The Philippines received USD17.6 Billion in remittances in 2009. Remittances played an important role for the Philippines to narrowly escape recession in 2009 registering almost 1% growth in GDP. Remittances have been one of the drivers of economic growth in the Philippines. However, the irony is even with the growth in remittances there was actual increase in poverty incidence in the country.
The premise of this paper is to channel remittances to microfinance institutions so that the poor could directly benefit. It discusses the power of leveraging migrant remittances for development from through microfinance. The paper will present the achievements and lessons learned of two collaborating organizations in the Philippines implementing programs that effectively leveraged migrant remittances for development. Migrant remittances that will be discussed in this paper is in the context of economic investment rather than philanthropic. That is we talk about remittances that are invested with positive returns rather than remittances given as donations, grants or used for consumption.
Background of the Organizations
The Social Enterprise Development Partnerships, Inc. (SEDPI) was established in 2004 and has since reached out to 1,100 local and international organizations. It provides capacity building services such as trainings, research and technical and mentoring assistance to microfinance institutions. In 2008, the organization gave birth to SEDPI Capital Credit Inc. (SCCI), its financing arm. SCCI aims to mobilize PhP26.5 million (USD580,000) social investments by 2014. This social investment will be invested to microfinance institutions and social enterprises.
SCCI provides financial products to small and emerging microfinance institutions and social enterprises. On the other hand, SEDPI strives to strengthen the same organizations. These complementary services bond the strategic link of SEDPI and SCCI.
The context of remittances in the Philippine is typically money from poor migrants in host countries sent to even poorer households in the Philippines. Sixty seven percent of migrants in the Philippines come from rural areas where most MFIs are located. Remittances, as a fee-based product, offer the opportunity for MFIs to achieve financial goals. MFIs could also easily offer remittance receivers the opportunity to leverage remittances with their pro-poor financial services, thus achieving their social mission. Realizing these strategic links between remittances and microfinance, SEDPI and SCCI embarked on a program to harness the great potential of remittance leveraged for development.
The Development Intervention Components
To harness the potential of remittances for development, SEDPI and SCCI used the following development intervention components: (1) financial education for both remittance senders and receivers; (2) investment mobilization from remittance senders; (3) capacity building and wholesale lending to microfinance institutions; and (4) social performance management.
The first component focused on financial education since most Overseas Filipino Workers (OFWs) and their families have problems managing their hard earned money. One of the reasons behind this is lack of financial education. Both remittance senders and receivers have no specific financial goals; have difficulty differentiating needs from wants; lack skills in budgeting; and know little about properly using financial products and investments. The lack of financial education must be addressed first to be able to leverage remittances for development. Once financial freedom is achieved through financial education this could lead to investment. The financial education trainings are conducted in partnership with hometown organizations abroad as well as Philippine embassies.
The next challenge is to upgrade the capacity of microfinance institutions in absorbing more funds. This means professionalizing their operations and creating more market-led financial products. SEDPI provides technical and mentoring assistance to microfinance institutions. After strengthening these MFIs, SCCI invests in them through wholesale lending. SCCI mobilizes investments from migrants that it will invest in various MFIs in the Philippines. One benefit of this mechanism is risk mitigation in terms of investments. Both SCCI and SEDPI work close with the MFIs and are knowledgeable of their operations in great detail. SCCI becomes a portfolio manager to migrants who usually do not know any MFI in the Philippines. SCCI also partnered with Cordaid, a Dutch non-government organization, to put up a guarantee scheme to protect the migrants’ investments in SCCI.
To make sure that the social mission is not lost, SEDPI also builds the capacity of MFIs in installing and running social performance management systems. The areas of assessment in the social performance management focus on the end clients that include income trend; business improvement; gender empowerment; nutrition and housing improvement.
A total of 1,134 remittance senders have already been trained in 10 countries all over the world since June 2007. The financial education module espouses that three months worth of monthly salary be established as emergency savings and insurance be bought to protect the migrant and her family members. These are difficult to achieve since a significant number of migrants have problems revolving around getting out of debt. The transformation from financial insecurity to financial freedom takes one year at the minimum. Migrants are discouraged to invest until they have achieved the minimum savings and insurance requirements.
As of February 2010, a total of USD168,556 worth of social investments have been mobilized from OFWs. From 4 migrant investors in 2007, there are now 49 migrant investors. The number is small but very promising. Based on the program, 29% of migrants are able to get out of debt, save, purchase insurance and invest after one year of attending the training. With this trend, it is expected that there would be 219 migrant investors for 2010 with total investment of USD755,000.
The program currently assists nine small and emerging microfinance institutions in the Philippines either through capacity building, wholesale lending or both. With the exception of one, all MFIs have improved financial performance and all have maintained their social rating score. It is estimated that 1,500 microenterprises have benefitted from the program.
With the success of the program, it is ready for upscaling its operations. The financial education component is currently being developed into an online learning course so that training need not be always conducted in a classroom setting. This will drastically reduce costs. Instead of classroom type trainings, investors’ forum will be conducted overseas.
SCCI is also undergoing negotiations to purchase a bank to make its investment mobilization and wholesale lending of funds part of the formal financial system. It will maintain its positioning as a bank for migrants and supporter social enterprises. This will also protect the investments of migrants through the Philippine Deposit Insurance Corporation.
The MFIs are currently undergoing capacity building on conducting financial education to remittance receivers; introducing remittance as a financial service; and designing financial products linked to remittances. (March 26, 2010)
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