Informal channels capture $3B in OFW remittances, says BSP

The Bangko Sentral ng Pilipinas (BSP) said about $3 billion of remittances from overseas Filipino workers (OFWs) did not go through the formal banking system.

This amount is on top of the BSP estimated actual fund transfers of $10.3 billion by the end of 2005 from OFWs.

There are about six million OFWs and migrants deployed abroad whose level of remittances are increasing yearly. These consist of caregivers and health workers, seafarers, service staff, professional/technical workers and production related workers.

BSP Governor Amando Tetangco Jr. said remittances will continue to remain strong.

"The continued expansion in the global economy and the aging population in some advanced countries are expected to increase the demand for Filipino health workers and professionals," said Tetangco.

He noted that the BSP includes migrant workers non-bank remittances in its accounting of balance of payments figures under personal income and transfer accounts.

He said that about 20 percent of non-bank remittances pass through informal channels but beyond the BOP estimates, the actual non-bank OFW cash is higher at 30 percent. The remaining 70 percent consist of bank transfers.

"In the BOP we are using 20 percent, but we are very conservative, but it should be higher or about 30 percent of fund transfers are remitted through non-bank networks."

Tetangco said the BSP wants to register more of these fund transfers when they go through the formal channels or sent through the banking system.

In 2004, about 75 percent of cash transfers were done through the banks, while 25 percent went through informal networks. This has since has increased to 30 percent.

For the first eight months of this year, OFW remittances reached $7 billion, 28 percent higher compared to $5.47 billion during the same period in 2004. For the full year of 2004, migrant workers abroad remitted $8.54 billion, the highest recorded fund transfers since the 1970s when the first batch of migrant workers were deployed to address the acute domestic labor problem. The 2004 remittances were higher by 11.8 percent from $7.63 billion in 2003.

The BSP said that in 2006, OFW remittances will reach $11.3 billion which is more than 10 percent of the country’s gross domestic product.

For 2005 the emerging OFW remittance level is at $10.3 billion, higher than the $9.2 billion projected earlier. This is a 20-percent increase over last year‚s $8.6 billion.

BSP sees money transfers from OFWs increasing next year after banks channel more of these cash through formal networks and show higher OFW monthly reports.

Efforts by the central bank and the whole banking system to get a larger share of remittances through formal channels are expected to increase total cash from 75 percent to around 80 percent or 85 percent in the next two years.

BSP has been urging OFWs to send fund transfers through banks, which is cheaper and safer than door-to-door or other informal channels of remitting their hard-earned cash.

The BSP is also boosting measures to cut the cost of remitting funds.

Based on a survey conducted this year, service charge by "credit to account (bank)" arrangement is proven cheaper compared to door-to-door, which has the highest service charge in the fund transfer business. In the last five years, service charges have narrowed from 4.35 percent in 2000 to 1.50 percent this year.