U.S.
Cash Flow Aids Central American Economies,
Lending
By Blake Schmidt
SAN SALVADOR - A young German Molina
enrolled in business administration classes
near his hometown in the mountains of
southern El Salvador, with hopes of starting
his own business. Then the war came.
As his government fought leftist guerrillas,
turning the countryside in which he was
raised into a tropical battlefield, Molina
fled to the United States, moved in with his
brother and began working odd jobs.
As the civil war showed signs of waning, he
headed home intent upon fulfilling his
dream. He saved up cash working as an
illegal immigrant and received enough
remittances sent by his brother, a painter
in Washington D.C., to build a hotel in the
lush mountains.
``Most people here don't take advantage of
remittances, they use them as play money to
go out on the town,'' Molina said, proudly
pulling out his own business card. ``But in
the United States the situation has changed.
The money tree in the U.S. will one day dry
up, and those who didn't take advantage of
what they got will be the same as before.''
Molina is one of millions of remittance
receivers in Central America trying to
capitalize on money wired back home by
investing, as the flows shrink in the global
economic slump.
Based on his remittance history, Molina was
able to get a $11,000 loan this year from
Technoserve, a nonprofit business consultant
for poor entrepreneurs in developing
countries. With it, he is expanding his
hotel, which includes plans for a
tree-canopy tour and a swimming pool with a
slide.
Along with Haiti, Central American countries
like Molina's are among the region's most
dependent upon the export of manual labor,
and will be hit hardest by falling
remittances, according to recent research by
the Inter-American Development Bank.
As immigrants feel the pinch of the economic
slump, remittances to Latin America and the
Caribbean this year are expected to drop 11
percent to $62 billion, according to the
study.
Remittances in Molina's El Salvador, which
represent 12 percent of GDP, have dropped 10
percent so far this year compared to last.
Immigrants are dipping into their savings
and taking on extra hours or multiple jobs
to maintain cash flows to families back
home. Others are abandoning their hunt for
the American Dream and have returned home,
while some rely on so-called reverse
remittances sent by relatives living abroad
to continue residing in the United States.
``The main issue is how immigrants are going
to come out of this crisis. Will they
continue to remit as before?'' said Manuel
Orozco, a remittance specialist at the
Inter-American Dialogue.
In places like Central America, microfinance
institutions, credit unions and commercial
banks have begun to enter a market that has
largely been ignored by the world's
financiers, providing financial services to
migrants and their families based on
remittance histories. Molina was one of the
first remittance receivers to get a loan
based on his remittance history under a
Technoserve pilot program.
``Remittances are an instrument that don't
fulfill their own potential,'' said Marco
Iannone, Technoserve's deputy director for
Latin America, ``People who receive them
don't have access to financial services that
incentivize them to use their money in
productive ways.''
Instead of sending $400 a month back to El
Salvador, which Molina's brother had been
doing for years, he now pays monthly
payments on the loan that allowed his family
members to expand their hotel in Morazan.
Technoserve's push to get financial
institutions to factor in remittance flows
for credit scoring faced some skepticism
from banks, Ionnone said. But the group's
pilot program secured six loans for
remittance receivers with favorable interest
rates based on their remittance flows.
The program is being pursued with increasing
urgency as remittances drop, threatening
cash flows that have helped many of this
impoverished region's residents climb out of
poverty. The drop in remittances will likely
trigger an increase in extreme poverty in
Central American countries as some
immigrants, frustrated with a sluggish U.S.
job market, head back home, Ionnone said.
An estimated 300,000 remittance-receiving
households across Central America will not
receive remittances this year on the slump,
and 40 percent of households will receive 10
percent less remittances, potentially
``retarding the process of upward mobility''
in a region where about half live in
poverty, according to Orozco's research.
Tom Jahnes, Western Union's director for
Central America, is ``cautiously
optimistic'' falling remittances to the
region could grow again next year as it is
expected to come out of an economic
contraction. The Colorado-based company has
2,200 offices throughout Central America.
``We've seen the pullback,'' Jahnes, who is
based in Miami, said in a phone interview,
``We hope those negative percentages will
turn positive again.''
He expects to see increased transfer
activity in South Florida because President
Barack Obama eased restrictions in September
on Cuban-Americans' remittances to the
island. They can now send remittances to
``close relatives,'' including aunts,
uncles, cousins and second cousins. The U.S.
Department of Treasury also eased limits on
the total amount and frequency of
remittances sent to Cuba.
Luis Sandoval, a taxi driver in Granada,
Nicaragua, fears if his mother-in-law in the
United States stops sending cash back he'll
be unable to pay his grandmother's meds and
put three children through college with his
$500 monthly income. She picked up an extra
job to maintain the $2,000 she sends monthly
to Nicaragua, the Western hemisphere's
second-poorest country.
``The woman sleeps two hours a night now,''
said Sandoval, 25, driving on a potholed
street.
One of his friends' relatives stopped
sending remittances back to Nicaragua this
month, and another friend who worked
construction in the United States returned
home after he was laid off, he said.
Ionnone hopes to expand credit in the region
for people like Sandoval, who wants to start
his own transportation company but has no
start-up capital. In Nicaragua, where
Connecticut-based Technoserve plans to
introduce its remittance credit program,
microfinanciers charge up to 50 percent
interest to cover the high rate of defaults.
Applicants can get better rates if
remittances history is factored in, Ionnone
said.
Technoserve was founded by a Connecticut
businessman in 1968 who was inspired after
volunteering at a hospital in Africa. The
group's Salvadoran pilot program helped
remittance receivers draw up business plans
and worked closely with Washington-based
Microfinance International Corp to detail
remittance histories of immigrants and their
families, Ionnone said.
``The idea is to create a so-called
transnational loan,'' Ionnone said. ``We can
transfer the creditworthiness of a person in
the U.S. to a person in a place like El
Salvador.''
Molina, who will start paying off his loan
with 7 percent interest at the end of this
year, hopes he can put his remittances to
work for him.
``It's hard to grow your money,'' Molina
said, ``When you're in need, you have to
take risks and protect yourself with
whatever falls in your lap.'' |
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