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| Tuesday, 1 July 2003 |
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by Ian Gill, MANILA, PHILIPPINES June 2003) Microfinance Institutions (MFIs) need to get more involved in the multi-billion dollar business of workers' remittances in the Asia-Pacific region - for their own gain as well as to benefit their mainly low-income customers. This is advocated by ADB Lead Rural Finance Specialist Nimal Fernando in the latest issue of ADB's Microfinance Newsletter. Workers' remittances - the portion of overseas' workers' earnings sent back to their family in the home country - are a huge and growing business. According to the some estimates, remittances to Asia and the Pacific amounted to $27 billion in 2002. Of this, $11 billion went to East Asia and the Pacific while $16 billion went to South Asia, where they equaled 2.5% of gross domestic product (GDP). India, the world's largest workers' remittance recipient country, accounted for 62.5% of the inflows to South Asia, while the Philippines accounted for 58% of remittances to East Asia and the Pacific in 2001. Bangladesh, Pakistan, Philippines, Sri Lanka, and Thailand were also among the top 20 developing country recipients of workers' remittances in 2001. All these figures are underestimates, as remittances are also sent home in unofficial ways. "If MFIs became involved, they could help transfer funds from the overseas worker to his or her family's account at home at a cheaper rate than offered by current systems," says Mr. Fernando. "The MFI could arrange for part of the transferred funds to go into a savings account and it could also, since the family has an account and a history of transactions, provide loans to help families in emergencies or to finance income generating activities." The arrangement would also benefit MFIs, which rely heavily on interest income that can be volatile. The remittances business would reduce this vulnerability. As in the case of one microenterprise bank in Eastern Europe, MFIs could cross-sell their products to clients involved in remittances by offering special deposits, investment and other types of loans to families who receive remittances. Such expansion of their business can also help MFIs realize the scope of economies and improve efficiency and sustainability and they can pass on efficiency gains to their clients through lower prices on products and services. "More importantly, they improve the value of the institutions to the poor and low-income people," says Mr. Fernando. "The economic impact of remittances on low-income and poor households can be improved by encouraging recipients to invest a portion of the inflow in financial assets that provide them safety, reasonable returns, liquidity, and greater capacity to leverage funds." Also, MFIs can use remittances to leverage more funds in the commercial markets to finance their growing lending operations. This will enable them not only to diversify their funding sources but also increase the breadth and depth of their outreach. Over time, with increasing experience, innovative MFIs will find numerous ways of turning workers' remittances into a productive business that would contribute to their social mission and profitability. Thus, the remittance business could be a win-win proposition for MFIs and their clients. |
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