| KEY MESSAGES FROM THE REPORT | Dec 9, 2009
The objective of this report is to inform policy-makers as to who does (and who does not) have access to financial services, and identify areas for policy intervention that will help migrant workers by improving access to financial services in cost effective ways.
Survey Results on the Demand for Financial Services.
- Savings: The single, most important financial service for migrant workers households is a savings account, providing a safe, convenient means of remitting money as well as a repository for personal savings. Banks the most important service provider when it comes to savings, because of their access to the clearing system for remittances.
- Credit: To finance up-front costs of migration (placement fees and travel costs), migrant workers have a strong need for credit. Banks are only servicing less than 4% of borrowing households since they believe that migrant workers are high risk, unless there is a local guarantor. Repeat migrant workers finance their migration mainly from personal savings (notably among repeat migrant workers; borrowing from the recruiting agency is an important means of financing, notably for first-timers.
- Remittance: the choice of remittance channel is based upon convenience rather than costs, with convenience of the receiver more important than that of the sender; bank transfers are by far the most popular remittance channel; carrying money by hand is the most problematic but still popular means of remitting.
- Insurance: Insurance is a vital product for migrant workers to insure their livelihood whilst being abroad. The current, compulsory insurance system is not benefiting Migrant Workers (migrant workers; claim processes look too complicated, time-consuming and costly for the migrant workers and their households.
Key Aspects of Financial Exclusion - Financial exclusion is high: 27% do not have access to savings and 59% do not have access to credit, and it is considerably higher in rural areas.
- Of those who have access to formal financial services, banks are the most important service provider for savings due to their access to the clearing system for remittances. Credit is spread among a variety of service providers; banks are the least popular choice. Many migrant workers often borrow from high cost sources.
- The ‘truly excluded’, i.e. those with no savings and no credit, represent more than 18%.
- Physical accessibility is not perceived as a significant problem, although the implicit costs (of travel and waiting) do look substantial.
- Voluntary exclusion with economic reasons is strong, more than 3/4 of ‘excluded savers’ believe that they lack sufficient money or a job to justify opening a bank account.
- Access to credit does not increase in a pronounced way as incomes increase; however as incomes rise, there is greater use of banks and less use of micro-finance institutions (urban) and community welfare schemes (rural).
The Way Ahead - Main Recommendations
- Savings: Encourage banks to offer very basic, low-cost savings services whilst not disrupting services already in place and introduce ‘No Frills’ bank savings accounts by setting minimum acceptable standards but letting banks decide on the details; permit explicit exemptions for banks with limited branching networks. Review the compulsory bank account for migrant workers; consider allowing wider access to the account (e.g., a joint account that includes family members).
- Credit: Aim at a broader range of credit providers; consider regulatory changes for commercial banks to increase their branching and ATM networks and reduce reporting burdens. For rural banks (People’s Credit Banks - BPRs), broaden ownership to include foreigners and NGOs; introduce lower tier of capital for small BPRs in isolated regions; reduce reporting and managerial requirements for small BPRs in remote areas. For pawnshops, open up the state monopoly to private competition. For micro finances institutions, resolve certain legal issues concerning the status of some institutions (the former rural credit funds institutions - LDKPs) and restore momentum to drafting a new Microfinance Law. Consider NGOs and international institutions with special interests as co-signers for commercial bank loans directly to migrant workers
- Remittances: Promote mobile banking as a low-cost option to wider branching networks and reduced transactions costs; allow service providers to use networks of agents to offer and maintain their products and to sign-up new customers.
- Insurance: Promote simplified application and claim procedures, as well as the insurance product itself to meet the needs of migrant workers and their family members.
- Awareness: Improving financial literacy levels is vital to improve migrant workers access to formal financial services. This includes informing migrant workers and their household of the available options for services like remittances and cheaper sources of credit through financial literacy training.
- Institutional reforms: reconsider policies for licensing and supervision of Migrant workers recruitment agencies (PPTKIS); revoke the licenses of under-performing PPTKIS to improve supervision; make greater use of independent external stakeholders such as NGOs and industry associations to encourage better self-regulation; consider joint-venture PPTKIS with a foreign partner to safeguard interests of the migrant workers while they are overseas.
- Foreign affairs: Re-negotiate Memoranda of Understanding (MoUs) with host countries; adress specific matters such as acceptable forms of identification for migrant workers to access financial services abroad, and exemptions to KYC regulations for small remittances; introduce better counseling services for migrant workers through GoI’s embassies; consider encouraging third parties (such as NGOs) or recruiting expatriate Indonesians on a volunteer basis for such kind of services or consider out-sourcing it to the private sector through a competitive bidding process.
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