By Isagani De La Paz
MANILA–MIGRANT workers have yet to be convinced errant banking processes are things of the past before they see the veracity of pooled savings for investment in development projects, a recent study by the International Labor Organization revealed.
The study titled “The Contribution of Migrant Organisations to Income-Generating Activities in their Countries of Origin” focused on the experience of the Philippines in developing money from overseas Filipino workers as pooled investments.
The study placed under a microscope the experience of the nonprofit Economic Resource Center for Overseas Filipinos in promoting time deposits in microfinance rural banks in the Philippines.
“The possibility to save at an MFI [microfinance institutions] is still not widely known among Filipino migrants,” the study said citing the Ercof experience.
Ercof said attracting migrant workers to put money in time deposit schemes in Philippine banks have been a bumpy ride since they began such moves four years ago.
One culprit, according to Ercof executive Ildefonso Bagasao, came from the Frankenstein Philippine banks crafted themselves.
“Another reason why until today no new savings have been sent collectively for microfinance activities in the Philippines are reservations against rural banks among Filipino migrant workers due to past abuses and closures,” Bagasao was quoted in the ILO study as saying.
Ercof said since its formation a decade ago in Geneva, Switzerland, it has been trying to establish a migrant bank to capture remittances and use it for local economic development in the Philippines.
Having a significant share in gross domestic product, remittances fuel the Philippine economy as it enlarges the purse of families here.
The ILO study said that if remittances as pooled investment are used for community development, feeder roads, rural dispensaries, fire engines and primary schools, then public resources can be redirected to other uses, the ILO study said.
But the money sent on a collective basis, the study argues, “account for only a small fraction of total remittances”.
THE potential of tapping that fund hasn’t been lost on Ercof.
But a lot of hurdles await Ercof.
In an electronic mail, Bagasao said that linking rural banks or MFIs and migrant remittances remains a challenging area for advocacy.
“This is mainly because of little awareness on the part of the public, including OFWs on microfinance and rural bank products.”
Bagasao added MFIs also fail to reach out to OFWs, one of several problems plaguing the sector.
For example, the Rural Bank Association of the Philippines was embroiled in a lengthy leadership crisis that began almost immediately after Ercof tapped it as a partner in 2006.
Bagasao told the OFW Journalism Consortium they moved to partner with the Rbap after successfully convincing two groups of five and 16 overseas Filipinos in Luxembourg and the Netherlands to open time deposits in two microfinance banks in Bukidnon and Misamis Oriental.
The groups sent the money collectively in order to save costs. An overall amount of 6,900 Euro (equaling P0.55 million at that time) were locked in for five years, exempting it from interest income tax and slapped with an interest rate is 8.5 percent annually.
As MFIs are charged about 12 percent annually for credits from commercial banks, time deposits are cheaper sources for them to obtain funds.
The MFIs can then re-lend the money to micro-entrepreneurs.
Ercof’s 2005 newlsetter the Migrantrepreneur wrote that the migrants’ deposits helped to create at least 100 enterprises per year (at P5,000 capital per micro-entrepreneur) in the areas where the two banks operate.
Term deposits are also a stable source of funding for the MFIs: because the funds are available for a set period of time they facilitate liquidity and gap management, the ILO study noted.
However, Bagasao said a certain volume of time deposits is necessary to obtain a significant impact; hence their attempt to partner with Rbap.
THE success to Ercof’s and other advocates’ initiatives rests mainly on government action –or inaction, in some cases, according to the ILO study.
Governments can set incentives to attract migrants to pool remittances or help MFIs with development projects capture a significant portion of the money, the study said.
“Some governments need first and foremost to build trust or even overcome hostility with (parts of) their diaspora.”
Remittances reflect migrant workers’ “continuing attachment to the country of origin, and possibly a disposition to eventually return home” and the ILO study said governments should hinge on that motivation.
“Governments in countries of origin can lead different policies to keep their diaspora attached to the country of origin.”
But the ILO study noted governments can only do this if it gains support from migrant organizations and other non-state related stakeholders.
Governments should avoid patronizing migrant organizations.
“When promoting all types of migrant organizations’ projects, governments also need to take care to not neglect poorer areas with less migration and therefore less remittances and help through migrant organizations.”
Ercof, however, said rural banks’ moves to promote self-governance, benchmarking, transparency and prudent community banking practices still “remains to be seen if this will convince Filipino migrants”.
Ercof added additional actions can contribute to that: expanding the network of MFIs partnering with migrant groups; professionalism; and, safety of deposits.
“Professionalism is a key to make saving deposits in MFIs attractive to migrants while the safety of deposits is primordial.”
“It is …very important that migrants can trust the MFI for its remittances transfer offer to be successful.”
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