Entry of MFIs into the Remittance Market: Opportunities and Challenges

This paper was commissioned by the  Microcredit Summit Campaign in 2006.The purpose of this paper is to explore both the opportunities and the challenges of microfinance institutions (MFI) entry into the remittance market.The opportunities are:

• Social --
  • Providing poor clients with a quality product at a lower cost;
  • Helping them build a safety net.
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• Financial --
  • Attracting new clients;
  • Cross-selling existing services;
  • Strengthening customer loyalty,
  • Increasing revenues, and mobilizing savings.

The challenges to entering the market include:

• The regulatory and licensing environment,
• The readiness and capacity of the institution to provide the service, in terms of management, staffing, systems and marketing;
• The identification and penetration of an appropriate market niche,
• The costs of entry into the market,
• The identification of partners with the same values;
• Negotiation of mutually advantageous partnership agreements.

The paper finds three ways to ease the entry of MFIs into the remittances market. These are:

• Policy changes in the legal and regulatory environment;
• Increasing the capacity of the MFI;
• The creation of a global remittance network coalition that brings together like-minded pro-poor MFIs, community banks and microfinance institutions.

The paper concludes that pro-poor MFIs can overcome the challenges and successfully enter the remittance market, and can also leverage remittances for local development and deliver a reduction in poverty.