Financial Inclusion in the NY-DR Remittances Corridor

In 2007, 1.5 million Dominican Republic (DR) born residents living abroad sent close to US $3 billion (accounting for 12% of the DR’s GDP) to their families in the DR, with more than a billion originating in the New York (NY) metropolitan area. According to the Inter American Development Bank, the DR ranks first in terms of percentage of population that receives remittances among Latin America and the Caribbean (LAC) countries. Since neither senders in NY nor receivers in the DR have been successfully incorporated into the formal financial sector, they pay disproportionate prices to a handful of non-bank transfer agencies that control the remittance market. Wire transfers, the predominant method for sending and receiving remittances is expensive (commission fees range between 7 and 11%) and inconvenient (recipients often have to travel long distances or pay for costly home delivery method). Mobile banking (M-banking), the use of cell phones to make banking transactions via Short Messages Services (SMS), can improve access to basic financial services and enhance the affordability and convenience of remittance sending. This use of M- banking for remittance transfers is known as Mobile remittances (M-remittances). My research aims to identify potential demand-side drivers and barriers on both ends of the NY-DR corridor to the adoption of M-remittances.

The adoption of M-remittances would enable people to escape the vicious cycle of high cost wire transfers and cash-only transactions and serves as a vital gateway to achieving the larger potential of M-banking. M-remittances would improve the intermediation by cutting costs and time on both ends of the corridor substantially and increasing the returns on cash holdings, reducing vulnerability to cash flow shocks and paving the way for safer cash handling. The linking of savings products to the mobile technology can cultivate a savings culture and foster healthy relationships with banks.

The rapid expansion of mobile communications in developing countries makes M-remittances a feasible alternative to traditional banking infrastructure that has neglected the poor and people living in rural areas. The transformational power of M-remittances is apparent in success stories in the Philippines, South Africa and Kenya. While LAC has yet to play host to a visible mobile payment experience, its high cell phone penetration levels and a dearth of bank accounts indicate that the conditions are in place for this innovation to take off in the region.

Research Scope and Objectives: My research study will be an input to the project of Professor Darryl McLeod at Fordham University’s Economics Department and Professor Raul Hinojosa at UCLA’s North American Integration and Development Center on M-banking in the NY-DR and Spain-DR remittance corridors. The project pairs microfinance institutes and credit unions in the DR, Spain and US. In the case of the NY-DR corridor, the project intends to encourage senders and recipients to access financial services through Credit Where Credit is Due (CWCID) in NY and through The Dominican Association for the Development of Women (ADOPEM) in the DR. CWCID, a credit union based in Washington Heights, which boasts the largest concentration of Dominicans outside the DR, has established financial education programs that have provided the community with essential wealth creation skills. ADOPEM, a private bank that initiated operations as an NGO, seeks to enhance the development of Dominican families by incorporating them into the formal financial system. Prior to taking my research study abroad I will be attending workshops, seminars and conducting interviews with Dominicans living in NY. In mid November I am participating in a workshop in which staff of both CWCID and ADOPEM will share their respective experiences. The Technological Institute of Santo Domingo (INTEC) will serve as the home institution in the DR, with Professor Fabricio Gomez, Director of the Economics department being the primary sponsor. INTEC will support my study by providing me with institutional support, guidance, contacts and research facilities. The execution period for the DR portion of my research study will be September 2009-June 2010. The ties that the project leaders and host institution have to academic and financial institutions and civil society organizations in NY and DR will facilitate the identification of the households, establishment of contact and development of effective survey/interview techniques.

The objectives of my study are to: i) facilitate the identification of mechanisms for encouraging more senders and recipients to use M-remittances, hence heightening the economic and social impact of remittances on their households and communities; ii) stimulate dialogue between migrant workers and their families back in the DR regarding the benefits of the M-remittances alternative, the productive uses of remittances and the importance of saving; iii) introduce valuable information on little known, rarely targeted and financially excluded population segments that have the most to gain from the innovation of M-banking.

Research Methodology: My contribution to the overall project will consist of generating financial diaries for between ten and fifteen low-income households with members at both ends of the NY-DR corridor. I will gather data on income, the cost of remittance sending and receiving and how remittances are utilized. The financial diaries will enable me to: i) establish a thorough picture of the financial inflows and outflows for the selected households on both ends of the NY-DR corridor; ii) understand the factors that influence the selection of channel to transfer remittances and, iii) identify the main drivers and barriers to incorporate a larger number of migrants in NY and their families in the DR into the formal financial system and to use M-remittances. I will also formulate rich observations on key themes such as concept of saving, perception of electronic funds and M-banking, value on human interaction, the role of age/gender and education and level of trust towards financial institutions. The information will be collected and disseminated with the full consent of participants and subject to all privacy laws and regulations in the DR, NY and the US. The target beneficiaries of my study will be Dominican immigrants in NY sending remittances back home and recipient families in the DR. The findings of the case study will also benefit migrant organizations, mobile network operators, academic and financial institutions and organizations promoting the extension of financial services.

Significance of Research Findings: My research aims to raise our awareness of the social conditions, cultural values and financial needs relevant to both ends of the key NY-DR remittance corridor that may play factors in the successful adoption of M-remittances. During the course of my research, I will maintain a blog to exchange information, communicate findings and prompt feedback. At the conclusion of the study, I will write a publication featuring financial diaries and presenting my research findings and recommendations. The opportunity to conduct local level fieldwork in the DR will be invaluable to my aspirations as a political scientist, community leader, social entrepreneur and cultural bridge between the US and LAC. My research study will contribute to Fulbright’s mission of enhancing leadership skills, achieving cross-cultural dialogue, promoting a civic cause, developing learning experiences that transcend borders and empowering families and their respective communities