1. 1 ASSESSMENT AND GOOD PRACTICE ON REMITTANCES by Antero Vahapassi ASIAN DEVELOPMENT BANK Second Labour Migration Ministerial Consultation for Countries of Origin in Asia 22-24 September 2004, Manila, Philippines

2. 2 ADB and Remittances Remittances have become a major source of external development financeRemittances have become a major source of external development finance Remittances can accelerate private sector developmentRemittances can accelerate private sector development Remittances are believed to reduce poverty, as it is the poor who migrate and send back remittancesRemittances are believed to reduce poverty, as it is the poor who migrate and send back remittances Migration is an informal risk reduction and coping strategy in social protectionMigration is an informal risk reduction and coping strategy in social protection

3. 3 ADB interventions in Migration PHI - Enhancing efficiency of overseas workers remittances (TA No. 37590), approved in 2003, finished REG - Southeast Asia workers remittance study (TA No. 38233), exp. approval 10/2004 PHI - Remittance and migration (TA No. 38283), expected approval 2005 REG - Promoting safe migration for women and prevention of trafficking of girls and women in the GMS (TA No. 37667), expected approval 2004

4. 4 Focus of this presentation THIS PRESENTATION DRAWS ITS DATA MAINLY FROM THREE SOURCES: 1.Philippines TA study (No. 1.Philippines TA study (No. 37590) 2. 2.ADB study in India by U.K. Varma and S.K. Sasikumar (V.V. Giri National Labour Institute), 2004 3. 3.ADB study in Bangladesh by Prof. T. Siddiqui (University of Dhaka), 2004

5. 5 Remittances are a major source of external development finance Source: Dilip Ratha, Senior Economist, World Bank

6. 6 Objectives of the Study on Flows of Remittances To possibly increase remittance volumes To possibly increase remittance volumes Facilitate shift from informal to formal or regulated channels Facilitate shift from informal to formal or regulated channels Encourage the use of remittances for sustainable poverty reduction Encourage the use of remittances for sustainable poverty reduction

7. 7 Stocks of Overseas Filipinos Stocks of Overseas Filipinos

8. 8 Characteristics of Flows from Philippines Outflows are 2,700 daily/almost 1 million annually Overseas Filipinos are in the range of 7.6 million in 2003 197 Destination Economies– Mostly in ME, South-Asia and US Land-based and Sea-based Workers Professionals and Service Workers 65 to 70% of contract based are female

9. 9 Characteristics of Flows from Bangladesh On an average, 250,000 people annually migrate (1995-2003)On an average, 250,000 people annually migrate (1995-2003) Total number of Bangladeshis working abroad is more than 3 millionTotal number of Bangladeshis working abroad is more than 3 million Flow of remittance is more than US$ 3 billion in 2002-03, half of that from Saudi ArabiaFlow of remittance is more than US$ 3 billion in 2002-03, half of that from Saudi Arabia Most migrants are men (women are less than 1 %)Most migrants are men (women are less than 1 %) Remittances have been around 35% of export earnings (more important than garments sector)Remittances have been around 35% of export earnings (more important than garments sector)

10. 10 Characteristics of Flows from India People with technical skills and professional expertise migrated to the countries such as USA, Canada, UK and Australia as permanent migrants, since the early 1950s People with technical skills and professional expertise migrated to the countries such as USA, Canada, UK and Australia as permanent migrants, since the early 1950s Unskilled and semi-skilled workers migrate to the oil exporting countries of the Middle East on temporary contracts, especially following the dramatic oil price increases of 1973-74 and 1979 Unskilled and semi-skilled workers migrate to the oil exporting countries of the Middle East on temporary contracts, especially following the dramatic oil price increases of 1973-74 and 1979

11. 11 Characteristics of Flows from India (cont.) Around 1.25 million Indians emigrated to the US, Canada, UK and Australia between 1950-2000Around 1.25 million Indians emigrated to the US, Canada, UK and Australia between 1950-2000 Today, some 3 million Indian migrants live in Gulf countriesToday, some 3 million Indian migrants live in Gulf countries Most migrants come from Kerala, Tamil Nadu, Andhra Pradesh and PunjabMost migrants come from Kerala, Tamil Nadu, Andhra Pradesh and Punjab However, internal migration is much larger: in 1991 census, 27.4%, i.e. 232 million, had migratedHowever, internal migration is much larger: in 1991 census, 27.4%, i.e. 232 million, had migrated

12. 12 Characteristics of Flows from India (cont.) Currently, India is the world’s largest remittance recipient country; in 2002-03 the remittance flows amounted to US$ 15.2 billionCurrently, India is the world’s largest remittance recipient country; in 2002-03 the remittance flows amounted to US$ 15.2 billion

13. 13 Remittance Characteristics Formal Flows through banks, exchange houses, and money transfer agencies Formal Flows through banks, exchange houses, and money transfer agencies Unregulated Flows consist of: Unregulated Flows consist of:  Sent through unregulated ethnic stores, mail, cargo boxes  Sent through friends  Cash brought home  Goods sent home

14. 14 Remittance Trends in Philippines Vibrant Competition due to long history of Philippine overseas deployment Vibrant Competition due to long history of Philippine overseas deployment Convergence of services through partnerships, alliances and revenue sharing Convergence of services through partnerships, alliances and revenue sharing New Players and technology or card based remittance products New Players and technology or card based remittance products  Mobile Phones  Internet based services  Card Products  Postal Office  Entry of non-traditional players (credit unions, coops, microfinance institutions)  OFW E-cards

15. 15 Remittance Behavior in Philippines 80% are remitting through banking or regulated channels 80% are remitting through banking or regulated channels 70% maintain bank accounts in the Philippines 70% maintain bank accounts in the Philippines 90% save 90% save Average amount of remittance sent is US$340 Average amount of remittance sent is US$340 Use of remittances dominantly for food, utilities, personal care and dwelling related expenses Use of remittances dominantly for food, utilities, personal care and dwelling related expenses Majority are interested to help contribute to community development Majority are interested to help contribute to community development From 41 to 49% incur debt to migrate From 41 to 49% incur debt to migrate

16. 16 Remittance Behavior in Bangladesh (based on a study in 2003) 46% of the total volumes of remittance have been channeled through official sources46% of the total volumes of remittance have been channeled through official sources Around 40% through hundiAround 40% through hundi 4.6% moved through friends and relatives4.6% moved through friends and relatives About 8% were hand-carried by the migrant workers themselvesAbout 8% were hand-carried by the migrant workers themselves

17. 17 Remittance Behavior in Bangladesh: Why hundi? the demand for foreign exchange from racketeers who wish to finance smuggling of various items including gold;the demand for foreign exchange from racketeers who wish to finance smuggling of various items including gold; the demand from importers’ for foreign exchange from other sources in order to benefit from the existing tax regime by under-invoicing imports;the demand from importers’ for foreign exchange from other sources in order to benefit from the existing tax regime by under-invoicing imports; an unholy alliance among officials of financial institutions, business and hundi operators;an unholy alliance among officials of financial institutions, business and hundi operators; financing recruitment charges of the recruiters;financing recruitment charges of the recruiters; difference between official and unofficial exchange rates; anddifference between official and unofficial exchange rates; and quality and speed of service, and ability to reach clients both in destination countries and in the source countries.quality and speed of service, and ability to reach clients both in destination countries and in the source countries.

18. 18 Barriers to Remittance Flows (Philippines) Anti-money laundering (AML) compliance Anti-money laundering (AML) compliance First Mile Issues–Licensing costs/restrictive laws in certain countries First Mile Issues–Licensing costs/restrictive laws in certain countries The ‘Unbanked’ on both first and last mile The ‘Unbanked’ on both first and last mile Uneven Application of AML compliance Uneven Application of AML compliance Funding problems to upgrade infrastructure affects local and international interconnectivity Funding problems to upgrade infrastructure affects local and international interconnectivity

19. 19 Barriers to Remittance Flows: High cost of sending money! Average: 13%

20. 20 The Extra Mile–What can government, the private sector and civil society do to enhance formal remittance flows? Financial Literacy and Information Programs Financial Literacy and Information Programs Identify and support Best Practices on Remittance Leveraging of NGOs and LGUs Identify and support Best Practices on Remittance Leveraging of NGOs and LGUs Strengthen rural based financial and economic organizations by improving interconnectivity Strengthen rural based financial and economic organizations by improving interconnectivity Organize and support initiatives of Associations of Overseas Workers Organize and support initiatives of Associations of Overseas Workers Study and institute proper incentives system Study and institute proper incentives system

21. 21 Some recommendations The governments should commit adequate resources to migration sector.The governments should commit adequate resources to migration sector. A large segment of informal remittance (padala-, hundi-, hawala-system) could be channeled to finance smuggling: review taxation policies, and tariff and duty structures (remove the red-tape).A large segment of informal remittance (padala-, hundi-, hawala-system) could be channeled to finance smuggling: review taxation policies, and tariff and duty structures (remove the red-tape). Governments may give migrant workers the right to import goods that can be considered as remittance in kind. Such remittance in kind may be exempted from custom duties.Governments may give migrant workers the right to import goods that can be considered as remittance in kind. Such remittance in kind may be exempted from custom duties. Banking systems and arrangements needs to be reviewed and revised, if necessary.Banking systems and arrangements needs to be reviewed and revised, if necessary.

22. 22 CLOSING Good economic policy begins at home, not in sending workers abroad, no matter how green the proverbial grass may be at the other side.Good economic policy begins at home, not in sending workers abroad, no matter how green the proverbial grass may be at the other side. Although remittances received from abroad have been seen as the next best alternative to countries that are permanently looking for foreign aid, research has shown that once a country is "addicted" to remittances, it is difficult to wean off of them.Although remittances received from abroad have been seen as the next best alternative to countries that are permanently looking for foreign aid, research has shown that once a country is "addicted" to remittances, it is difficult to wean off of them. However, before economic situation and labor markets allow migrant workers to work at home, the governments, civil society, and international agencies should find ways to improve the migrant workers ’ economic, social and political status abroad, and help their families at home.However, before economic situation and labor markets allow migrant workers to work at home, the governments, civil society, and international agencies should find ways to improve the migrant workers ’ economic, social and political status abroad, and help their families at home.

23. 23 For More Information E-mail socialprotection@adb.org ADB Web Site http://www.adb.org END