Leveraging the Use of Remittances

Image by Dave Dugdale from Wikimedia Commons.

“Development  institutions should focus their efforts to provide migrants and their families with financial options and tools to allow them to best manage and maximize the impact of their funds.  This will empower recipients’ families and advance them on the road to financial independence.” -Pedro Tigre De Vasconcelos, Manager at IFAD

13:45 to 15:15 CST: Microfinance in Asia traditionally serves unbanked and underbanked poor populations living primarily in rural areas.  In this session the panel focused on migrant workers, who work abroad and send money/income back to their families.

Panelists focused on how to broaden microfinance services to meet the specialized needs of remittance senders and their recipients, who comprise an increasingly important socio-economic sector in Asia. 

In 2012 Asia was the source of almost 60 million workers who remitted 260 billion dollars to their families.  It is not clear, however, what portion of these remittances was channeled to meet needs of families vs. investments that contribute to the family’s financial goals.

Some questions were posed at the start of the session:  How can we encourage  investment of these remittances to promote financial inclusion? What roles can banks,  MFIs,  NGOs and government agencies play in encouraging investments, in the introduction of policy, services and training programs in financial management and entrepreneurship? And finally, how do providers broaden microfinance services to meet the specialized needs of remittance senders and their recipients?

First to present was Dr. Nimal Fernando, Associate at The Foundation for Development Cooperation (FDC).  Fernando said that Asia accounts for a significant proportion of remittances sent to developing countries – with tens of millions of people affected by remittance flows, indicating that remittances have a huge impact. 

Migrants generally come from poor rural areas.  Most have low-levels of education and are female.  Fernando told session attendees that it is important to determine how this “gender-centered sector affects the household economy” and proposed that there are differences between males and females in how they make financial decisions and use income to maintain the household.

Fernando continued, stating that “migration should be seen as an investment”. Remittances are thus a return on the investment – and one way families can increase investments is increasing migration patterns. From this arose another question:  “How can financial institutions support this increasing trend in migration?”

If we can increase migration, Fernando believes, there will be beneficial effects.  Increased outflows of labor will enhance urban economies – one way that rural people have worked their way out of poverty is through increased wages earned by working  in urban areas.  

Increasing migration is difficult, because it is not cost-effective for the family.  In order to recover the expenses of going to another country, migrant workers have to work many months just to break even.  Recovering the cost for a migrant Indonesian domestic worker in Hong Kong, for example, takes 5 months wages, according to Fernando. 

There are some government programs in place to mitigate the high costs of migration, but these policies have not always been well-implemented. If there were better opportunities or potential for migrant workers, and better return on their investment, migration might increase. It is not simply a matter of getting migrant workers to invest remittances, Fernando emphasized.   Sometimes there isn’t money to invest, and appropriate financial services may not exist for households of migrant workers.

Next to take the floor was Pedro Tigre De Vasconcelos, Manager at IFAD. Vasconceslos spoke on migrant workers and remittances in rural areas, and emhasized the need to increase financial resources of those who receive remittances in rural areas.

“Annually we see $160 billion in remittances, which is as big as the GDP of Kenya. Only 20% of that amount  is invested.  Cumulative remittance flows globally total 2.15 trillion dollars, with 1 trillion going to rural areas,” Vasconcelos said.

According to Vasconcelos, two  goals of financial inclusion should be to maximize developmental impact of remittances, and providing migrants with opportunities to invest their capital back in their home communities.

He explained the “migration-and-remittances cycle” to the audience:  

First, at the level of the household, there is a lack of income-generating activities. Then migration occurs, and a remittances trend occurs.  If remittances are not leveraged, then nothing changes and the cycle continues.  If you leverage remittances, then the local economy and the individual’s income will increase, thus breaking the cycle and moving the household out of poverty.

How remittances impact at the local/micro level and how they help families achieve financial goals, is the next step Vasconcelos explained. In rural areas, it is particularly difficult to ameliorate a household’s situation.  Reaching “the last mile” is hardest.  Mobile banking and remittances are on the rise and have an impact, but not as significant as we might see in a few years.    

Financial inclusion organizations are now developing means of expanding the variety and usage of financial services for remittance senders and their recipients.  More and more, Vasconcelos said, “we are noticing partnership among various institutions  to meet these challenges.” A general concensus from practitioners in development  has provided financial inclusion stakeholders with  a plan for  Remittances and Development Opportunities, which can be broken down as follows:

• Empower market actors and increase competition
• Promote effective and efficient regulation
• Adopt new technologies
• Promote an enabling environment  Conclusions and Considerations:

Vasconcelos concluded his remarks with a mission statement:  

“Development  institutions should focus their efforts to provide migrants and their families with financial options and tools to allow them to best manage and maximize the impact of their funds.  This will empower recipients’ families and advance them on the road to financial independence.”

Batad rice terraces in Ifugao. By Ericmontalban – Wikimedia Commons.

Secretary Imelda Nicolas from the Commission on Filipinow Overseas, presented the Philippines experience in linking migration, remittances and development.The Philippines has been an important source of migrants for more than 200 countries and territories of destination, with an estimated of  10.5 million Filipinos overseas, of which 47% are permanent migrants, 40% are temporary migrants and 13% are irregular migrants, as of 2012.

According to World Bank data, in 2013, the Philippines ranks third globally in terms of remittances receiving US$ 25 billion. Secretary Nicolas shared the Central Bank of the Philippines’ (Bangko Sentral ng Pilipinas or BSP) latest Consumer Expectations Survey (CES) for the first quarter of 2014 which showed that for migrant’s households surveyed, remittances are often used for food, education, medical expenses, debt payments, savings and investments. She also highlighted the increased percentage from last year of migrant’s households who allocated part of the remittances to savings and investments.

Secretary Nicolas reaffirmed the Philippines’ stand with other countries in its advocacy to reduce the cost of remittances.The Central Bank of the Philippines has been in the forefront of this campaign and has undertaken measures to reduce the cost of remittances and to help in mobilizing remittances towards development and productive uses by enhancing transparency and competition to lower remittances charges, expanding and diversifying channels of remittances and exploring low cost options for fund transfer.

Rolando B. Victoria,  ASKI Global Ltd. was last to speak.  “Basically,” he said, “when you ask ‘what are we doing at ASKI Philippines?’ we  answer that we “ASK” the families  what they need, and then set out to provide solutions.  ASKI Global focuses on back to back training for migrant workers and their families in the Philippines, providing entrepreneurship and financial education.”

He went on to describe how the Central Bank of the Philippines supports remittance services by requiring banks to post remittance charges.  ASKI has launched an Overseas Filipino Workers (OFW) web portal, adopted measures to improve channels of remittances and encourages banks to offer specialized investment products and services to overseas Filipinos. ASKI has also initiated financial education activities to Filipinos working overseas and their beneficiaries.

The best way to encourage investment of remittances, Victoria said, is to encourage investment in general.

Not only is there a growing demand for remittance services, but migrant workers and their families would also benefit from other financial products and services such as remittance transfers through bank channels rather than sending cash, financial education aimed at proper management of remittance funds, training in entrepreneurship, opportunities for investment and savings, and other measures that optimize financial inclusion for this group.

The challenge for microfinance institutions, commercial banks and government agencies is to develop the programs, products and services to fill this demand.   Members of the panel today presented ideas and products that are already starting to impact remittance senders and their households in positive ways.  We look forward to further developments.

Professor Albert Chu-Ying Teo, National University of Singapore (NUS), acted as moderator of the session.  He was joined by speakers Dr. Nimal Fernando, Associate, The Foundation for Development Cooperation (FDC); Mr. Pedro Tigre de Vasconcelos, Manager, Financing Facility for Remittances, International Fund for Agricultural Development (IFAD); Secretary Imela Nicolas, Commission on Filipinos Overseas; Mr. Rolando B. Victoria, Executive Director, ASKI Philippines & Chairman, Board of Directors, ASKI Global Ltd. Singapore.

ASKI Global Limited facilitated this session.  ASKI Global Limited is a non-profit organization serving migrant workers in Singapore.  ASKI’s mission is “change the mindset of migrant workers and their families so they become entrepreneurial through back-to-back coaching and training on entrepreneurship and financial literacy.”