FINANCIAL INCLUSION STRATEGY FOR MIGRANT WORKERS

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 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

A. MACRO FACTS 3

4 Indonesia s Balance of Payments ITEMS 2006 2007 2008* 2009 Q1* Q2* I. CURRENT ACCOUNT 10,859 10,492 125 2,722 2,907 1,739 A. Goods, net (Trade Balance) 29,660 32,754 22,916 6,908 8,410 7,796 - Exports, fob. 103,528 118,014 139,606 24,204 28,175 31,735 - Imports, fob. -73,868-85,260-116,690-17,297-19,765-23,939 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 350 547 294 19 29 34 B. FINANCIAL ACCOUNT 2,675 3,045-2,170 1,867-2,259 2,962 1. Direct investment 2,188 2,253 3,419 843 228-70 1.1 Abroad -2,726-4,675-5,900-1,251-1,047-505 1.2 In Indonesia (FDI) 4) 4,914 6,928 9,318 2,094 1,275 435 2. Portfolio investment 4,277 5,567 1,721 1,859 1,959 3,403 3. Other Investment -3,790-4,775-7,309-835 -4,445-371 III. TOTAL (I+II) 13,885 14,086-1,748 4,608 677 4,735 IV. NET ERRORS & OMISSIONS 625-1,371-197 -653 375-1,189 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 -7,608 0 0 0 0 0 1. Purchases 0 0 0 0 0 0 2. Repurchases -7,608 0 0 0 0 0 Memorandum: Reserve Assets Position 8) 42,586 56,920 51,639 54,840 57,576 62,287 (In Months of Imports & Official Debt Repayment) 4.6 5.8 4.0 5.4 5.7 6.1 4) 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 Current Transfer ITEMS 2006 2007 2008* 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 -1,216-1,697-1,989-600 -579-583 1. General government 22 180 189 4 14 20 1.1 Inflow 22 180 189 4 14 20 1.2 Outflow 0 0 0 0 0 0 2. 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 -1,216-1,697-1,989-600 -579-583 2.1 Workers' remittances 4,500 4,833 5,206 1,164 1,220 1,164 2.1.1 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 4,349 2.1.2 Outflow -1,060-1,171-1,412-404 -432-440 2.2 Other transfers 341 91-31 -46-34 -8 2.2.1 Inflow 497 617 545 150 114 135 2.2.2 Outflow -156-525 -577-195 -148-143 * Provisional figures 2009 Q1* Q2* Q3*

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 -40-20 0 20 40 60 80 100 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q3-2009 GDP Inflasi % (y.o.y)

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008* 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 (1970 2008*) 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

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Jan-90 2004 Jan-91 2005 Jan-92 2006 Jan-93 2007 Jan-94 2008* Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 1992 Jan-02 1993 Jan-03 1994 Jan-04 Jan-05 1995 Jan-06 1996 Jan-07 1997 Jan-08 Jan-09 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008* 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 (%) 300 250 and decreasing external debt burden DSR% Debt/eksport G&S Debt/GDP WB treshold = 220% 10,000 40,000 200 150 5,000 0-5,000 30,000 20,000 10,000 100 50 0 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

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) 2000 2001 2002 2003 2004 2005 2006 2007 2008e Global WR inflows 131,519 146,793 169,546 207,280 236,351 270,504 309,137 380,050 433,086 o/w developing country 83,545 94,470 114,661 143,170 163,198 194,349 227,863 285,238 327,591 *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 60 52.0 50 40.6 40 30 26.3 20 18.6 15.1 10 0 India China Mexico Philippines France in billions of USD 45 40.6 40 35 30 25 20 18.6 15 10 6.8 7.2 5 1.8 0 China Philippines Indonesia Thailand Vietnam Source: World Bank

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 2000 2001 2002 2003 2004 2005 2006 2007 2008e Indonesia Malaysia Philippines Thailand Vietnam Source: World Bank and Bank Indonesia

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 115 90 65 40 15 (10) % 30 25 20 15 10 5 0 Country Informal Formal Professional Malaysia 141 253 2000 Singapore 236 355 2000 Hong Kong 449 674 2000 South Korea - 663 2000 Saudi Arabia 214 800 2000 Indonesia* 84 (35) (60) (85) Labor Force (left side) GDP (right side) Unemployment (right side) -5-10 -15-20 Source: Survei of Angkatan Kerja Nasional (SAKERNAS), BPS-Statistics Indonesia *Average Standard Minimum Wage (2009)

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 1,000 500 1,000 0-92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Stock (left side) WR (right side) Sumber: Bank Indonesia

Remittance on BOP 13 WR continues support Current Account with inflows on average around USD1.5 billion for each quarter (Millions USD) 5000 4000 3000 2000 1000 0-1000 -2000 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2004 2005 2006 2007 2008 2009-3000 WR Inflow Current Account (net)

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 2003 1,489 18% 0.6 47.1 19.6 81.1 2004 1,699 14% 0.7 18.1 10.3 74.1 2005 5,296 212% 1.8 34.8 24.9 203.8 2006 5,560 5% 1.5 39.4 27.5 155.0 2007 6,004 8% 1.4 31.4 26.4 150.0 2008 6,618 10% 1.3 28.7 25.3 133.9

B. BANK INDONESIA SURVEY ON REMITTANCES 15

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 Domination IMWs figures: female, married, ages 25-29 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% 15-19 20-24 25-29 30-34 35-39 40-45 46-50 51 and more (years of age) Source: National Survey on IMWs Remittance Pattern 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

<100 100-150 150-200 200-250 250-300 300-350 350-400 400-450 450-500 >500 20 - Most of IMWs received wage on the range of USD100 200 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% 2006 2008 0% 10% (monthly wage-us$) 0% Informal Formal Profesional Source: National Survey on IMWs Remittance Pattern 2008 - Bank Indonesia

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

FACTS AND CHALLENGES 22

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) 2005 2006 2007 2008 2009e 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 688 723 742 719 776 Since 2008, remittances through the bank are reported on monthly Banking Reporting System (LKPBU)

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

0,5-1 1-1,5 1,5-2 2-2,5 2,5-3 3-4 4-5 5-7,5 7,5-10 10-15 15-20 20-25 25-50 > 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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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 2008 - Bank Indonesia

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%

POLICIES 33

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

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

Policy to Educate on Banking... 36 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).

1. Policy to Educate on Banking... 37 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

1. Policy to Educate on Banking... 38 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 (www.pemagangan.com) 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 email for all migrant workers with WGTT (Working Group for Technology Transfer)- proposal & other information

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 (http://www.bi.go.id/web/en/sp001/statistik/remittance/penyeleng gara.htm) and giving Registration Mark

THANK YOU 40