Asian governments and the private sector must take full advantage of the sharp increase in workers’ migration and remittances, making sure the funds are channeled through the formal financial system and fully utilized for inclusive economic growth, delegates to an Asian Development Bank (ADB) forum agreed on Wednesday.
ADB President Takehiko Nakao told the Forum on Promoting Remittances For Development Finance that there is dramatic growth in migration and remittances in the Asia-Pacific region.
He cited figures that show there were 130 million people living outside their countries of origin as of last year, 90 million of them from the Asia-Pacific region.
Consequently, global remittances have grown substantially to reach an estimated $435 billion last year.
Nakao said remittances are projected to rise to $454 billion this year, with over $240 billion being coursed through developing Asian economies.
The ADB president said there is significant room to maximize the benefits of remittances in development, but that governments should take a proactive role in channeling these funds into productivity-enhancing activities.
“Remittances represent hard-earned money from migrant workers.
Therefore, it is important to channel remittances to improve the social and economic status of migrant workers, as well as their country’s development,” he said.
Nakao added, however, that the lack of access to the formal financial sector means that remittance-receiving households tend to spend these funds on material items such as appliances and food, instead of savings and investments.
If channeled to the formal financial system, remittances can become increasingly popular as a means of mobilizing public investment in infrastructure, health and education, he said.
Nakao points out that to mobilize remittances into development finance, countries need to introduce remittance-receiving households to the formal financial system; develop reliable financial products to promote safer investments by remittance-receiving households; and develop appropriate regulatory and policy frameworks to oversee these investment instruments.
In the case of the Philippines, Jaime Augusto Zobel de Ayala, chairman and chief executive officer of Ayala Corp. said the global success of overseas Filipino workers (OFWs) has become a key driving force of the economy, supporting the country’s growth story over the last decade.
Zobel de Ayala noted that as of 2014, remittances still accounted for 8.5 percent of the country’s gross domestic product (GDP).
“Remittances fueled consumer spending in retail sales, real estate investments, property development, as well as telecommunications, which have multiplier effects in the economy,” he said.
Banking system lagging
Zobel de Ayala noted that a number of industries that benefit from inward flows of funds from overseas community have played a proactive role in creating value-added products and services contributes to inclusive development.
“While we are seeing more inclusive innovation from other sectors, the banking industry, however, for all its importance as a catalyst for inclusion, has not made a significant leap to add value to this large sector,” he said.
Zobel de Ayala said the Philippines continues to lag in terms of financial inclusion, particularly in giving more Filipinos access to the banking system.
He noted that to date eight out of 10 Filipinos remain unbanked, while 40 percent of cities and municipalities do not have a physical access to a bank.
“There is room for innovative discussion from the regulated industries.
There is tremendous opportunity to legitimize more channels of financial inclusion,” he said.
Zobel de Ayala said a structured, efficient dialogue is necessary between the private sector and regulators to find a common ground to nurture new sources of financial products catering to these kinds of consumers.
Nestor Espenilla Jr., deputy governor at the Bangko Sentral ng Pilipinas (BSP) said the regulator has embraced financial inclusion as one of its policy objectives, despite Zobel de Ayala’s observations.
“We believe that a healthy financial system is more meaningful if it serves the full spectrum of clients including migrant workers. We also believes that financial inclusion contributes to economic growth that is more broad-based,” he said.
Espenilla said that in terms of policy and regulation, the BSP deliberately crafts regulations that can expand financial service access points and widen the range of products available for overseas Filipinos.
One of these regulations, he said, allowed banks to establish branches or tie-ups with corresponding banks outside the country.
“Today, our commercial banks have nearly 5,000 remittance access points in countries where Filipino migrants works. Many of our domestic banks are designing and offering investment products specifically for overseas Filipinos and their beneficiaries,” he said.
However, Espenilla said that in an archipelago like the Philippines, a more challenging issue is the onward flow of remittances to recipients living in remote islands and rural areas in the country.
Thus, he said the BSP regulatory framework enables banks and other financial service providers to establish a presence in these areas, such as through opening microbanking offices (MBOs) in municipalities unserved by bank branches.
These MBOs can be small banking units where overseas beneficiaries can conveniently access banking services including foreign currency conversion, he said.
Moreover, he said the BSP’s electronic money regulatory framework also enables presence of remittance access points in the country.
“E-money allows faster, cheaper and more convenient transfers of funds… Overseas Filipinos can use it to purchase goods, pay bills. It enables an ecosystem where banks, non-banks and subsidiaries leverage more technology to serve areas that are physically harder to reach,” he said.
Lastly, Espenilla said the BSP also aims to establish a more robust, efficient, and inclusive national retail payment system (NPRS), which will dramatically shift the economy from mostly cash transactions at the retail level to mostly electronic transactions.