Amid a growing list of economic drivers for the Philippines, Overseas Filipino Workers (OFW) remittances are still crucial in further developing the country’s financial system but how to make its share in the local economic growth more inclusive remains to be a challenge.
Over the years, remittances have become a crucial source of foreign exchange for the Philippines and the rest of the region and hold immense potential as drivers of economic development.
Asian Development Bank (ADB) president said Takehiko Nakao said remittances mode is stable than capital flows and it could support the economic fundamentals of a country in many levels.
“It tends to rise during economic crisis and political crisis. People transfer more during hard times. It reduces poverty levels and result in high education and health expenditures. It can also increase private credit and promote private sector growth,” Nakao said in his speech during the ADB forum on Promoting Remittances for Development Finance held in Ortigas yesterday.
A World Bank data on the Philippines showed that remittances have grown at a yearly average of 10 percent over the last ten years on a compounded basis.
As of 2014, remittances account for 8.5 percent of the country’s overall Gross Domestic Product (GDP), largely keeping pace for the robust annual GDP growth rate of 6.1 percent.
During his keynote speech on the same forum, BSP Deputy Governor Nestor Espenilla also said that over US$27 billion worth of remittances from 10 million OFW working across 197 countries is definitely a huge boost to the Philippine economy.
Ayala Corp. Chairman and Chief Executive Officer Jaime Augusto Zobel de Ayala said remittances can fuel consumer spending, retail sales, real estate investments, property development, telecommunications, mobile finance, and other products that create multiplier effects to the Philippine economy.
To achieve inclusive growth within the remittance sector, Espenilla said migrant workers should have accessible options to remit, save, invest and put their hard earned money to work.
But Ayala emphasized that the financial services sector of the country has genuinely lacked behind in terms of developing financially inclusive products and services.
“Banking industry, for all its importance as the catalyst for inclusion, has not made a significant action to add value to the large unbank sectors of the country. The Philippines continues to lack in terms of financial inclusion. Access to the financing system for more Filipinos is still inadequate due to insufficient reach, among others,” Ayala said.
In order to address this, Espenilla said that the government must provide the right regulatory environment that enables the financial system to serve every market segment including migrant workers and their beneficiaries.
“The role of the financial system is more meaningful if it serves the full spectrum of clients including migrant workers,” he added.
He emphasized that OFWs need savings products and investment products where they can put their money in.
“OFWs may have appetite for investment instruments if they understand the risk and returns because as of now, many are still attracted to consumption spending. Some OFWs, on the other hand, may be interested to start a business but lack confidence,” Espenilla said.
Some of the products that the BSP already came up with that can also develop the country’s remittance channels are micro banking offices (MBO), electronic money regulatory framework (e-money), and National Retail Payment System (NRPS)
MBOs are small banking units that can service OFW beneficiaries from isolated areas in the country, while e-money is an innovative instrument that allows faster, cheaper, and more convenient transfer of funds.
“The e-money enables an eco-system where the banks, non-banks, telcos leverage mobile technology to serve areas that are hard to reach. This can be an ideal remittance channel,” Espenilla said.
NRPS, on the other hand, is envisioned to “dramatically shift the economy from mostly cash transactions at retail level to mostly electronic transactions at retail level”.
“So if we’re talking about disruptions, this is a highly disruptive innovation,” he added.