Remittances: A foot in Cuba's development door?

As donors await changes to Cuba’s legal landscape that could allow them to begin funding work on the island nation, aid is taking shape in other forms: remittances and private donations. Cubans, who can now receive quadruple the amount of remittances than allowed previously, are using the extra income for basic everyday provisions and to support burgeoning small businesses. The few aid organizations working in Cuba are also seeing expanded resources thanks to newly eased money transfer restrictions. This activity, experts say, is serving to develop the country despite the lack of official development assistance. The opening of money flows is indeed dramatic. Americans can now remit to family, entrepreneurs and humanitarian groups under a general license without a limit, and to Cuban nationals at $2,000 — up from the previous $500 — per quarter, according to U.S. Treasury Department Office of Foreign Assets Control reforms enacted Jan. 16. And with new money comes new opportunity, said Mavis Anderson, senior associate at the Latin America Working Group. Remittances will continue to help Cuban families with everyday expenses, but the real buzz is over the increased ability to finance private businesses, she told Devex. “Right now all attention is going to new small businesses, and the argument is that remittances give capital to start or aid people who have started new businesses and make people less dependent on the Cuban government — and all of this is development,” Anderson said. Cubans, having pooled resources and found creative ways to live under sanctions for the past 50 years, are no strangers to the entrepreneurial scene. Now, much of the underground economy has been legalized. The government is distributing business licenses, self-employed business owners can hire staff other than relatives for the first time since 1968, and big businesses like Netflix, Mastercard and most recently Airbnb have opened shop. But “self-financing and remittances remain the chief source of capital,” Archibald Ritter, professor of economics at Carleton University, said in a Council of the Americas briefing last week. “Most people who get financing get it through remittances, not the state.” The trick now is mobilizing savings and investments from remittances into the productive base of the local economy, according to Manuel Orozco, senior fellow at the Inter-American Dialogue who has closely studied remittances to Cuba. “Until recently, people were unable to put their savings in a bank or apply for credit to run a business, so the savings remained dormant, losing value,” he told Devex. As the government has opened to enterprising activity, some space for financial access has emerged to spur a greater impact of remittances and savings. Microfinance mechanism does exist, though it’s currently more oriented to homebuying than funding small enterprises, Ritter said, and borrowing and increased access to bank accounts will likely expand moving forward. NGOs seeing more resources Foundations are also expressing desire to channel their money to organizations on the ground. While organizations that work with entrepreneurs in developing countries, such as Ashoka, Accion and Kiva, have all expressed interest in building a presence in the country, Cuban law still prohibits foreign nongovernmental organizations, and there is no sign of when that will be reversed, Tomas Bilbao, executive director of the Cuba Study Group, told Devex. But the easing of restrictions has removed many barriers to the work of faith-based organizations operating legally in the country, according to Consuelo Isaacson, president of Boston-based Friends of Caritas Cubana, which raises funds for Caritas Cubana, a humanitarian and social services group working in Cuba. Under the old regulations, U.S.-based foundations had to apply for case-by-case licenses from OFAC, but now receive a general license with “less technical bureaucracy and paperwork since we don’t have to worry about amending the license,” Isaacson told Devex. “There’s no limits now; we can send what we want.” Transfer amounts to the ground still depend on how much the foundation can raise, but Isaacson said her organization is seeing more contributions because the new regulations lent a new perception of legality. “We're seeing more money coming in — greater interest, people not worried about donating being illegal — so that's good,” she said. Martin Shupack, director of advocacy at Church World Service, also expects the “ease of churches being able to send funds to Cuba” to improve. Burdensome bank regulations caused some churches to use third-country banks to transmit funds, he said, but now “we can expect money from U.S. to Cuba religious organizations to increase simply because of the greater ease in the transmission.” A few key obstacles stand in the way of U.S. ODA flowing to Cuba, the most fundamental being Cuba’s position on the U.S. list of state sponsors of terrorism. A U.S. Commerce Department official last week said Cuba would be removed from the list “in the near term,” marking the first time a U.S. official declared the move with certainty. In the meantime, Bilbao told Devex, private money flow disassociated with USAID will reign. “Remittances send money to feed kids and put a roof over people’s heads,” he said. And for now, the charitable transfers are “certainly helping.” How can the international development community help mobilize savings and investments from remittances to Cuban families and entrepreneurs into the productive base of the local economy? Share your thoughts below. Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you FREE every business day.