The recently-concluded 45th Annual Board of Governors’ Meeting of the Asian Development Bank (ADB) tackled a number of economic issues not only in the Philippines but also for the whole region. But one thing that created a lasting impression and curious interest for the rural banking industry was the forecast on the level of remittances from our modern heroes, the Overseas Filipino Workers (OFWs), this year.
The Manila-based multilateral funding institution predicted that the country’s gross national product (GNP) will grow by five percent this year due to a strong service sector and the continuously steady flow of OFW remittances, the latter being the consistent economic driver over the years. The flow of remittances is anchored not only on more Filipinos opting to find better opportunities overseas, but also on the sustained demand for professional and skilled Filipino workers abroad.
Foreign governments have done their part to keep the steady flow of Filipino workers for their respective countries. This year, enhancements in the recruitment systems of host countries are expected to support the resilience of remittance flows, including the launching of the International Direct e-Recruitment System for Filipino workers in Taiwan, the signing of a Memorandum of Understanding on Labor Cooperation and a Protocol on Regulating the Recruitment and Employment of Domestic Workers with Lebanon and Jordan, and the amendment of the Korean Employment Permit System. These factors underpin the general prognosis that influx of much-needed foreign currencies will continue to grow for years to come.
On a grand scale, OFW remittances generate various activities in the Philippines, as well as augment the stability of the local consumer market. Boosted by remittances, families of OFWs typically are a strong player in the market, be it in real estate or in commercial and industrial sectors. They have money to spend and they are active purchasers.
How significant is this for banks?
Banks now account for around 90 percent of the entire remittance business as OFWs shifted from informal channels like couriers and door-to-door delivery services to safer methods to send money home through the banking system.
As such, several banks have opened various services to accommodate these remittances. Nearly all major banks have services tailor-fit for OFWs, as well as a few value-adds to gain new foreign-based depositors and keep the existing ones. For rural banks, a steady flow of OFW remittances means a healthy money transfer business. Thus, several rural banks have joined the Philippine Payments and Settlements System (PhilPaSS) of the Bangko Sentral ng Pilipinas last year.
The PhilPaSS Remit System for OFW remittances is an online and real-time gross settlement payment system administered by the BSP to facilitate payment transactions between banks. It offers a rate of P50 per transaction compared to P100 to P500 per charged by other money transfer systems.
With PhilPaSS, rural banks can offer a faster yet more affordable service to clients in the countryside who are also beneficiaries of many OFWs. By utilizing this system, rural banks can offer cheaper, if not the cheapest transaction fees without incurring any losses.
A number of rural banks are set to course their financial transaction through PhilPaSS as part of the many innovations of the Rural Bankers Association of the Philippines.
The PhilPaSS-Remit system is also part of the advocacy of the BSP to help Filipinos abroad and their beneficiaries by providing a safer, faster, and cheaper means of remittance. The project is one of the initiatives undertaken by the BSP in coordination with the Association of Bank Remittance Officers Inc. through a memorandum of agreement in December of 2009 but was only implemented in the second quarter of 2011. The BSP has encouraged banks and financial institutions to course OFW remittances through its electronic payment and settlement system so that beneficiaries of Filipinos working abroad could enjoy lower fees.
According to the BSP, the settlement of OFW remittances through the PhilPaSS Remit System would result in savings of between P100 and P500 per transaction as current system charges between P150 and P550 per transaction. OFW families are expected to save at least P92 million due to the faster and cheaper delivery of remittances to the beneficiaries at a lower rate of P50 per transaction.
Of course, rural banks can offer other value-added services, just like their bigger brethren, aside from savings through the use of PhilPaSS. Among the other financial and non-financial products and services rural banks offer to OFWs and their families include high-yield medium/long-term time deposit, children’s savings accounts, education and housing loans, bills payment and collection services, and advisories about successful business ventures and skills in partnership with different government agencies. These opportunities can help improve the utilization and conversion of remittances into productive investments and other business opportunities.
The number of OFWs is expected to increase every year. Being away from their loved ones for many years is the ultimate sacrifice an OFW has to bear for the financial betterment of his or her family. Admittedly, this supreme sacrifice has also served as the fulcrum of the national economy. The least we in the industry can do is to maximize every foreign currency-denominate remittance that is sent home.
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Hi,
having surfed your website today, and reading this circular, I thought it might be useful to let you know the following that may have escaped your attention regarding rural banks’ initiatives regarding Oveseas Filipinos, and their role in assisting the latter and their beneficiary families providing options and alternatives on the productive use of their remittances to develop local economies.
1. I represent the Economic Resource Center for Overseas Filipinos Philippines Inc(Ercof Phils). Ercof was registered in Geneva in 1999 as a nonprofit with a vision to assist OFs in the wise use of remittances and other resources, with a focus on countryside or rural development. Ercof opened its Philippine office in June, 2003, in order to implement its programs.
2. Our focus on rural development found a natural conclusion of establishing relationships with rural financial institutions, and particularly rural banks, coops and MFIs, since studies show, particularly the ADB remittance study of 2004, which indicated that 2/3 of OFws originate from the rural areas. Early in 2000, we assisted Boypee Panganiban of the NRBSL, in speaking to Filipino audiences in the UK, Switzerland and the Netherlands, to pioneer the RB voice among Europe OF audiences.
3. In our roadshow of four cities in Europe, in November, 2005, then RBAP president Gen. William Hotchkiss of the RB of Cantilan, joined us in order to explain the possible role of Philippine rural banks in servicing OF financial needs, in addition to an earlier swing in Germany and Switzerland, we did with Danny Arcenas, then RBAP president.
4. During the annual RBAP conference in Davao City in 2006, Ercof signed an MOA with the RBAP, committing among others, to jointly conduct studies and activities that will move forward this joint advocacy. This was followed by actual investments in time deposits by OFs in Luxembourg and Netherlands, in Xavier Tibod, one of the first microfinance banks licensed by the BSP. Three years ago, members of LPAD, a Filipino ngo in Luxembourg, also made placements in the Rural Bank of Victorias.
4. Shortly thereafter, to accelerate our advocacy with OFs and RBs, Ercof partnered with 15 outstanding RBs, in order to flesh out possible RB products and services directly meeting the needs of OFs. After several meetings and orientations conducted by us on the OF sector, most if not all of our partners established an OF service desk, included specific products for OFs and their families, and also appointed a liaison officer for OFs within the bank. Ercof also assisted the group in setting up a dedicated website called http://www.bayaningbayanihan.com, which are linked to the respective RBs’websites, which could be visited by OFs and the public, who may wish to know about their OF-related services. A number of former presidents or officers of the RBAP, represent their banks in our alliance – I can recall Gen. Hotchkiss, Atty. Ganzon, Ives Nisce, Mitch Gomez, Sonny Lim, Alex Buenaventura, Reggie Ocampo.
5. I am pleased to invite you also to view our website, http://www.ercof.com, where our advocacies for OFs to contribute to the local economies of their rural origins, are explained in more detail, and where I believe the RBAP and its member banks, could find some useful data, rationale, and suggestions on how to move forward with their own initiatives vis a vis remittances and OFs.
6. Please note that I have used the term Overseas Filipinos(OFs) instead of simply OFWs. Overseas Filipinos are composed of Immigrants, Contract based workers, as well as undocumented overseas workers, all of whom are included in the universe of remitters.
7. Ercof is also involved in doing research on remittance corridors, having been the principal consultant for the ADB Remittance study in 2004, the 2010 remittance corridor research involving Italy and Malaysia, in partnership with the IOM and the EU. We had recently been commissioned by the ILO to do a small research on existing remittance backed products of various financial institutions, including rural banks, and pretty soon, I might have to be calling on you for an interview to obtain data on the rural banking industry’s initiatives on this matter. We do have some understanding of the issues faced by the RB industry on servicing remittances, that has mostly to do with infrastructure, and hope to find this opportunity to discuss how this could be hurdled, especially with the support of BSP initatives such as Philpass and the use of e money.
With kind regards.
Ding Bagasao
President, Ercof Philippines
Rm. 106, PSSC Bldg. Commonwealth Ave. QC
Tel 09178530492