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ECLAC Identifies 6 Lessons to Promote the Use of Family Remittances to Strengthen Value Chains

22 September 2020|News

The new document poses the need to provide steadfast support to small producers to strengthen their capacities and their financial inclusion.

Although a large share of remittances received by households are used to cover immediate needs, such as food, health care and housing, there is an opportunity to allocate part of these resources to income-generating productive activities, according to a study carried out by the Economic Commission for Latin America and the Caribbean (ECLAC) and the International Fund for Agricultural Development (IFAD) with the governments of the Dominican Republic, El Salvador and Guatemala.

The document entitled Fostering investment of the family remittances in value chains: Case studies in the Dominican Republic, El Salvador and Guatemala was produced by Ramón Padilla Pérez, Federico Stezano and Francisco Villarreal.

The analysis of value chains in three countries and three distinct sectors enabled the identification of a considerable variety of factors affecting the relationship between financial inclusion, the investment of remittances and production development, the text explains.

These are the six lessons that emerge from the design and execution of the three case studies:

  1. The first lesson learned involves the need to design and implement public policies that strengthen the technical, managerial and financial capacities of small rural producers, since the investment of remittances in value chains does not happen automatically.
  2. The second lesson indicates that, on average, remittance recipients enjoy more financial inclusion and better conditions for productive activities than non-recipients, which shows the potential for greater use of family remittances to upgrade value chains.
  3. The third lesson poses the relevance of developing commercially sustainable models that allow for extending and adapting financial services to the needs of small rural producers, in particular, and those with lower incomes more generally.
  4. The fourth lesson relates to the fact that, although there are opportunities to increase the amount of remittances devoted to income-generating activities, the investments needed to improve the prospects of productive activities require complementary resources. This entails fostering associativity among small producers as well as facilitating access to financial resources under suitable conditions.
  5. The fifth lesson stems from the recognition that the use of family remittances is strictly personal. Thus, public policies must be aimed at creating incentives and providing facilities so that recipients see advantages in investing a portion in strengthening value chains, rather than giving them any other use. A key incentive that the public sector can provide is to offer financial resources to match the amount of remittances invested, meaning that for each peso or dollar invested by the recipients, the government donates or finances a proportional amount at preferential rates.
  6. The sixth lesson refers to the methodology followed. The value chain approach allows for identifying specific spaces for investing a portion of remittances in upgrading chains. Furthermore, it enables designing targeted public intervention strategies to support and promote the process.

“In all three case studies, sociodemographic characteristics are positively associated with greater financial inclusion of individuals, including age, education and household income,” the study indicates. However, the analysis of these characteristics showed a strong negative bias against the financial inclusion of women. This aspect ratifies the relevance of designing products and outreach strategies with a gender perspective and aimed at serving traditionally excluded groups, the document concludes.