A Better Way to Wire Cash Home?

An upstart challenges the remittance trade by proving it can benefit immigrants and make money using microfinance

by Jeffrey Gangemi

Atsumasa Tochisako's $2 million, 60-employee microfinance and remittance processing upstart, privately held Delaware corporation Microfinance International (MFIC), wants to shake up the $268 billion worldwide remittance industry, traditionally dominated by Western Union (WU). By partnering with UAE Exchange, a powerful finance company headquartered in the United Arab Emirates with real-time remittance transfer capabilities in 75 countries, MFIC will offer one of the most extensive networks in the world by the end of January.

With more than 30 million potential customers and 20,000-plus agent locations, MFIC will see its remittance processing capability expand from its current reach of 10 countries in Latin America to 85 countries, with additional locations in Asia, Eastern Europe, and Northern Africa. Western Union has some 245,000 agent locations in over 200 countries and territories.

Perhaps most important, MFIC's remittance business breaks with tradition by providing a way for microfinance institutions (MFIs) in developing countries to process remittance transactions themselves. Its unique Web-based platform, adapted from the leading Latin American banking software, requires only a simple computer and an Internet connection. That means senders and receivers will no longer be at the mercy of big money transfer companies, and more of them will gain access to formal financial services.

Capitalizing on a Need

Tochisako, a 53-year-old former Japanese banker, says he doesn't want to create the next Western Union. He's more interested in proving to the world that a financial services company can benefit poor people and make money by adapting traditional microfinance models to serve immigrant populations in the U.S. and underserved people in the developing world, a goal he set for himself after witnessing abject poverty in Mexico while first working there in 1979.

During his 12 years working in branches of Japanese banks in Latin America, Tochisako, who is fluent in Spanish, learned that many locals received money wired from family members working in the U.S., but that 90% of them didn't have bank accounts. Initially, the goal of MFIC, which was founded in 2003, was to capitalize on the $30 billion U.S.-to-Latin America remittance market.

Along the way, Tochisako stumbled on another untapped market. He found that not only are the remittance receivers in the developing world chronically unbanked but the millions of people sending the money from the U.S. had also been ignored by mainstream financial institutions. If it were done correctly, Tochisako believed, providing them with affordable financial services would be a huge business opportunity (see BusinessWeek.com, 7/18/05, "Embracing Illegals").

Taking Some Convincing

Today, with over 39 million unbanked people in the U.S., Tochisako knows he was right. "This is really a huge open market and unsatisfied demand. We listen to what they need and produce customized service menus for them. That's why, in just one year, we have 50,000 loyally attached customers. This is new, but it's changing the market," says Tochisako.

Admittedly, as a for-profit microfinance institution based in the U.S., MFIC is unique, blurring the line between for-profit and nonprofit. Educating customers and potential investors about its services and business model has been its biggest challenge, and MFIC has had difficulty raising money outside Japan, where Tochisako has drummed up support from old colleagues and clients.

To raise more funding, MFIC, which is not yet profitable, issued a corporate bond of $5 million. But Tochisako says his company's short lending record still inspires some trepidation among investors.