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Remittances and banking services : evidence from Mexico (English)

This paper analyzes the impact of remittances on the breadth and depth of the banking sector. There are several reasons to believe that remittances might lead to the opening of new commercial bank branches and to a greater use of financial services by its population. First, fixed costs to send remittances make the flows lumpy, providing households with excess cash for some period of time. Banks offer households a safe place to store this temporary excess cash. Second, transactions fees for processing remittances can be an important source of income for commercial banks in remittance-receiving countries. The potential to collect such fees might induce banks to locate close to remittance recipients. Third, a substantial portion of remittances flows to households which are un-banked prior to sending migrants abroad, households in the middle and lower parts of the income distribution. Banks acting as remittance payment agents fees associated with remittance transactions and, beyond that, are well positioned to offer other services to un-banked households receiving remittances. Finally, processing remittance flows provides banks with information on the income of recipient households. This information may make banks better able to extend loans to otherwise opaque borrowers. The paper is organized as follows. Section two motivates the authors empirical specifications with a discussion of the factors affecting the profitability of bank branches and the use of banking services. The data are described in section three, the result presented in section four, and concluding remarks offered in section five.

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Citation

Demirguc-Kunt, Asli; Lopez Cordova, Ernesto; Soledad Martinez Pería, Maria; Woodruff, Christopher;

Remittances and banking services : evidence from Mexico (English). Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/325081468044944647/Remittances-and-banking-services-evidence-from-Mexico