Article adapted from: Policy options for Productive Use of Remittance in Nepal: Learning from Philippines
Migration and remittance are getting increasing attention globally because of its remarkable increase within 30 years in the wake continued to shrink in foreign aid and vulnerable Foreign Direct Investment (FDI). The inflow of remittance to the developing country has increased from USD 31.1 billion in 1990 to 406.0 billion in 2012. The volume of the remittance and its stability is much better than official development assistance (ODA) and foreign direct investment (FDI) that flow to developing country (Haas, 2007 and World Migration Report, 2013).
The Philippines is one of the highest remittance receiving country behind India and China which is actually reaping the benefit of remittance and graduated from low income to middle-income country . In less than 10 years, the remittance sent by Pilipino doubled. The amount of remittance received by the country from 8.5 million Oversees Filipino Workers (OFW) living in 224 destinations worldwide exceeded US 20 billion and peaked in 2012. Currently, remittance is equivalent to 12% of the Philippines’ Gross Domestic Product (Vries, 2011). Philippine government reaped the benefit of remittance through well considered (a) reduced transfer cost by enhancing transparency and competition, (b) improving access to financial services; (c) encouraging OFWs and their families to (d) increase savings and investment; and (e) promoting financial learning among OFWs and their beneficiaries (f) National Reintegration Programme. Also, the government partnered with a non-state actor for capacity building and skill enhancement of OFW . OFW households that allocated their remittances to savings substantially increased, from only 7.2 % in the Q1 2007 survey to 43.7 % in Q4 2010. Likewise, remittances for investments mirrored the same trend, from 2.3 % to 5.8 % in the same period. The government significantly reduced the remittance channelled outside the formal financial system from 25% in 2001 to 4 % 2010 (Gonzaga, 2011).
Policy options for Nepal: Learning from the Philippines
- Financial Regulation and International Agreements: Regulation is important to ensure transparency and monitoring the competition in remittance markets such as directing banking and other financial institution in reducing transfer cost. Also, the government can enter into bilateral agreements with labour receiving countries on many issues related to migrants workers and remittance (Vries, 2011).
- Financial literacy programme: Offering a wide range of banking / financial product and service including investment opportunities to migrant workers and introducing disclosure requirement for banks to be aware of migrant workers and their receiving families (Vries, 2011).
- Diaspora Bond / Retail Treasury Bond (RTBs): Introducing Diaspora Bond and RTBs could allow migrant workers to invest in companies while they are in overseas (Vries, 2011).
- Diaspora philanthropy program for social development: The government can link remittances to community/countryside development through some donation program, for instance, “ Link for Philippine Development” in philipine where in OFW can directly contribute to donating in social services like education, micro enterise and livelihood, and small scale infrastrucutre (Vries, 2011).
- Savings mobilization through social security and housing programs: The government can encourage migrant workers to enroll in saving program like “Flexifund” in philipines that suppliment members with health insurance and competive interest rate. Also the government can considers mutual fund such as Pag-IBIG and SSS in Philipine” which pay returns of 3% for dollar contributions and 7.5% for peso payments (Vries, 2011).
- National Reintegration Programme: the government could consider implementing similar programs, which will focus on all three phases of migration i.e pre-departure, on-site, and upon return wherein migrants and family are guided in all phases through capacity building, training, facilitation loans, awareness program and helping them for enterprise creations(Vries, 2011).
- Increasing access to financial institutions and their services through technological interventions such as ATM and utilizing thrifts/ saving banks, microfinance and cooperative institutions (Vries, 2011).
Summing up, Nepal should expand the access to financial product and service by utilizing technology such as ATM and local financial institutions such as thrifts / saving banks, microfinance institutions and cooperatives. At the same time, the government should work more toward reducing the cost of transfer through formal banking system through financial regulation and international agreement. Financial literacy should be the main focus of the government which aware migrant people on the significance of money earned oversees, offered wide range of banking / financial product and service incl. investment opportunities and introducing disclosure requirement for banks to be aware migrant workers and their receiving families. On the top of this, the government can introduce savings and investment program and other capacity building program by partnering with non-state actors.
You can read more of Suraj’s work in his blog: https://holisticthinkingsite.wordpress.com/
Suraj is a student in the 5th Cohort of the Master’s of Development Practice Program. His research interests are green economy, renewable energy, climate change, poverty alleviation and livelihood, food security and global health.