MIF and IFAD launch Program to promote remittances-based rural savings and investments in Latin America

IDB President Enrique V. Iglesias and IFAD President Lennart BÃ¥ge signed a memorandum of understanding on the establishment of the MIF-IFAD Partnership Facility for Rural Private Sector Development, in a ceremony held at the Bank’s headquarters in Washington, D.C.

“This partnership marks the first time MIF has worked with another multilateral institution,â€? said President Iglesias. “We fully expect this first joint program to capitalize the strengths of our two organizations to make remittances a true tool for development.â€?

President BÃ¥ge remarked: “Given IFAD's role in promoting sustainable rural development and IDB’s financial experience in Latin America, this partnership will be beneficial for both institutions and, most importantly, will allow our individual institutions to develop a number of innovative pilot experiences with an important development impact on rural communities.â€?

Under the agreement, MIF will provide up to $4 million to the joint program while IFAD will contribute $2 million. Local counterpart organizations, such as microfinance institutions and credit unions, are expected to commit a total of $1.6 million to projects they propose.

The program will help credit unions and microfinance institutions in low-income rural areas of Latin America and the Caribbean provide better money transfer services in order to cut the costs of remittances. It will also support non-governmental organizations and foundations that provide business development services in rural areas.

The MIF-IFAD program seeks to assist local rural communities by harnessing the development potential of remittances. Last year Latin American and Caribbean migrants sent around $38 billion to the region, an amount that by far surpassed foreign aid.

Remittances typically help beneficiary families to buy food and pay bills, raising their standards of living. MIF and IFAD do not want to discourage the use of remittances for consumption but rather generate more opportunities for savings, development potential and investments in rural areas, where poverty tends to concentrate.

For example, a project sponsored by the joint partnership could involve a rural microfinance institution that needs to train its staff and acquire a technological platform to receive, process and distribute money transfers. These services will allow the institution to serve unbanked individuals who receive remittances, giving them access to other financial services such as savings accounts, microcredit and housing loans.

The program will also support NGOs, foundations and other not-for-profit institutions that provide services to boost rural productivity and incomes, such as training for microentrepreneurs, promoting joint ventures and marketing rural products or handicrafts. Local governments and agencies will also be eligible as long as they partner with private sector counterparts.

Building on IFAD’s experience in small-scale projects linking migrants from rural areas and their communities of origin, the joint program will work with expatriate groups known as “hometown associationsâ€? to encourage them to play a leading role in local development by providing access to investment resources, advanced technologies and new markets in their host countries.