This “After Hours Seminar”, which was sponsored by the US Agency for International Development (AID), featured Messrs Khalid Al-Naif and Raul Reynoso from the William Davidson Institute (WDI), a think tank based at the University of Michigan in the US city of Ann Arbor, and Mr Saul Wolf from the World Council of Credit Unions (WOCCU), a US-based trade association, to discuss how to leverage remittances to mobilize microenterprise development in Guatemala. Based on the US Census taken in the year 2000, the estimated total personal income of Guatemalans living in the US was USD 7.1 million, which amounts to 37.8 percent of Guatemala’s gross domestic product (GDP), while cash remittances amounted to USD 600 million, or 8.4 percent of Guatemala’s GDP. The potential this source as investment was the basis for the projects discussed in the seminar.
Messrs Khalid Al-Naif and Raul Reynoso from WDI discussed the impacts and challenges of their pilot activity, “Mobilizing Remittances for Enterprise Finance,” which was implemented in conjunction with Microfinance International Corporation (MFIC), a provider of financial services based in Washington DC, and ACREDICOM, a federated credit union based in Guatemala. The project was launched in 2010 in order to design, test and market a migrant-backed loan (MBL) product. Specifically, Guatemalan migrants working in the US were allowed to serve as guarantors for microloans to family members residing in Guatemala. Migrants transferred a given amount into a special frozen account that was designated for the borrower in Guatemala. With the money from the migrant held as collateral, an amount up to twice the “frozen” account balance was loaned to the borrower in Guatemala. Once the loan was repaid, the frozen funds were released. However if the loan was not paid back in full, unpaid amounts were deducted from the account funded by the migrant.
Messrs Al-Naif and Reynoso suggested that the benefits of the MBLs are that migrants only have to commit a portion of the amount of the loan; the intermediation of the financial institution can lead to faster repayment by the borrower as compared with cases where informal loans are made directly by migrants to borrowers; and borrowers could have the opportunity to establish a credit history. Furthermore, MBLs in Guatemala were offered at 19 percent annual interest rate while microcredit loans often have rates of 22 percent.
Mr Saul Wolf from WOCCU discussed the lessons learned from another pilot project, “Integrating Remittance Recipients into the Financial Sector,” which was implemented in partnership with the Guatemalan National Credit Union Federation (FENACOA in Spanish), an association of credit unions and cooperatives in Guatemala, to develop remittance channels and integrate unbanked remittance recipients into the financial sector. Mr Wolf argued that despite significant demand for credit products, there is even greater demand for savings amongst credit union members. Second, new marketing efforts in the US must be identified as migrants do not respond strongly to accessible media such as social network forums and television.
More details on the event along with short interviews with the presenters are available at: http://microlinks.kdid.org/learning-marketplace/after-hours/migrant-backed-loans-mobilizing-remittances-guatemala
USAID offers a suite of resources aimed at improving the outcomes of microenterprise development research and practice at http://microlinks.kdid.org
By Jacqueline Foelster, Research Associate
About William Davidson Institute (WDI): WDI is a nonprofit think tank established in 1992 at the University of Michigan in the US city of Ann Arbor. WDI integrates research, educational outreach, field-based collaboration and development consulting services to enhance the understanding of emerging market economies.
About World Council of Credit Unions (WOCCU): Headquartered in the United States, WOCCU is a trade association and support agency for credit unions. WOCCU advocates before international organizations on behalf of 40 credit unions operating in 51 countries, and it coordinates with national governments regarding legislation and regulation. Its technical assistance programs introduce tools and technologies intended to strengthen the financial performance of credit unions and increase their outreach. WOCCU consists of three entities: (1) WOCCU proper, (2) WOCCU Services Group, which functions as a for-profit corporation and (3) Worldwide Foundation for Credit Unions, which serves as a charitable organization. WOCCU reported total assets of USD 14 million in its 2009 annual report.
Source and Additional Resources:
[1] MicroCapital participation in event
[2] Microlinks, “Migrant-Backed Loans: Remittances in Guatemala”, http://microlinks.kdid.org/learning-marketplace/after-hours/migrant-backed-loans-mobilizing-remittances-guatemala
MicroCapital Event Announcement, March 24, 2011, “United States Agency for International Development (USAID) After Hours Seminar #50 – Migrant-backed Loans: Mobilizing Remittances in Guatemala, Washington, DC, United States, April 7, 2011”, https://www.microcapital.org/microfinance-event-united-states-agency-for-international-development-usaid-after-hours-seminar-50-%E2%80%93-migrant-backed-loans-mobilizing-remittances-in-guatemala-washington-dc-united-state/
MicroCapital.org Brief, December 10, 2010, “The World Council of Credit Unions (WOCCU) and Federacion Nacional de Cooperativas de Ahorro y Credito (FENACOAC) of Guatemala Partner to Launch Savings Guarantee Fund”, https://www.microcapital.org/microcapital-brief-the-world-council-of-credit-unions-woccu-and-federacion-nacional-de-cooperativas-de-ahorro-y-credito-fenacoac-of-guatemala-partner-to-launch-savings-guarantee-fund/
MicroCapital Universe Profile: Microfinance International Corporation, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Microfinance+International+Corporation+%28MFIC%29
MicroCapital Universe Profile: Federacion Nacional de Cooperativas de Ahorro y Credito (FENACOAC), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Federacion+Nacional+de+Cooperativas+de+Ahorro+y+Credito+%28FENACOAC%29
MicroCapital Universe Profile: World Council of Credit Unions, https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=World+Council+of+Credit+Unions
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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