables recipients to not only cash their money at 
any ATM, but also to buy goods at commercial establishments through its 
relationship with VISA.
    Two other banks more involved in money transfer are Banco Popular 
(BPD International) and Banco Hipotecario Dominicano. BPD 
International, whose Dominican counterpart is the largest bank in the 
country, has various money transfer operations, including remittances 
(see Table 9). They also have arrangements with other money transfer 
companies. Banco Hipotecario remits significant amounts through its 
branches in New York and its market share could reach 14 percent. This 
bank also offers other packages to senders and recipients of 
remittances. The company has a tourism office that is seeking to 
attract the Dominican market living abroad. Hipotecario's business 
strategy emphasizes attracting recipients into the banking system, as 
well as providing housing loans to both senders and recipients.

             Table 4. Top 10 Banks in the Dominican Republic
------------------------------------------------------------------------
                                                         Branches in the
            Bank                Assets as of June 2001         U.S.
------------------------------------------------------------------------
Popular.....................              2,263,825,210  New York.
De Reservas.................              1,755,155,500
Intercontinental............              1,169,223,960
B.H.D.......................                959,072,170  New York.
Nacional de Credito.........                719,812,480
Del Progreso................                672,601,000
Citibank....................                377,483,630
Mercantil...................                339,626,600  Quisqueyana.
Scotiabank..................                263,290,980
Osaka.......................                165,044,670
------------------------------------------------------------------------
Source: Estrategia y Negocio, Diciembre 2001-Enero 2002.

    Nevertheless, there is still much the banking industry and other 
business sectors can do and offer to money senders and recipients. 
Important contributions would include providing or expanding interest 
bearing dollar accounts, housing or construction loans, regular savings 
accounts to low income recipients, retirement packages to senders, and 
other financial opportunities. These could enhance both business 
interests and the needs of the remittance sector.
    Finally, as in El Salvador, a nascent interest in money transfers 
has emerged among the cooperative system and is reflected in the 
initiatives of the Association of Cooperatives, known by its Spanish 
acronym AIRAC. One major advantage of the cooperative system in the 
Dominican Republic is that many of its branches operate in rural areas 
and sectors less frequented by banks. Cooperatives also offer a more 
welcoming environment for remittance recipients, as they seem to be 
less ``formal'' than banks. In places where remittances are transferred 
through cooperatives the community also receives benefits from the 
association. One cooperative, San Jose de las Matas, transferred half a 
million dollars in remittances during a 12 month 
period. Many of the recipients have joined the cooperative since they 
began receiving their remittances through it. Thus remittances can play 
a developmental role among low-income recipients by functioning as a 
resource that over time can be saved. AIRAC is seeking to expand its 
services by providing ATM's to the cooperative network and set a more 
effective and inexpensive money transfer system than that currently 
offered by remittance agencies.
    The increasing participation of banks and cooperatives in the 
Dominican money transfer system has led to new opportunities for 
improvement. In addition, the government's interest in addressing 
policy options for migrants living abroad may also be a positive 
indicator for the emerging enabling environment. Within that context, 
there is a need to discuss current costs, as well as opportunities to 
improve services and available options for senders and recipients.

Jamaica
    Jamaica is a very different country from other Latin American and 
Caribbean countries, not only by virtue of its language (as there are 
other English-speaking Latin American countries), but also because it 
is the Latin American country with the largest proportion of its 
population living abroad. The Jamaican diaspora is spread out around 
the world. Jamaica has a population of only 2.5 million people, but has 
800,000 immigrants in the United States alone. These 800,000 Jamaicans 
sent $900 million in remittances in 2001. Another distinctive 
characteristic of Jamaica is that one single company, Western Union, 
through Grace Kennedy Remittance Services Ltd., manages the majority of 
the money transfer market. Grace Kennedy/Western Union controls about 
65 percent of the market. It also has some of the highest remittance 
sending fees in the region. As in the Dominican Republic, awareness of 
the high relative cost of money transfer is limited in the government 
and society. An enabling environment that better facilitates money 
transfers is needed in Jamaica, as is recognized in some sectors of 
Jamaican society and reflected in some government policies.
    Government-- Officials at the Bank of Jamaica, the Central Bank of 
Jamaica, believe money transfers to Jamaica flow smoothly. The bank's 
primary interest to date has been limited to monitoring the quantity of 
financial flows, rather than broader enabling (or disadvantageous) 
factors that may promote or inhibit those flows. There are currently no 
restrictions on foreign exchange capital flows. There currently are, 
however, conversations about money laundering regulations with the 
Ministry of Finance and the Banking industry in order to increase monitoring of money transfers that may arrive into the country for nonlegal purposes. 
While officials interviewed were not aware of any complaints or 
concerns about the remittance transfer companies and systems, they, 
like their Dominican counterparts, did express concern when informed of 
the fees and exchange rate markups remitting Jamaicans incur.
    Outside the money transfer business, government officials at the 
Ministry of Finance recognize that there is no strategy to attract 
migrant currency earnings. There is only a general strategy to promote 
investment. There have been some outreach attempts, but in general 
these have been isolated efforts. Through one such initiative, the 
National Housing Corporation encourages Jamaicans in the United States 
to build homes in their homeland.
    In contrast, one area in government where there is a serious focus 
on Jamaicans living abroad is in foreign and trade policies. This 
strategy recognizes the need for Jamaica to ``be proactive in shaping 
the new rules of the international trading environment rather than 
passively allow these rules to be shaped by other countries.'' In that 
context, one area of attention consists of attracting the support of 
Jamaicans living overseas. Under this policy, the government 
established the following objectives. It aims to:

 Implement the Charter for Returning Residents.

 Operate as an information center and contact point for 
    Jamaican overseas organizations and communities-activities should 
    focus on information gathering and analysis of overseas asset 
    creation activities.

 Promote policy to support the interests of Jamaican 
    communities abroad through political and economic activities.

 Encourage and mobilize Jamaicans abroad to assist in national 
    development.

 Encourage mass communication with Jamaicans overseas, that is, 
    through television and radio programming.

 Provide trade-related assistance to Jamaicans overseas to 
    increase capital flows to Jamaica, that is, marketing networks, 
    cultural activities. (Jamaica's New Trade Policy)

    This strategy linked a previous effort (formalized in 1993) with 
the creation of the Department for Jamaicans Overseas. This department 
originally worked to assist Jamaican returnees, and later expanded to 
maintain links with its diaspora. The new policy of the government has 
been read as an important step in its recognition that the country's 
integration in the global economy depends in significant part on its 
relationship with its diaspora. Yet, given the absence of specific 
projects, there is also recognition that the government has yet to move 
from this policy agenda into policy implementation. Despite these 
shortcomings, the government has expressed enthusiasm over linking up 
with Jamaicans living overseas. Officials are also interested in 
learning from other countries' experiences in creating an environment 
that facilitate greater contact.
    Private Sector--The private sector is clearly aware of the 
importance of the diaspora, and it looks to the United Kingdom, Canada, 
and the United States as the places where Jamaicans are residing. It is 
also aware of the importance of family remittances coming into the 
country. As one chief bank official expressed it, ``there is no debate 
that dependence on remittances is strong and does not constitute a bad 
thing; it is a reality we need to adapt to.'' Banking institutions like 
commercial banks and building societies participate in money transfer 
to some extent. However, there is little concern over the control that 
one company, Grace Kennedy, exerts over the remittance market. Grace 
Kennedy's greatest competitor is Jamaica National, a building society 
that transfers 10 percent of the remittances that come into the 
country. It charges $15 for any transaction, as compared to $22 by 
Western Union/Grace Kennedy.
    Aside from Jamaica National, there are some other banks that 
provide remittance services. These institutions use MoneyGram in the 
United States and charge similar or slightly lower fees than those of 
Grace Kennedy. No bank examined identified a strategy to enable an 
environment more conducive to attracting migrants' foreign currency for 
other economic purposes.
    The credit union system is seeking to implement a nationwide 
strategy to offer remittance transactions and use the earnings from the 
transfer charges to implement educational packages to its members. One 
credit union that transfers money from Florida through a Cayman Island 
bank has demonstrated the benefits of money transfers by suggesting 
that their revenues have increased significantly since working in the 
remittance service sector.
    The recognition of the importance to increase interaction with the 
diaspora is a significant step for the Jamaican government. One 
concrete strategy for this country should be to identify the needs of 
the remittance sending and recipient populations, including lower fees, 
facilitating new economic opportunities, and providing other 
financial services.

Guatemala
    Unlike the other three countries reviewed here, Guatemala has a 
relatively small population living abroad. Census Bureau estimates that 
there are less than 500,000 Guatemalans in the United States. 
Nevertheless, in 2001 these Guatemalans sent nearly $700 million to 
their country of origin. The government has generally recognized the 
importance of Guatemalans living abroad and has expressed interest in 
engaging with its population. In practice, however, limited efforts 
have actually been made. The private sector is beginning to engage 
migrants by entering the money transfer business.
    Government--According to the Guatemalan Central Bank, the law 
allows transfers in dollars. However, some officials fear that the free 
negotiation of foreign currency could lead to increased exchange rate 
speculation. Guatemala does not have higher markups in the exchange 
rate than other countries under study. There are some impediments to 
people opening dollar accounts, but these are not related to banking 
regulations but to commercial banks' policies. In particular, many 
banks in the country require a $500 deposit to open dollar accounts, 
and customers are also required to have an account in Quetzales.
    Private Sector--The banking industry in Guatemala has established 
money transfer offices in the United States to offer services to 
Guatemalans. The majority of banks have offices in Los Angeles, which 
function to transfer remittances. These bank offices compete among 
themselves to attract market share by offering low fees. A new large 
bank, G & T Continental, plans to enter the U.S. remittance market in 
May. The bank's strategy will be to offer more than one service: In 
addition to transferring money, it will provide basic information about 
issues of concern to Guatemalans such as migration and legalization, as 
well as low-income housing opportunities in Guatemala.

                   Table 5. Top 10 Banks in Guatemala
------------------------------------------------------------------------
                                                         Branches in the
             Bank               Assets as of June 2001         U.S.
------------------------------------------------------------------------
Industrial...................             1,003,543,590
G & T Continental............               974,531,670  Los Angeles.
Del Cafe.....................               630,943,330
Agromercantil de Guatemala...               527,635,130  Los Angeles.
Reformador...................               419,877,690
De Occidente.................               404,530,770  Los Angeles.
De Desarrollo Rural..........               386,592,820
De Exportacion...............               253,788,460
Internacional................               241,104,490
Credito Hipotecario Nacional.               176,557,690
------------------------------------------------------------------------
Source: Estrategia y Negocio, Diciembre 2001-Enero 2002.

Recommendations
    The countries studied are still thinking about how to enable an 
environment by which money transfers can occur without complication and 
at lower cost. In Latin America there is a need to enable an 
environment that facilitates money transfers of any kind, be they 
remittances, savings, investments, or consumption. However, since the 
most tangible and costly interaction between migrants and their home 
country is remittances, priority must be paid to this particular issue. 
Current efforts to enable an adequate money transfer environment are in 
their early phases and international support could provide valuable 
input to help expand and improve the current reality.
    A comprehensive effort to support senders and recipients of money 
transfers should foster an environment in which remittances are less 
costly and can exert developmental leverage.

Establish Customer Rights Offices to Educate Both Senders and 
        Recipients About Costs and How to Better Measure Effectiveness 
        and Efficiency of Services
    Remittance recipients are not aware of many of the practices and 
methods of remittance companies. For example, many senders do not know 
about the different exchange rate markups that prevail among different companies. Furthermore, there is no independent research or checks on 
effectiveness or efficiency of the various services. Nongovernmental 
organizations could contribute significantly to the improvement of the 
market by ensuring that migrants approach the money transfer companies 
as informed customers.

Create A Task Force On Remittances and Development to Explore Concrete
Possibilities for Sending and Recipient Countries
    Players in the remittance market can further enhance and enable the 
remittance environment by acting in three strategic areas: Helping 
reduce money transfer fees, expanding financial opportunities to 
recipients and senders, and leveraging the developmental potential of 
remittances. To that effect, a task force of key players should be 
established to formulate agendas and policies that can improve the 
value, flow, and use of remittances [and their effective management]. 
The task force would also help formulate strategies that leverage the 
developmental potential of remittances and other migrant earnings. 
Members of the task force would make recommendations to the United 
States and Latin American governments, as well as international 
organizations regarding key development practices influenced by 
remittances. Task force membership should include key players in the 
remittance process such as business officials, policymakers from the 
United States and Latin America, leaders of Latino hometown 
associations, and international organizations. The task force would 
need to meet in the United States and Latin America, and help shape a 
strategy on cost reduction and economic development. One important role 
of the task force would be to highlight important developmental 
strategies as identified in studies and the task force meetings. The 
task force's main objective would be to draw attention in the Inter-
American community to the role of remittances in development and to 
support specific policy options and proposals that 
facilitate development.

An Expanded Role for Latin American and
United States Civil Society Organizations
    Implicit in many of the above recommendations, and indeed in much 
of the report, is that the nonprofit, nongovernmental organization 
(NGO), or civil society sector has a very important role to play in 
promoting a better remittance system, from encouraging lower fees to 
empowering citizens to use mainstream financial institutions, to 
promoting the developmental and investment potential of remittance 
flows. Examples of such civil society participation range from the 
customer rights NGO in Honduras to the invaluable and innovative role 
of credit unions, themselves nonprofit organizations. Nevertheless, a 
full discussion of the role of the civil society sector--both what it 
currently offers, and what it can offer immigrants, their families, and 
their communities through international financial flows--is beyond the 
scope of this study, which was commissioned to focus on government and 
business. An important area of future policy study is how to promote 
the enabling and enhancing role of the NGO/nonprofit sector in the 
United States and home countries.

                               ----------
               PREPARED STATEMENT OF SUSAN F. MARTIN, PhD
                Professor of Law and Executive Director
           Institute for the Study of International Migration
            School of Foreign Service, Georgetown University
                           February 28, 2002

    Mr. Chairman, Members of the Committee, thank you for providing 
this opportunity to testify at this hearing on worker remittances. 
During the past decades, remittances have grown significantly in scale 
and impact. The 1999 International Monetary Fund's Balance of Payments 
report shows that countries in the Western Hemisphere received more 
than $16 billion per year from workers residing abroad. Worldwide, the 
flow of remittances exceeds $100 billion per year, with more than 60 
percent going to developing countries. Having stated these statistics, 
it is worth noting the weaknesses of existing data on remittances. 
These numbers likely under-represent the scale of remittances by 
billions of dollars since many countries have inadequate processes for 
estimating or reporting on the funds remitted by foreign workers. 
Correcting for under-reporting, the Inter-American Development Bank 
(IDB) estimates that total remittances in the Western Hemisphere now 
likely exceed $23 billion per year.
    Remittances will likely continue to grow in size as international 
migration continues to grow. During the past 35 years, the number of 
international migrants has doubled from 76 million to more than 150 
million worldwide. \1\ The Western Hemisphere has seen a comparable 
increase in the number of international migrants living and working 
abroad, growing to about 40 million across the whole hemisphere. Almost 
three-quarters reside in the United States. Of these more than half 
come from other countries in the Americas.
---------------------------------------------------------------------------
    \1\ International Organization for Migration, World Migration 
Report: 2000, Geneva: UN Publications, 2000.
---------------------------------------------------------------------------
    There are a number of reasons that international migration is 
likely to continue to grow in the future, and with this growth, will 
come continued growth in remittance flows. Under classic theory, 
immigration occurs when there is a combination of push/supply and pull/
demand factors, as well as networks to link the supply of migrants with 
the demand of employers and families in receiving countries. Economic 
globalization and integration is fueling all parts of this equation. On 
the demand side, businesses, particularly but not exclusively 
multinational corporations, press for access to a global labor market 
for their recruitment of personnel. This pertains to both skilled and 
unskilled labor. On the supply side, when rising expectations for 
economic advancement are not met quickly enough, migration is tempting 
for workers who can earn far more in wealthier countries. Generally, 
those most likely to migrate have some resources to invest in the move.
    A second, related factor stimulating increased migration involves 
the transportation and communications revolution that makes it easier 
to move and keep contact with one's home community. Increasingly, 
trans-nationalism is becoming a reality for today's migrants. Although 
circular migration has always been present, with migrants living 
sequentially in the source and receiving country, migrants can now live 
at one and the same time in two different countries. Even those who 
permanently relocate are able to keep in touch with family members at 
home far longer and more easily than in the past. Not only do such 
contacts reinforce the networks that produce future migration, but they 
also mean that many migrants will continue to send remittances to 
parents, siblings, and other community members even after they 
permanently resettle themselves.
    Increased immigration generally means increased remittances, to 
return more directly to the topic of this hearing. Until relatively 
recently, researchers and policy makers tended to dismiss the 
importance of remittances or emphasize only their negative aspects. 
They often argued that money sent back by foreign workers were largely 
spent on consumer items, pointing out they seldom were invested in 
productive activities that would grow the economies other developing 
countries. They also feared that those receiving remittances would 
become dependent upon them, reducing incentives to invest in their own 
income-generating activities. Moreover, what was considered to be 
excessive consumerism, they argued, would lead to inequities, with 
remittance-dependent households exceeding the standard of living 
available to those without family members working abroad. Often, 
government attempts to encourage or require investment of remittances 
were heavy-handed and led to few economic improvements. Over time, the 
critics pointed out, remittances would diminish as the foreign workers 
settled in their new communities and lost contact with their home 
communities. Sometimes, wives and children would be left behind, with 
the all-important remittances no longer contributing to their 
livelihood.
    Many of these problems still exist, but recent work on remittances 
show a far more complex and promising picture. Perhaps because the 
scale of remittances has grown so substantially in recent years--it 
quadrupled in the Western Hemisphere during the past decade--experts 
now recognize that remittances have far greater positive impact on 
communities in developing countries than previously acknowledged. Such 
experts as Edward Taylor at the University of California at Davis argue 
that even consumer use of remittances stimulates economic activity, 
particularly when households spend their remittances locally.\2\ The 
multiplier effects of remittances can be substantial, with each dollar 
producing additional dollars in economic growth for the businesses that 
produce and supply the products bought with these resources.
---------------------------------------------------------------------------
    \2\ Ibid.
---------------------------------------------------------------------------
    The microeconomic effects of remittances can also be important. 
Important contributors are the hometown associations (HTA's) of 
migrants abroad who send communal resources to the villages from which 
they emigrated. Collected through a 
variety of means, these resources have helped villages improve roads, 
water and 
sanitation systems, health clinics, schools and other community 
infrastructure. The HTA's often start with small resources but they 
have the potential to grow to significant size. According to one study: 
``Consider the Salvadoran `United Community of Chinameca': Their first 
largesse was $5,000 to build a school, and then they built a septic 
tank worth $10,000. Later they constructed a Red Cross clinic at a cost 
of $43,000, and bought an ambulance worth $32,000.'' \3\ Some State and 
local governments match the resources from HTA's in order to magnify 
their impact. There has been a recent trend toward encouraging the 
HTA's to invest in small businesses and manufacturing activities, in 
order to produce new jobs for villagers. These are truly grassroots 
initiatives that involve community-to-community development.
---------------------------------------------------------------------------
    \3\ B. Lindsay Lowell and Rodolfo O. de la Garza, The Developmental 
Role of Remittances in United States Latino Communities and in Latin 
American Countries, Washington: Inter-American Dialogue, June 2000.
---------------------------------------------------------------------------
    With the new recognition of the importance of remittances has also 
come greater understanding of the challenges brought by the large-scale 
transfer of money. HTA's and their home communities may not have the 
technical expertise to determine the best ways to invest in community 
development. The strength of a grassroots initiative can become its 
weakness if HTA's and local villages disagree about the best use of the 
remittances or if they invest the funds poorly. There are some 
initiatives underway to provide technical assistance and training in 
this regard. For example, the Inter-American Foundation funds such 
assistance through the Fundacion para la Productividad del Campo, also 
known as APOYO, in several Mexican states. The Inter-American 
Development Bank has held several conferences and regional workshops to 
stimulate discussion of mechanisms to increase the development payoff 
of remittances.
    Also, remittances are often used to help families address emergency 
needs that could, perhaps, be better addressed through other means--or 
prevented altogether. For example, many households use some portion of 
their remittances to deal with emergency health care needs because they 
lack access to routine health care and do not have insurance coverage. 
The Mexican Migration Project asks respondents how their family members 
use remittances. According to one research study, ``the largest single 
reported use of remitted or saved funds was health care expenses for 
family members. Among those who remitted (approximately 60 percent of 
respondents) fully three-quarters reported that some share of the funds 
were used for health care expenses.'' \4\ At the same time, many 
migrants do not take advantage of an initiative by the Mexican 
government that enables them to purchase health insurance for families 
in Mexico for a very low rate per month. Such cross-border health 
coverage, purchased in the United States for relatives at home, could 
be a more effective use of remittances than the funding of emergency 
care. Since many migrants return periodically to their home 
communities, such cross-border programs could also provide the largely 
uninsured U.S. residents with a source of health care as well.
---------------------------------------------------------------------------
    \4\ Louis DeSipio, Sending Money Home . . . For Now: Remittances 
and Immigrant Adaptation in the United States, Washington: Inter-
American Dialogue, January 2000.
---------------------------------------------------------------------------
    The cost of transferring remittances is another issue that needs to 
be addressed. These transfer costs can be exceedingly high. One study 
found that many Mexican migrants lose as much as 25 percent of the 
value of their remittances through fees and poor exchange rates.\5\ In 
some cases, one or a few wire transfer companies have a lock on 
distribution points for purchasing or receiving money orders. The 
market appears to be responding to this situation, with greater 
competition leading to lower transfer costs, but more needs to be done 
in this area. In particular, it is essential to regulate the new 
companies to ensure that they have the capacity and resources to 
transfer the funds. In this regard, it is also necessary to monitor the 
companies to guard against fraud and the use of legitimate remittance 
transfers for money laundering purposes.
---------------------------------------------------------------------------
    \5\ Binational Study.
---------------------------------------------------------------------------
    Immigrants often mention that they use a few well-established 
companies because of their greater reliance. To date, though, the 
business is dominated by wire transfer companies rather than financial 
institutions that offer a wider range of services to customers. The 
greater entry of banks and credit unions could help reduce costs and 
abuses even further. To the extent that credit unions, for example, 
reinvest transfer fees in the remittance receiving communities, the 
development potential could be increased still further. There are new 
initiatives in this area. The Inter-American Development Bank's 
Multilateral Investment Fund supports programs to enable the 
transmission of remittances through financial institutions that work 
with the low-income clients, such as credit unions and microfinance 
institutions.
    Greater financial literacy among remitters, as well as clearer 
information about the actual costs of transferring funds, would also 
reduce abuses in this area. Financial literacy programs have many 
benefits for both immigrants and financial institutions. A particularly 
useful initiative was pioneered in Rogers, Arkansas. The curriculum 
covers such issues as basic banking services, how to write checks, how 
to establish a credit history, how to buy a house, and retirement 
planning. The training program is offered by a local bank, in 
cooperation with corporations in the area. With greater financial 
literacy, the largely immigrant workforce has become more savvy 
consumers who are less likely to be victims of abusive and predatory 
financial practices, while the bank that has offered the courses has 
significantly increased its customer base for a number of bank 
products--a win-win situation for both.
    It is well to remember that it is often the poorest residents of 
the United States and other wealthy countries that are sending 
remittances abroad. Latin American migrants tend to have low incomes, 
often living in poverty, yet they remit billions of dollars to their 
home countries. While beneficial to the families and societies at home, 
it is well to ask if the remittances come at a cost to those settling 
abroad. What trade-offs are they making to save sufficient resources to 
remit? Are they unable to make investments in education and skills 
upgrading, for example, in order to send the billions home? Are there 
ways, perhaps through community-investment programs supported by 
remittance transfer companies, to invest some of this lost income in 
development activities in their new places of residence? Are there 
programs that could help remitters make better-informed decisions about 
remittance transfers to reduce the transaction costs they incur?
    As these brief remarks show, the growth in remittance flows 
requires better answers to some fundamental questions: For example, how 
can governments best estimate the actual flow of remittances; how 
precisely are remittances used, and are there alternative mechanisms to 
gain more ``bang-for-the-buck''; to what extent can the multiplier 
effect of remittances be increased by initiatives to encourage local 
purchase of locally produced goods; how best can transfer costs be 
reduced to maximize the level of remittances reaching local 
communities; and how best can governments and international 
organizations help HTA's and home villages make the most effective use 
of the communal remittances for development without impeding local 
initiative. Given the scale of remittances today, and their potential 
as a tool for development, these issues are clearly deserving of 
attention.
    While I will not try to make recommendations today about the full 
range of issues that I have raised, I will offer some suggestions about 
approaches that Congress could adopt or encourage:

 Encourage financial literacy programs for newcomers to the 
    United States, many of whom do not understand the U.S. banking and 
    wire transfer systems, so they will be better consumers of these 
    services.

 Require companies transferring remittances to provide a 
    ``truth in transfer'' statement that shows fees and exchange rates, 
    as well as the actual amount that will be received at the other end 
    of the transaction.

 Establish a regulatory framework that will better ensure that 
    wire transfer companies have adequate resources and proper 
    procedures for conducting business here and overseas (such 
    regulations will also ensure that these companies are not using 
    their remittance business as a cover for money laundering for drug 
    cartels, terrorist organizations, or other illegal operations.

 Encourage companies that transfer funds to invest a portion of 
    their profits in economic development projects in communities in 
    the United States and home countries that send or receive 
    substantial remittances.

 Support technical assistance initiatives to help boost the 
    development potential of individual and collective (hometown 
    association) remittances, as well as to stimulate competition and 
    enable financial institutions that work with low-income populations 
    to participate in remittance transfers.

    Thank you for providing me this opportunity to testify. I will be 
pleased to answer any questions you have.