Financial Tools toward the Construction of a Better Future for Transnational Communities

by Amy Shannon and Gilberto González
Enlaces América

For years, the members of the “Francisco Villa” Club, a Member of the Federation of Michoacán Clubs (FEDECMI) in Chicago, have invested in projects in their home town in the central Mexican state of Michoacán. Although proud of their achievements, members of the Club realized several years ago that things in the town weren’t getting better for most people. Good jobs are few and far between, and young men and women still left at the first opportunity to find a better life in the United States. Three years ago, with the support of a government matching program known as “three-for-one” the club began a series of investments in hydroponic greenhouses and tomato packing plant. That project employs around ten people and is beginning to show a return on investment, but club members know that much more is needed to create meaningful economic opportunities for young people to remain and build their lives in Francisco Villa. Recently the Club has entered into discussions with a network of Micro-banks in hopes of creating appropriate transnational financial services that will stimulate savings and open up lines of credit for small businesses. Two thousand miles away in southern California, the members of the Zacatecas Federation share the same concerns. They are experimenting with a stored value debit card that they hope will provide a low-cost vehicle for sending remittances and allow their members to build a credit history. These efforts are separated by distance and approach but united by the desire of hometown clubs to find ways of dealing with the serious structural barriers to long-term sustainable development for their communities in Mexico and in the United States.

Today, funds channeled from clubs and organizations of migrants are having a large impact on the countries of origin. It is easy to identify a town whose members have emigrated and have organized abroad to bring development projects to their home communities in Mexico; renovated churches, newly remodeled main plazas, and paved streets are some of the visible results of the donations made by paisanos from abroad.

Although dwarfed in comparison to the amount of individual remittances received, collective remittances used as donations or investment for projects are on the rise every year, as migrant organizations consolidate and develop more ambitious agendas aimed at influencing the trajectory of their hometowns. Thinking towards the future, this trend presents the serious challenge and opportunity of making migrant participation a key factor in positive, sustainable transformation of local communities in Mexico. In other words, how can migrant’s investment create long term economic opportunities in their hometowns?

The Case of Club Francisco Villa

The case of Club Francisco Villa, a member organization of the Federation of the Michoacán Clubs in Illinois (FEDECMI), demonstrates the various actions that hometown clubs are taking to confront this challenge. For years, the members of the Club, including President Rubén Chávez, have invested in various projects hoping that their actions will lead to an improvement in the quality of life for the residents of “Pancho Villa”, as the town is known affectionately in the area. While visiting the town, Chávez proudly points out the new streets, the beautiful town square and the new school supplies that local children are receiving—all financed with the donations from the brothers, sisters, children and parents of community members, living in the United States.

In addition to these visible manifestations of transnational support, the Club has invested in less tangible projects aimed at building social capital. For example, in order to confront the isolation that many women face after their husbands emigrate, the club has supported a project to recover the ancient art of feather painting. Participation in the artists group can provide women with a small stream of income, but the most significant benefit may derive from the new social networks being created among spouses of migrants. Unfortunately, even with all theses projects, members of the Club Francisco Villa acknowledge that young people continue to migrate to the United States in search of jobs and opportunities they cannot find at home in Michoacán.

More then three years ago, some members of Club Francisco Villa in Chicago decided to tackle the unemployment situation with a greenhouse project that would cultivate tomatoes using a hydroponics system. Using sophisticated technology, and with the support of a governmental program that encourages migrant investment called “Three for One,” the members of the Club and their local counterparts began investing in three greenhouses and a small packing plant. The project now produces a steady stream of tomatoes and offers several year-round and seasonal jobs, but nonetheless, the youth in Pancho Villa continue to migrate to the U.S. The greenhouses can only employ a few, and the salaries still do not compare to the money they could be making working in the U.S. “Pancho Villa” has become “the most beautiful ghost town in Mexico” as a reporter who recently visited called it.

Rubén Chávez and the other members of the Club are well aware that the challenges that Pancho Villa is facing will not be solved with only one successful project. They have to confront the structural barriers that hinder local development opportunities. Among these barriers, the Club has identified the lack of adequate financial services. Generally, people in town do not have savings accounts nor do they have access to lines of credit from which they can develop small business. In emergencies, many rely on local lenders who charge exorbitant interest rates.

A few months ago, members of the Club began examining different models of financial services. This past February, they send a delegation to Michoacán to learn about the micro-bank “CREDIMICH” with offices in a nearby town. CREDIMICH is part of a network of small banks that receive advice from the Mexican Association of Credit Unions for the Social Sector (AMUCSS). The micro-banks are small financial institutions whose partners are regular people who want to service the poorest sectors of society. The purpose of these institutions is to lend money to people who are in need and who are waiting to receive remittances from abroad or they lend money to agricultural workers or small businesses. The micro-bank has only been in Michoacán for the past three years, but similar models have been in place for more than a decade in other states in Mexico and in other countries in Latin America.

After visiting the micro-bank in Michoacán, Rubén invited representatives of AMUCSS to come to Chicago and discuss the concept with the Club’s Board of Directors. Four members of CREDIMICH and AMUCSS spent a week in Chicago engaging in discussions with the Club and other Clubs within FEDECMI. Club Francisco Villa and the Federation are analyzing the proposals with caution given that many members of the clubs have had bad experiences with financial institutions.

To this day a final decision has not been made. Nevertheless, the Club is still looking at opportunities to expand the financial services offered to Francisco Villa residents. The Club is particularly interested in creating a safe space where their family members can receive remittances and where they can start savings accounts that could lead to the creation of businesses which would generate employment opportunities. In turn this would close the cycle reduce dependency on remittances. Club members also hope to open branches of financial service institutions in as many places as possible so that people are not forced to travel to the cities to cash their remittances. The micro-bank model is promising because it would allow migrants and their families to be both the clients and the owners of the financial services enterprise. Aside from saving money and time in transportation cost, a micro-bank would encourage capital to remain in the area, potentially offering a multiplying benefit to the community.

Like the Pancho Villa Club, there are many Clubs and Federations who are realizing that migrants’ organizations need to take a serious role in developing financial services for transnational communities. In Southern California, the Zacatecas Federation is looking into the possibility of offering its members a debit card system that can be used both in the U.S and in state of Zacatecas in Mexico.

According to Efraín Jiménez, Vice-president of the Southern California Zacatecas Federation, the idea is for people to become accustomed to the banking services, to familiarize themselves with “plastic” (the use of credit cards) and to integrate into the financial system so they can establish a credit history and a savings plan at the same time. The debit cards allow the user to carry out various transactions, including using the card as a credit card and as a vehicle for sending remittances.

The directors of the Federation are analyzing the benefits that the card can provide for its members. One of the possible benefits is the lower cost of money transfers in the form of remittances. The card would allow as much as $1,000 USD to be withdrawn for a cost of only $5.00. Unfortunately, it is still unclear how many recipients of remittances have access to ATMs. Moreover this card does not offer a savings account option like a bank account would. On the plus side, the card could serve as source of revenue for the Federation. The Federation would receive a small commission on transactions made using the card. Efraín Jiménez says that these funds could be used to finance workshops to teach members of the Federation and their families about financial options. Currently, this project is in an experimental phase; Federation leaders are using it and evaluating the costs and benefits for users.

These two examples are separated by two thousand miles and by different strategies, but both demonstrate the evolution in strategies that Hometown Clubs are exploring. Groups that previously focused on projects that impacted their hometowns directly, now see the need to develop more systemic alternatives that can help communities break out of long-term economic stagnation. There are no “magic” solutions to these problems but we should follow the progress that the different Clubs and Federations are making when they invest their time and money in new approaches to sustainable local development both in their communities in Mexico and in the U.S.