FINANCIAL INCLUSION STRATEGY FOR MIGRANT WORKERS

Transcription

1 FINANCIAL INCLUSION STRATEGY FOR MIGRANT WORKERS Triono Widodo Directorate of Economic and Monetary Statistic BANK INDONESIA THE WORLD BANK INTERNATIONAL WORKSHOP ON: Jakarta Shangri-la Hotel, December 9-10, 2009

2 2 Outline A. Macro Facts - - Global Migration and Remittance Pattern - Indonesia Labor Market Issues - Indonesia Migrant Workers (IMWs) - Remittances and its Role B. Bank Indonesia Survey on Remittances - Why should BI conduct survey? - Major findings C. Finance Acess for IMWs: Challenges and Policies - Facts and Challenges (supported by Bank Indonesia Survey findings) - Policies undertaken

3 A. MACRO FACTS 3

4 4 Indonesia s Balance of Payments ITEMS * 2009 Q1* Q2* I. CURRENT ACCOUNT 10,859 10, ,722 2,907 1,739 A. Goods, net (Trade Balance) 29,660 32,754 22,916 6,908 8,410 7,796 - Exports, fob. 103, , ,606 24,204 28,175 31,735 - Imports, fob. -73,868-85, ,690-17,297-19,765-23,939 B. Services, net -9,874-11,841-12,999-2,620-2,983-3,162 C. Income, net -13,790-15,525-15,155-2,688-3,720-4,071 D. Current transfers, net 4,863 5,104 5,364 1,122 1,200 1,176 II. CAPITAL & FINANCIAL ACCOUNT 3,025 3,593-1,876 1,886-2,230 2,996 A. CAPITAL ACCOUNT B. FINANCIAL ACCOUNT 2,675 3,045-2,170 1,867-2,259 2, Direct investment 2,188 2,253 3, Abroad -2,726-4,675-5,900-1,251-1, In Indonesia (FDI) 4) 4,914 6,928 9,318 2,094 1, Portfolio investment 4,277 5,567 1,721 1,859 1,959 3, Other Investment -3,790-4,775-7, , III. TOTAL (I+II) 13,885 14,086-1,748 4, ,735 IV. NET ERRORS & OMISSIONS 625-1, ,189 V. OVERALL BALANCE (III+IV) 14,510 12,715-1,945 3,955 1,052 3,546 VI. RESERVES AND RELATED ITEMS 7) -14,510-12,715 1,945-3,955-1,052-3,546 A. Changes Transaction of Reserve Assets -6,902-12,715 1,945-3,955-1,052-3,546 B. Use of Fund Credit and Loans -7, Purchases Repurchases -7, Memorandum: Reserve Assets Position 8) 42,586 56,920 51,639 54,840 57,576 62,287 (In Months of Imports & Official Debt Repayment) ) Including privatization and banking restructuring 7) Negative represents surplus and positive represents deficit. Since the first quarter of 2004, changes in reserve assets only cover data on changes due to transaction. 8) Based on Gross Foreign Asset concept replacing Official Reserve concept since 1998 and based on International Reserve and Foreign Currency Liquidity (IRFCL) concept since * Provisional figures Q3*

5 5 Current Transfer ITEMS * CURRENT TRANSFERS, NET 4,863 5,104 5,364 1,122 1,200 1,176 - Inflow 6,079 6,801 7,352 1,722 1,779 1,759 - Outflow -1,216-1,697-1, General government Inflow Outflow Other sectors 4,841 4,924 5,175 1,118 1,186 1,156 - Inflow 6,057 6,621 7,163 1,718 1,766 1,739 - Outflow -1,216-1,697-1, Workers' remittances 4,500 4,833 5,206 1,164 1,220 1, Inflow 5,560 6,004 6,618 1,568 1,652 1,603 o/w Stock of Indonesia Migrant Workers (thou. people) 4,679 4,337 4,445 4,420 4,394 4, Outflow -1,060-1,171-1, Other transfers Inflow Outflow * Provisional figures 2009 Q1* Q2* Q3*

6 6 Macroeconomic Indicators GDP and Inflation IDR: Foreign Exchange 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 Jan-86 Apr-87 Jul-88 Oct-89 Jan-91 Apr-92 Jul-93 Oct-94 Jan-96 Apr-97 Jul-98 Oct-99 Jan-01 Apr-02 Jul-03 Oct-04 Jan-06 Apr-07 Jul-08 Oct-09 Rp/USD Q GDP Inflasi % (y.o.y)

7 * In the last four decades, it has been structural changes in Indonesia s BOP. Pre-crisis, lower BOP surplus was in line with persistent current account (CA) deficit. Post crisis, CA becoming surplus caused by significant drop of import as a result of Rupiah depreciation and economic contraction. Structural change caused acceleration of reserve assets. 7 million USD 20,000 15,000 10,000 Indonesia s Balance of Payment ( *) Current Account Capital & Financial Accout Overall Balance Reserve Assets (RHS) CA deficit CA surplus million USD 60,000 50,000 40,000 5,000 0 (5,000) (10,000) 30,000 20,000 10,000 (15,000) Pre crisis Post crisis 0

8 Jan Jan Jan Jan Jan * Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan Jan Jan Jan-04 Jan Jan Jan Jan-08 Jan * 8 The ability of Indonesia external sector to absorb external shock tends to improve.... Current account surplus supported by adequate reserve assets. Million USD 20,000 15,000 Current Account Official Reserves (RHS) Million USD 60,000 50,000 (%) and decreasing external debt burden DSR% Debt/eksport G&S Debt/GDP WB treshold = 220% 10,000 40, , ,000 30,000 20,000 10, WB treshold = 80% WB treshold = 20% -10,000 0 helped mitigate the impact of external shock on exchange rate. Rp/USD 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

9 Global Migration and Remittance Pattern 9 The movement of migrant workers around the world tent to increase as well as global remittances. Global Remittance Flows in 2008 * (in billions of USD) e Global WR inflows 131, , , , , , , , ,086 o/w developing country 83,545 94, , , , , , , ,591 *Remittance flows include workers remittances (WR), compensation of employee (CoE), dan migrant transfers; Recipient Countries of Remittance in 2008 (Global) Recipient Countries of Remittance in 2008 (Asia Pacific) in billions of USD India China Mexico Philippines France in billions of USD China Philippines Indonesia Thailand Vietnam Source: World Bank

10 Global Migration and Remittance Pattern 10 In South East Asia region, Philippines is the largest recipient of WR, followed by Vietnam, Indonesia and Thailand. 20,000 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Millions USD e Indonesia Malaysia Philippines Thailand Vietnam Source: World Bank and Bank Indonesia

11 Indonesia Labor Market-Issues 11 - Supply of labor force outnumbered economy absorption. Unemployment rate averagely at 7.96 % for the last 10 years. - Domestic wages far below than destination country Labor Force Wage Gap to Destination Country (USD) million (10) % Country Informal Formal Professional Malaysia Singapore Hong Kong South Korea Saudi Arabia Indonesia* 84 (35) (60) (85) Labor Force (left side) GDP (right side) Unemployment (right side) Source: Survei of Angkatan Kerja Nasional (SAKERNAS), BPS-Statistics Indonesia *Average Standard Minimum Wage (2009)

12 Indonesia Migrant Workers (IMWs) 12 As of 2008, IMWs stock 4.4 million people and the remittance reached USD6.6 billion. Thousand Mill of USD 5,000 7,000 4,500 6,000 4,000 3,500 5,000 3,000 4,000 2,500 2,000 3,000 1,500 2,000 1, , Stock (left side) WR (right side) Sumber: Bank Indonesia

13 Remittance on BOP 13 WR continues support Current Account with inflows on average around USD1.5 billion for each quarter (Millions USD) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q WR Inflow Current Account (net)

14 Remittances Role 14 -WR keep rising and play more significance role as alternative external sources Year Level Growth Rate Remittances as % of: (in US$ Bil) (%) GDP FDI Services, Official Inc & CT Aid ,489 18% ,699 14% , % ,560 5% ,004 8% ,618 10%

15 B. BANK INDONESIA SURVEY ON REMITTANCES 15

16 Why should BI conduct the survey? 16 To improve statistics quality on IMWs remittances and contribute to remittances policy formulation Background: BI is the only Balance of Payment statistics compiler in Indonesia, and one of BOP items is Workers Remittances (WR). Currently, estimation on Remittance is based on. It requires updated condition on remittance pattern Socio economic consequences of remittances is interesting Purpose of study: Gaining updated data/information on IMWs remittances pattern, in order to improve estimation on remittance inflow in BOP statistics. Investigating the impact of IMWs remittance on socio economy. Investigating relevance issues in purpose to suggest or build up implemented policies from related institutions.

17 17 Domination IMWs figures: female, married, ages years old, & poor education level Gender & Marital Status Respondent s Age 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1.2% Not Attending School 31% Male 69% Single Married 23% Background Education 33.7% 5.1% Elementary school 31.1% 2.3% 0.9% Junior high school Graduated 23.7% Senior high school Not graduated Female 77% 1.1% 0.6% Diploma University 30% 25% 20% 15% 10% 5% 0% 1.5% 15.9% 27.4% 22.3% 17.4% 10.9% 3.0% 1.4% and more (years of age) Source: National Survey on IMWs Remittance Pattern Bank Indonesia

18 Reasons working abroad & type of job 18 - Primarily is to get higher income - Type of Job: Formal sector (mostly in South East Asia) and Informal Sector (mostly in East Asia & Middle-East) Reason working abroad Type of job - region Get higher income Collecting capital to open new business Additional income for family Limited job 29.5% 29.0% 25.1% 78.5% 100% 90% 80% 70% 60% 1% 1% 1% 8% 63% 32% Professional Offered by family, friends, or neighbourhood Offered by PJTKI/PPTKIS 17.8% 8.1% 50% 40% 30% 66% 91% Formal Informal Get some experiences Others 4.5% 3.7% 20% 10% 0% 36% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% South-East Asia East Asia Middle-East Source: National Survey on IMWs Remittance Pattern Bank Indonesia

19 Preparation and placement 19 Information on job opportunity abroad is primarily from relatives/friends and sponsor, while role of local government labor agency limited Source: National Survey on IMWs Remittance Pattern Bank Indonesia

20 < > Most of IMWs received wage on the range of USD per month. - Percentage of salary sent home is less than 50% of the wages - Salary received Remittance pattern 30% 25% 20% 15% 10% 5% 5% 25% 28% 12% 9% 4% 3% 5% 3% 6% 60% 50% 40% 30% 20% 50% 44% 40% 36% 20% 34% % 10% (monthly wage-us$) 0% Informal Formal Profesional Source: National Survey on IMWs Remittance Pattern Bank Indonesia

21 C. FINANCE ACCESS FOR INDONESIA MIGRANT WORKERS: CHALLENGES AND POLICIES 21

22 FACTS AND CHALLENGES 22

23 1. What s? Remittances transmitted through banks, as reported by BI s monthly banking reporting system, looks relatively low (22% of the overall WR inflow) and its stable during the last three years. Cash remittances via banks has not significantly improved for the last three years. 23 (Millions of USD) e WR 5,296 5,560 6,004 6,618 6,429 Remittance Chanel Via Banks 1,118 1,146 1,102 1,636 1,590 Via Non Banks 4,178 4,414 4,902 4,982 4,839 Type of Job IMW Formal 1,801 1,779 2,065 2,212 2,139 IMW informal 2,807 3,058 3,198 3,687 3,514 IMW profesional Since 2008, remittances through the bank are reported on monthly Banking Reporting System (LKPBU)

24 24 Surprisingly, field survey revealed 82% of respondent survey remittance was mostly done through banking services (82%). Remitter to Indonesia Non Bank 18.1% Bank 81.9% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

25 25 - Most workers who did not use banking services made remittance through friends (46%) - The rest other formal channels: post office, money changer & remittance agent The list remitter (non-bank ) Trust to a friend, relative or neighbour 46.4% Money remittance operator 28.3% Money Changer 22.9% Remittance agent 4.8% Trust to PPTKIS 0.9% Employer 0.9% 0% 10% 20% 30% 40% 50% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

26 0, ,5 1, ,5 2, ,5 7, > 50 Remittance cost - Transfer cost varied & uncompetitive (USD3 - USD8) per transfer 26 Transfer cost Problems in remittances in host country 30% 25% 26% 22% Bank Non Bank High expenses The distance of bank location 36.6% 34.1% 20% 15% 18% 14% 16% Difficult to obtain permission from employer Strick administration requirement 15.9% 23.2% 10% 5% 0% 8% 1% 3% 3% 3% 3% 2% 1% 11% 9% 9% 7% 8% 6% 6% 3% 3% 1% 2% 1% 2% 1% 1% Cheated by employers Unable to write Fear of being suspected by Authorities 1.2% 3.7% 6.1% 0% 10% 20% 30% 40% US$ Source: National Survey on IMWs Remittance Pattern Bank Indonesia

27 Time Received Remittances Time received transfer was 4-5 days, & bank s money transfer faster than non bank 27 Time received remittances Problems in remittances in home country (Indonesia) Days Frequent late arrivals of remittances 80.7% 4,80 Average 4,79 Incorrect bank account number 20.7% 4,73 Complicated procedure to withdrawal 9.3% 4,69 Bank account is closed 1.4% 4,66 The distance of bank location 0.7% 4,59 ID Cards have expired 0.7% Bank Non Bank 0% 10% 20% 30% 40% 50% 60% 70% 80% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

28 Banking services 28 The main reason for IMWs does not send their money through the bank due to limited information and knowledge The complexity of banking procedure 40.1% IMW doesn't understand about remittance procedure via banks The distance of bank location 24.7% 28.6% The remittance fee is more expensive 14.3% trust the money to a friend, relative or neighbour 11.8% IMW doesn't have legal documents 3.8% The amount of money to be transferred is small 1.7% Afraid of getting caught by police 1.4% 0% 10% 20% 30% 40% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

29 2. What is the Bank role on financing IMWs preparations? 29 Mostly is using IMWs own money (58%), or combine with other sources Source of financing PJTKI/ PPTKIS 9% Share by PPTKIS and the worker 6% Partly borrowed from PPTKIS 7% All borrowed by PPTKIS 20% All paid by worker 58% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

30 2. What is Bank role on financing IMWs preparations? 30 The sources of own money (with the share 58% in previous page), mostly come from money lender. Composition of own financing Other Loan 20% Own Money 9% Bank Loan 17% Co-operative Society Loan 13% Sponsor/ Agent Loan 14% Money Lender/Loan Shark 18% Friends/ Family/ Neighbourho od Loan 9% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

31 3. What are the expected Bank roles for Returning IMWs? 31 In addition to simplifying the withdrawal of remittances, returning IMWs expects to have loan access to develop small business after returning home Simplify the withdrawal of remittances 45.0% Offer working capital loans to post employment workers 23.8% Provide loan for departure preparation 16.3% Provide money management 16.3% 0% 10% 20% 30% 40% 50% Source: National Survey on IMWs Remittance Pattern Bank Indonesia

32 4. What types of training are expected by IMWs? Most of respondents expects to have a training in entrepreneurship and fashion design 32 Entrepreneurship 40.1% Fashion Food Making 15.6% 19.6% Foreign Language skill Blue collar skill (carpenter, construction, etc) Mechanics training Agriculture Financial management Electronics Cattle farming Computer 9.9% 7.9% 7.4% 5.9% 4.6% 3.9% 2.4% 2.0% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

33 POLICIES 33

34 Policies launched by Bank Indonesia. 34 BI various policies towards migrant workers (direct/indirectly): on banking, payment system, statistics, enrichments,... BANKING SECTOR, focus on banking customer education incl. to migrant workers (under Indonesian Banking Architecture) PAYMENT SYSTEM SECTOR, focus on mapping remittance services provider before requesting them to register its business operation RESEARCHS and STATISTICS, conducting regular field survey and macro-micro researchs OTHER, involving enrichment program for pre returning IMWs abroad on the money management and entrepreneurship

35 1. Policy on Banking Sector 35 One pillar of Indonesian Banking Architecture is EDUCATION Healthy B anking S truc ture S ound, strong, and efficient banking system to create financial system stability for promotion of national economic growth E ffec tive R eg ulatory S ys tem Independent and E ffec tive S upervis ory S ys tem S trong B anking Indus try Adequate Infras truc ture R obus t C ons umer P rotec tion Programs under Pillar 6 1. Product Transparency 2. Complaint Mechanism 4. Education 3. Dispute Resolution P illar 1 P illar 2 P illar 3 P illar 4 P illar 5 P illar 6

36 Policy to Educate on Banking Banking Education Working Group Established by leading commercial & rural banks, leading non-bank credit card issuer, and associations of banks and credit card issuer, facilitated by Bank Indonesia Bound by the commitment to conduct financial education in concurrence with the Indonesian Banking Architecture program Signed by all members on June 14 th 2007, witnessed by all members and consumer organization Output: The Blueprint for Banking Customer Education; Education materials (i.e. brochures, pocket book and comics banking product s and services); Other supporting materials (i.e. logo, jingle, jargon & trainer).

37 1. Policy to Educate on Banking Banking Education for Migrant Workers I. Conducted under the coordination of the Coordinating Ministry for Economic Affairs (other members: Ministry of Finance, BNP2TKI, BI, BNI, BRI, Bank Mandiri, BCA, Insurance Association, etc): - Pre-employment and post-employment workshops on banking education including remittances; - Migrant workers related workshops on banking education and remittances for institutions; - Financial education implementation (2008): Indonesia NTB and Mataram Blitar, Malang and Surabaya Indramayu and Cilacap Jakarta Malaysia in Johor Baru

38 1. Policy to Educate on Banking Banking Education for Migrant Workers II. Conducted under The Tokyo Commitment under Bank Indonesia Tokyo Representative Office Coordination: 1. Post Arrival Orientation) entrepreneurship program & web site ( 2. Post Return Job Training in progress Develop entrepreneurship ex-migrant worker Attachment (YDBA); Forum discussion: license & funding, and regional potential product. 3. Consultation Regular enrichment and workshop for migrant workers in Japan (Kenshusei) focusing on money management, remittances, entrepreneurship and drafting work contract; Big Event banking education workshop for migrant workers (Tokyo, Osaka and Hong Kong); Consultation by for all migrant workers with WGTT (Working Group for Technology Transfer)- proposal & other information

39 39 2. Policy on Payment System Sector 1. Managing and regulating the business of non bank remittance service provider 2. Simplifying registration process: - at any BI s offices (head or regional offices) - no charges - minimal requirements - 2 year transition period 3. Publishing registered remitters through BI s website ( gara.htm) and giving Registration Mark

40 THANK YOU 40