Analysts often refer to El Salvador, Guatemala, and Honduras – together constituting the so-called Northern Triangle - as particularly illustrative examples of the importance of remittances for the countries of Latin America and the Caribbean (LAC). They rightly do so. For one, the three countries receive relatively large amounts of these international financial flows. In 2015 remittances to the Northern Triangle exceeded $14 billion, constituting approximately a fifth of the total migrant transfers received by all LAC countries and corresponding to 17%, 10% and 18% of the gross domestic products of El Salvador, Guatemala and Honduras, respectively. Moreover, compared to their regional counterparts, the countries are characterized by relatively high levels of poverty as well as basic services deficiencies. In this context, remittances may provide a particularly important source of income for many recipients who otherwise lack the means to ensure an adequate quality of life.
The broad accounts suggest that we know a lot about the importance of remittances in the Northern Triangle. But what happens when we look at the household or even individual level? For policy makers, development practitioners and businesses seeking to serve the remittance recipient population, having accessible and up-to-date information about the characteristics of this population, including about its location, gender breakdown and economic status, is key in order to ensure that interventions and products resonate with the actual needs of the target group. All the more surprising then that such information is quite hard to come by in the context of El Salvador, Guatemala, and Honduras. While some statistics can be found on the websites of public institutions, data still tends to be highly aggregated and difficult to use for decision makers.
Against this background, the Multilateral Investment Fund conducted analyses of three nationwide household surveys in El Salvador, Guatemala, and Honduras respectively, in order to obtain a comprehensive profile of their remittance recipient populations. The results of these analyses, which are available for El Salvador, Guatemala, Honduras may serve as a valuable resource to public and private sector actors seeking to leverage the development impact of migrant transfers in the Northern Triangle.
What are some of our findings? First, the results confirm the idea that remittances are an important source of income for many households across the Northern Triangle. 18%, 9% and 17% of households receive remittances in El Salvador, Guatemala and Honduras, respectively, representing almost four million people in the three countries altogether. Looking at the macro data, these figures may not seem particularly surprising. What is more striking is the magnitude of these transfers at the household level: We find that remittances constitute, on average, between 38% (Honduras) and half (El Salvador) of all household income of remittance recipient families. Considering that on average more than 8 in 10 households receiving remittances can be classified as either poor or at risk of falling into poverty, remittances can without doubt be described as a life-line to many in the three countries.
Secondly, in terms of socio-demographic characteristics, we find that remittances disproportionately benefit women (70% of recipients are women in El Salvador, 69% in Guatemala, and 68% in Honduras) and that recipient households tend to be slightly more concentrated in rural areas than the countries’ populations at large. Moreover, we find that many remittance recipients report being self-employed, suggesting that remittances may also contribute to entrepreneurship in the region. In El Salvador, 45% of economically active remittance recipients are self-employed. The figures in Guatemala and Honduras are 48% and 42%, respectively. Rates of entrepreneurship among remittance recipients are notably higher than among the general population, which may also suggest a dearth of opportunities for formal employment among these segments. Indeed, we find that in the three countries more than 70% of remittance recipients have only a primary school education or less.
Third and finally, and particularly relevant for those trying to channel remittances to productive activities, the data allowed us to analyze patterns of the use of migrant transfers on the part of recipient households. While nearly all households report using remittances to cover daily consumption expenses (94% in El Salvador; 86% in Honduras) we also find that almost two in five Honduran remittance recipient households spend their remittances income on health care and more than a fourth of these families use remittances to pay for a child’s education. Meanwhile, in El Salvador, 5% of remittance beneficiaries use these funds to pay for medical expenses and 10% use remittances to pay for their children’s education. Importantly, the use of remittance income varies according to the socioeconomic characteristics of the beneficiaries. For example, female-headed households have a higher likelihood of investing their remittance income in education. There is also a higher likelihood of using remittance income to cover education-related expenditures among urban households than among those located in rural areas.
All of these insights provide important indications for development interventions targeting remittance recipient families. As the results of our analyses highlight, such interventions should at least take into account the essential role that these financial flows play in reducing economic vulnerability for these households. For example, for many families, receiving a money transfer can still be a costly and time-consuming endeavor that requires recipients to travel to a pay-out location and wait in line for a cash payment. Receiving payments only in cash, as opposed to electronic fund transfers to regulated financial institutions, also limits opportunities for financial inclusion that could lead to access to capital for long-term asset building. Policymakers and private sector actors should work together to make remittance transfers more efficient and increase opportunities for savings accumulation and access to credit through regulated financial institutions. The use of new technologies and business models should be explored as a way to securely bring payments and savings products closer to final beneficiaries.