Channels for pooled remittances urged
MANILA, Philippines - Global money transfer firm Western Union Co. has identified a potentially fertile new ground which Asian governments, including the Philippines, could tap to spur economic growth: collective remittances, or the pooling of funds from migrant workers.
Developing Asian economies, however, still lack the mechanism for channeling these pooled funds to have an impact on the local economy, with most of the remittance channels remaining informal, according to a Western Union-sponsored study released by The Economist Intelligence Unit this month.
"Collective remittances are now recognized as an important development by researchers and development economists," the study, titled "Building a future back home: Leveraging migrant worker remittances for development in Asia," read.
"Nevertheless, as a relatively new phenomenon and one that is often carried out in an ad hoc way or through informal mechanisms, serious gaps remain in the understanding of this practice, especially in Asia," it pointed out.
In the case of the Philippines, funds remitted by workers to their families back home are often used to buy consumer items such as food and appliances, pay for dependents’ school and medical expenses, and settle debts. A portion is placed in savings and investments.
Studies have pointed out that while consumption has a multiplier effect, a more productive use of remittances can have a bigger impact on the local economy.
The Western Union-sponsored study found that migrant associations — groups formed by migrant workers — would like to invest back home but are ill-equipped in terms of organizing funding for and designing projects. Consequently, the migrant associations resort to seeking the help of the local government, a charity, nongovernment organization, or a business group, to act as intermediaries.
"This approach can backfire, however, because the sense of ownership of the project within the migrant community is diminished," according to the study.
The study documented a few success stories about the collective remittances phenomenon and pointed out that Asian economies could take the cue from the Philippines.
The country, which the World Bank ranked as the fourth largest recipient of remittances with $17 billion last year, has about 12,000 Filipino associations abroad, according to the Labor department.
Filipino migrant associations, many of them formed in the US, have tapped the use of trust to collect and remit funds.
A trust allows the migrant worker group to transfer to another party, the trustee, normally a bank or financial manager, its right to hold title to the assets or funds for the benefit of the group’s beneficiary, the home community.
The Philippine government has also created incentives such as tax breaks and privileged investment options for its residents overseas, including so-called local government unit bonds, the study pointed out.
The bonds are normally issued by the government to finance infrastructure projects that would allow the local units to generate more revenues.
"The benefit of these bonds is not only that they are seen as savings and investment instruments by the migrants, but also that they have professional management and transparency, thus overcoming migrants’ fear of political mismanagement of their contributions," the study read.
While the Philippines provides a few models for other countries to emulate, it still needs to come up with more ways to maximize its migrant workers’ remittances.
For its part, Western Union, which has a 7,300-strong network in the country, said it is studying ways to provide Filipino migrant workers other avenues to help their communities back home.
The US-based financial services firm would launch within a year a forum that would allow stakeholders to identify how else collective remittances could be made widespread.
"We will try to serve the want of the OFWs to help their community. They want a mechanism for that," Patricia Z. Riingen, Western Union regional vice-president, said in an interview over the weekend.
The Western Union-sponsored study recommended that governments craft macroeconomic policies that would "magnify the impact of remittances," as well as the "institutionalization" of already existing programs for "attracting and leveraging remittances."
"Since most migrant groups are not development-oriented by nature and since remittances are private and voluntary, governments must be careful about the way they intervene," it warned.
"Any attempt to control the amount, restrict the destination, prescribe the use of, regulate the transfer of, require certain modes of transmission of, or tax remittances are only likely to drive them into already well-established informal channels where they are impossible to track," it added. - BusinessWorld
Developing Asian economies, however, still lack the mechanism for channeling these pooled funds to have an impact on the local economy, with most of the remittance channels remaining informal, according to a Western Union-sponsored study released by The Economist Intelligence Unit this month.
"Collective remittances are now recognized as an important development by researchers and development economists," the study, titled "Building a future back home: Leveraging migrant worker remittances for development in Asia," read.
"Nevertheless, as a relatively new phenomenon and one that is often carried out in an ad hoc way or through informal mechanisms, serious gaps remain in the understanding of this practice, especially in Asia," it pointed out.
In the case of the Philippines, funds remitted by workers to their families back home are often used to buy consumer items such as food and appliances, pay for dependents’ school and medical expenses, and settle debts. A portion is placed in savings and investments.
Studies have pointed out that while consumption has a multiplier effect, a more productive use of remittances can have a bigger impact on the local economy.
The Western Union-sponsored study found that migrant associations — groups formed by migrant workers — would like to invest back home but are ill-equipped in terms of organizing funding for and designing projects. Consequently, the migrant associations resort to seeking the help of the local government, a charity, nongovernment organization, or a business group, to act as intermediaries.
"This approach can backfire, however, because the sense of ownership of the project within the migrant community is diminished," according to the study.
The study documented a few success stories about the collective remittances phenomenon and pointed out that Asian economies could take the cue from the Philippines.
The country, which the World Bank ranked as the fourth largest recipient of remittances with $17 billion last year, has about 12,000 Filipino associations abroad, according to the Labor department.
Filipino migrant associations, many of them formed in the US, have tapped the use of trust to collect and remit funds.
A trust allows the migrant worker group to transfer to another party, the trustee, normally a bank or financial manager, its right to hold title to the assets or funds for the benefit of the group’s beneficiary, the home community.
The Philippine government has also created incentives such as tax breaks and privileged investment options for its residents overseas, including so-called local government unit bonds, the study pointed out.
The bonds are normally issued by the government to finance infrastructure projects that would allow the local units to generate more revenues.
"The benefit of these bonds is not only that they are seen as savings and investment instruments by the migrants, but also that they have professional management and transparency, thus overcoming migrants’ fear of political mismanagement of their contributions," the study read.
While the Philippines provides a few models for other countries to emulate, it still needs to come up with more ways to maximize its migrant workers’ remittances.
For its part, Western Union, which has a 7,300-strong network in the country, said it is studying ways to provide Filipino migrant workers other avenues to help their communities back home.
The US-based financial services firm would launch within a year a forum that would allow stakeholders to identify how else collective remittances could be made widespread.
"We will try to serve the want of the OFWs to help their community. They want a mechanism for that," Patricia Z. Riingen, Western Union regional vice-president, said in an interview over the weekend.
The Western Union-sponsored study recommended that governments craft macroeconomic policies that would "magnify the impact of remittances," as well as the "institutionalization" of already existing programs for "attracting and leveraging remittances."
"Since most migrant groups are not development-oriented by nature and since remittances are private and voluntary, governments must be careful about the way they intervene," it warned.
"Any attempt to control the amount, restrict the destination, prescribe the use of, regulate the transfer of, require certain modes of transmission of, or tax remittances are only likely to drive them into already well-established informal channels where they are impossible to track," it added. - BusinessWorld
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