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AmericasApril 2 2006

Missed chances

A huge amount of hard currency flows in from abroad in the shape of remittances, yet banks have steered clear of it, missing out on a golden opportunity.
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Remittances are a crucial part of Dominican society, a vital source of hard currency for the country as a whole and sometimes a lifeline for poorer families that are otherwise left to cope on subsistence earnings or benefits. Curiously, it is a revenue stream that mainstream banking has tended to underutilise, leaving it to dedicated remittance companies to perform a service that is expensive, personal and sometimes dangerous.

Most remittances into the Dominican Republic are from the US; New York is the republic’s unofficially recognised ‘second city’, though Florida, Boston and Pennsylvania also have large Dominican populations. Remittances are also starting to flow from Europe, in particular Spain, the Netherlands and Italy.

It is not only the poorer economic migrants that make the trip. Increasingly it is obligatory for well-heeled young Dominicans to polish their educational and professional credentials – and language skills – outside of the country. Many of them find high-salaried jobs and are in a position to invest in property for their return or educational opportunities for young relatives. There is, for example, a networking organisation, Dominicans on Wall Street, that provides a valuable forum for high flyers.

Overwhelmingly, recipients of remittances are at the bottom of the economic pyramid, relying on relatives in the catering, hospitality, engineering and other service industries for a much-needed augmentation of peso income with hard cash.

Remittances to the Dominican Republic totalled $2.4bn in 2004, about 13% of GDP and significantly more than foreign direct investment, and accounted for 20% of disposable income. In comparison, remittances to Jamaica were $1.5bn, and to Trinidad and Tobago, $93m.

Underused cash

This valuable income stream is often underused and eroded by the time it reaches its final destination. Although there are signs of increased competition through the entry of mainstream banks into the market, most transfers are handled by dedicated remittances companies, which, for a price, deliver money to the door, across the country, often to rural and inaccessible areas.

Elsewhere in Latin America, product offerings are becoming more sophisticated, with service providers marketing savings accounts or investment vehicles to help channel hard-earned cash.

Freddy Ortiz, the president of the Dominican Association of Remittance Companies (Aderedi), is aware of the lack of sophistication of the usual product offering but points out: “90% of our recipients are from the lower classes. There are very high rates of illiteracy. Yes, what might be ideal would be an ATM card allowing 24-hour access to the money. But what do you say to a 75-year-old lady accustomed to receiving her money every two weeks or so, in cash, at the door?”

The system is expensive, he says, because to operate effectively, Aderedi’s member companies must have a comprehensive network of outlets throughout the country: one has 185. It is also dangerous. “Four or five times a month, a remittance messenger is attacked. The police seem unable to help; sometimes it seems the police are even responsible,” says Mr Ortiz. Some companies are hiring private security, which means the cost is borne by the customer.

Entering the market

Thus far only one bank, Banco BHD, has a dedicated remittance arm, although others say that they are looking into how they can follow suit.

In the meantime, Aderedi members will be looking at how they can maintain their market advantage. Many have offices in New York and are assiduously courting their key constituents with a personal service.

Until someone can come up with a better method of delivery than a man on a motorbike, the remittance companies will have the edge, says Mr Ortiz.

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