Chairman Hastings and Commissioner Solis, as Special Representative on Migration to the Organization for Security and Cooperation in Europe Parliamentary Assembly, on behalf of the California Credit Union League (CCUL) and credit unions throughout California, the United States, and the entire world, I thank you for holding this field hearing and giving us the opportunity to comment on the regional economic contributions of migrant communities and the importance of remittances in the global economy.
Representing 9 million credit union members in the State of California, CCUL is the largest state-level credit union trade association in the United States and is a proud member of the Credit Union National Association (CUNA) which represents our country’s 90 million credit union members. Moreover, through CUNA, CCUL is also a proud supporter and member of the World Council of Credit Unions (WOCCU) which represents 172 million credit union members in 46,000 credit unions in 97 countries worldwide. I am Lucy Ito, Senior Vice President of Credit Union Growth and Development at the California Credit Union League. I also serve on CUNA’s national subcommittee for consumer protection and was previously employed by the World Council of Credit Unions for 14 years where I provided management oversight for the creation of “IRnet,” the International Remittance Network for credit unions, and WOCCU’s technical credit union programs in Europe, Central Europe, Central Asia, and Asia.
Immigration: The Context for Remittances
According to the U.S. Census Bureau, 10.3% of the U.S. population is foreign-born. Not since the 1930s have immigration levels in the U.S. been at what they are today. However, unlike seven decades ago when most immigrants were coming from Europe, today most of these 28.4 million new immigrants have come from Latin America. While the countries of origin may have changed, the immigrant work ethic in the U.S. remains alive and well.
New immigrants, especially the youngest, poorest, and most recent are those immigrants that are most frequently sending money back to family and are also those who are most likely unbanked. Most immigrants utilize convenience stores and fringe banking entities when remitting funds. In short, reaching recent immigrants and reaching the unbanked, and are inextricably linked.
Remittances through IRnet, the International Remittance Network for Credit Unions
WOCCU first experimented with remittances in 1995, when it helped a credit union in California set up the communication channels and clearing account to send transfers to credit unions in El Salvador. WOCCU broadened the experiment in 1997 to include a few more California credit unions and credit unions in Guatemala. WOCCU next launched the IRnet brand with transfers directly from U.S. credit unions to credit unions in El Salvador and Guatemala.
In 2000, WOCCU formed a strategic alliance with VIGO to access its substantial network infrastructure. As of March 2004, VIGO is the third largest money transfer operators (MTO) worldwide, offering money transfers to 35 countries. It has the second largest market share in the U.S.-to-Mexico corridor. WOCCU links national credit union organizations in other countries together with VIGO so that senders in the U.S. can send funds from VIGO’s outlets in the U.S. states for distribution through credit unions worldwide. WOCCU also connects U.S. credit unions to VIGO as sending outlets. As of December 2003, 201 credit unions with 950+ points of service in 35 U.S. states offer IRnet. While VIGO has been the primary money transfer partner of credit unions, WOCCU has also worked with Travelex and has added both MoneyGram and Coinstar Money Transfer as MTO partners.
On the receiving side, national credit union organizations in other countries have tripartite contracts with WOCCU and participating MTOs. These national credit union organizations receive the electronic data transfers of the remittances from MTO partners and distribute them to their member credit unions that, in turn, distribute the funds to credit union member and non-member remittance receivers. After transferring the funds to the credit unions, the national credit union organizations are reimbursed by the MTO via deposits into a clearing account at an international bank.
Current Volume of IRnet Credit Union Remittances
In 2007 more than 1.5 million remittances totaling $578 million was transmitted through the international credit unions system’s IRnet program. In the first quarter of 2008, $127.1 million was remitted through 348,660 transactions. Projecting to year-end, and taking into account increases in transaction volume during the fourth quarter holiday season, credit union IRnet remittances are likely to exceed 1.5 million transactions totaling nearly $600 million. (Note: Data reflecting the growth of IRnet credit union remittances since 2001 to the first quarter of 2008 will be provided at the field hearing.)
The average size of IRnet transfers to Central America is $300. In Mexico, El Salvador and Guatemala IRnet pricing is $10 to send up to $1,000 and the money is available in minutes. Credit unions have always been and continue to be about bringing choices to the financial market. May I note that when IRnet was first introduced back in 1995, U.S. credit unions charged $10 per remittance while the going rate then was over $40 per transaction. I am pleased to note that the remittance market has become increasingly competitive and the going rate today for remittances across the US-Mexico border was approximately $11 in 2007, as estimated by the World Bank. IRnet serves as just another example of how credit unions bring choice and competition to the financial services marketplace.
The traditional wire transfer product is irrelevant for many immigrants since traditional wires must be sent to a recipient’s account at a bank and their family members in developing countries generally do not have banking accounts (approximately 80 percent individuals in developing countries are unbanked). Credit unions’ IRnet system differs from traditional international wires in the following ways:
• The IRnet service is focused on international money transfer needs of credit unions. As such, funds are paid out in cash or delivered to homes in the form of checks around the world.
• Exchange rates are provided at the point of sale and guaranteed until delivery with IRnet.
• Delivery time standards for transfers are significantly shorter than traditional wires (e.g., 20 minutes to Mexico) and research is facilitated though a multilingual call center that provides research on the credit union’s behalf.
• IRnet does not charge foreign recipients any fee for picking up transfers and exchange rates are guaranteed and disclosed at the time of the transaction and consistently better than the competition.
• The service is available for transfers at hours that meet the needs of when many immigrant conduct business, unlike the traditional wire cut off times.
Remittances Globally & Why They Are Important
The World Bank estimates that remittances sent home by migrants from developing countries exceeded $240 billion in 2007, up from $221 billion in 2006 and more than double the level reached in 2002. This amount reflects only officially recorded transfers—the actual amount including unrecorded flows through formal and informal channels is believed to be significantly larger.
Recorded remittances are more than twice as large as official aid and nearly two-third of foreign direct investment flows to developing countries. Remittances are the largest source of external financing in many poor countries. Also remittances have been less volatile than other sources of foreign exchange earnings in developing countries.
For Latin America and the Caribbean, alone, the World Bank estimates that 2007 remittance volume at $60 billion. The Inter-American Development Bank (IDB) notes that remittances are “the single most valuable source of new capital for Latin America and the Caribbean…more important for the region’s economic and social development than foreign direct investment, portfolio investment, foreign aid or government and private borrowing.”
Remittances account for over 10% of gross domestic product (GDP) in six countries in the LAC region: Nicaragua (29.4%), Haiti (24.2%), Guyana (16.6%), El Salvador (15.1%), Jamaica (12.2%) and Honduras (11.5%). Studies suggest that receiving remittances increases the economic well-being of poor people: As observed in the IDB’s Inter-American Dialogue, “In Honduras, Nicaragua, El Salvador and a few other of Latin America’s poorest nations, remittances may be more than doubling the income of the poorest 20% of the population. A large fraction of remittances is sent to rural areas, where incomes are far below national averages.” Furthermore, surveys in Central America and Mexico found that significant numbers of inhabitants of El Salvador (28%), Guatemala (24%), Honduras (16%) and Mexico (18%) receive remittances. These surveys also found that more than three-quarters of remittance receivers in Central America and two-thirds of remittance receivers in Mexico do not hold bank accounts.
Noteworthy is the clear and immediate impact that remittance flows from the U.S. have on the world’s other economies. In Migration and Development Brief 3: Remittance Trends 2007,” the World Bank notes that while Latin America and the Caribbean (LAC) region remains the largest recipient of (recorded) remittances, the growth of remittances to the region has slowed in recent months. The authors go on to observe, “Although remittances to the Latin America and the Caribbean region continued to increase in 2007, including in Mexico, their rate of growth has slowed markedly, raising concern over the long-term sustainability of remittance flows. Remittances received by Mexico grew by only 1.4 percent year-on-year during the first nine months of 2007, compared to over 20 percent annual growth during 2002-2006. The slowdown in Mexico is partly due to the weak job market in the United States, especially in the construction sector. Perhaps more importantly the slowdown may be attributable to tighter border controls and increased anti-immigration sentiment in the United States. Apprehensions along the US-Mexico border have declined by nearly 50 percent from the level in 2000, indicating a decline in the number of migrants trying to enter the United States without proper documentation. The stock of migrants may not have changed much, but the recent enforcement efforts appear to have reduced the number of seasonal migrants and their ability to send remittances, especially through formal channels.”
A Note on Compliance
Both the U.S. Government and national governments seek to control illicit money transfers and money laundering. Entities that wire funds from the U.S. must be licensed and comply with the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) and the Bank Secrecy Act. Through its MTO partners, the credit union IRnet system monitors in real time remittance transactions against OFAC’s Specially Designated Names (SDN) list. In receiving countries, some national governments require distributing entities to monitor the transfers and report suspicious activities to government agencies.
Policy Comments & Recommendations
Given the role that international remittances play in today’s inextricably inter-connected global economy, the California Credit Union League applauds Congress for enacting into law the Financial Services Regulatory Act of 2006 (PL 109-351) which included a provision permitting federal credit unions to offer remittance and check cashing services to persons within their field of membership.
We would also like to take this opportunity to thank Chairman Hastings and Commissioner Solis, both, for your recent co-sponsorship of H.R. 1537, the Credit Union Regulatory Improvements Act (CURIA) which will permit more credit unions to offer needed services in lower-income communities that are not adequately served by other depository institutions. The House version of CURIA now carries the names of 149 official backers while the Senate version (S. 2957) was introduced for the first time the Senate last week by Senator Joe Lieberman.
Access to legal, safe and sound remittances and other transaction services by immigrant communities not only brings stability to our local communities in the U.S., but also strengthens the global economy through the remittance outflows which stabilize international markets through investment of the most reliable kind—widespread, small but mighty, private investment by hard-working, everyday people.
Mr. Chairman and Commissioner Solis, thank you very much for the opportunity to discuss the essential role that remittances play in the global economy and the efforts by the international credit union system to foster legal and safe and sound transfers. I am happy to answer any questions you or others may have.