Related Information  

Savings and Investment Programs for Overseas Filipinos
 

BACKGROUND AND RATIONALE.

A large number of the more than 7 million Overseas Filipinos have left the Philippines for economic reasons. The Philippines has been in labor export for over 30 years now, and remittances by overseas Filipino workers and residents average around 7 billion US dollars annually. While these remittances have become the primary or substantial source for the livelihood of a million Filipino households, relieved high local unemployment, and has helped prop up the long troubled Philippine economy, it would seem that such tremendous infusions of foreign exchange over more than three decades, and the contributions of Filipino migrant workers to developed countries, has not produced a mutually beneficial impact of significance to economic development. More than 800,000 Filipinos still leave annually to find overseas employment, either reflecting the reality or the widespread perception that indeed levels of income or livelihood could not keep up with rising prices and food insecurity.

Culled from different sources, the following observations might have something to do with the continued migration of Filipinos in search  for employment: (1) Remittances have been used more for consumer spending than in financing activities that will increase the country’s productive capacity (2) Migration is selective  because it largely benefits only certain migrant families and particular industries which profit from the huge OFW market, but has not generated widespread socio economic impact or the equitable distribution of wealth. (3)Neither government nor the private sector has come up with workable initiatives that will harness or pool migrant remittances or resources into a fund that may be used to finance or underwrite activities used primarily to develop local economies, a home market, or rural and other infrastructure upon which industrialisation could take place.  OFWs make individual decisions on spending, savings and investment based on unreliable or incomplete information on the range of investment mechanisms.

Studies on migrant remittance patterns indicate a preponderance of use for:

1. Basic household needs(e.g. food, clothing, consumer goods, and daily family necessities)

2. Housing

3. Education

4. Medical Needs

5. Payment of Debts

6. Setting up of micro enterprises.

On the other hand, migrants, individually and collectively through migrant associations, are also known to contribute and support humanitarian or socio economic projects in the Philippines.  For instance in the past 13 years, the Commission on Filipinos Overseas (CFO), an agency of the Philippine government, had facilitated and monitored the inflow of at least 1.3 billion pesos worth of financial aid sent by Overseas Filipinos from North America, Europe, Australia and Asia, for calamity stricken Filipinos, in the form of medicine or medical missions, the building of schools, installation of water pumps and wells, among other projects. Given that there are an estimated 12,000 Filipino associations overseas, 4,000 of which are considered active, it may not come as a surprise that there could be a larger number of amounts remitted in similar philanthropic activities being undertaken that have not been monitored or recorded.

Why the focus on the Countryside?

Poverty Alleviation

Studies on Philippine poverty show that as of the year 2000, about 5.1 million families or 30.8 million Filipinos were still considered poor. Of this figure, about 78.8% of food-poor families reside in the rural areas, with the Autonomous Region in Muslim Mindanao, Bicol and Central Mindanao regions having the highest incidence. Relative to the total number of poor families, rural families account for 70.9%.  (Philippine progress report on the Millennium Development Goals, NEDA, UNDP January 2003) In the area of unemployment, the regions of Calabarzon, Ilocos, Central Luzon and Central Visayas have rates higher than the national average of unemployment of 11.3%.[1]

Poverty incidence in the Philippines has remained high, more especially in the rural areas.  The proportion of families with per capita incomes below the poverty threshold increased from 28.1 percent in 1997 to 28.4 percent in 2000, up by 0.3 percentage points. As a proportion to the population, poverty incidence was placed at 34.0 percent in 2000, a deterioration by 1.0 percentage point from 33.0 percent in 1997.[2]

Agricultural Growth = Rural Development

The Philippines is very dependent on agriculture.  Agriculture contributes about 20% of the Philippines’ Gross Domestic Product, and 40% of employment.  60% of the country’s 85 million population also rely on agriculture or agriculture-related industries.  Experts state that the key lies in increase in agricultural productivity through the introduction of technology and increased spending on rural infrastructure (farm to market roads, ports, electricity and telecommunications) as well as on research and development and small scale irrigation systems, as well as for basic health services, and increased capability building for microfinance and other grassroots financial institutions who serve the poor. Otherwise, the future looks stark for agriculture-dependent folks who have to contend with high food prices and the continued degradation of agricultural land due to overexploitation, pollution, pests, soil erosion and conversion of arable lands to industrial or residential uses.[3]

Rural Financial Reform

Rural financial reform is another area that may also need attention and support. Commercial banks still dominate the Philippine banking system, with 57% of the total physical network, and 90.33% of total market share based on assets. On the other hand, countryside financial institutions such as rural banks, most of which are operating with assets much smaller than commercial banks, have a higher exposure to agricultural loans (41.9% compared to 4.3% of commercial banks). The dominance of commercial banks over the financial and banking system even in the countryside has also generated an oft-repeated observation that money is not invested where it is earned.  As one noted rural banker has said, commercial banks funnel deposits made in their provincial branches to their head offices in the urban areas and lend them to big-ticket accounts, instead of being re-lent to finance countryside development.[4]

2/3 of Overseas Filipinos have Countryside Origins

The fact that 2/3 of Overseas Filipino workers originate from the countryside presents an opportunity for this sector to act as a catalyst to improve growth in the countryside and in their own communities or hometowns.[5] These activities could be in the areas of investing or opening time deposits in countryside or grassroots financial institutions engaged in lending to poor entrepreneurs, such as microfinance rural banks or NGOs, encouraging their families to join cooperatives or introducing them to basic financial or banking  products and services with these institutions,  purchasing long term bonds issued by local government units that will fund rural infrastructure projects, or simply grouping together as hometown associations and raising funds to fund socio economic projects.

ERCOF’s niche in linking Migration/Reintegration to Philippine Development

There are initiatives in both the governmental and nongovernmental sector to link migrant remittances to the reintegration of returning workers and the development of local economies. Among these are the mobilization of savings groups overseas and assisting them in enterprise identification, business skills training and psycho-social services to smooth the reintegration process. The programs of Ercof seek to direct migrant savings and investments in rural finance and infrastructure in order to help create an enabling environment for such migrant enterprises to flourish. These programs are supplemented with advocacy and awareness raising programs on personal financial planning or financial literacy, legal assistance and advice, in order to foster among migrants and their families a culture of savings and proper resource management.

ERCOF PROGRAMS.

1. Savings and Investments in Microfinance Institutions (MFIs)

Microfinance has evolved as an economic development approach intended to benefit low-income groups. The term refers to the provision of financial services to low-income clients, including the self-employed. Financial services generally include savings and credit, and some microfinance organizations also provide insurance and payment services.

Microfinance activities usually involve:

• Small loans, typically for working capital;

• Informal appraisal of borrowers and investments;

• Access to repeat and larger loans based on debt capacity and repayment performance;

• Streamlined loan disbursement and monitoring;

• Secure savings products.

Microfinance clients are typically self-employed, low-income entrepreneurs in both urban and rural areas. Clients are often traders, street vendors, service providers (hairdressers, tricycle operators), small restaurant operators, artisans and small cottage industries. Usually their activities provide a stable source of cashflow and income (often from more than one activity).

ERCOF promotes the support of microfinance activities of Overseas Filipinos as a strategy for developing local economies. Investing or making a deposit in a microfinance institution can accomplish several desirable objectives, generating benefits both to the migrants, their families and their communities in the countryside. From a savings and investment perspective, the Overseas Filipino investor can make a return better than he could get from a savings account or even a time deposit made in a bank, whether this be a foreign or Philippine based bank, and certainly more than when his money is tucked under the pillow. Present rates offered by microfinance institutions (microfinance NGOs or banks engaged in microfinance) are from 8.5% to 10% per annum for a time deposit if locked in for at least a year.  The second benefit is that it helps create a job for a poor person or create many jobs depending on the amount involved. For example, a time deposit of Php100, 000 with a one year hold out period, could generate as much as 20 jobs in one year, given the usual 6 month cycle of microfinance. Increase of business activity helps boost the economy of migrant’s hometown, province, municipality or barrio, since most microfinance institutions operate in communities and in the countryside.

Since ERCOF started the program, groups of Overseas Filipinos from Luxembourg and the Netherlands had opened time deposits with the Xavier Tibod and Xavier Punla, two microfinance rural banks located in Bukidnon and Misamis Oriental managed by its partner, Milamdec Foundation. Total amount so far mobilized is in the total of Php 700,000 or about Euro8,800. These amounts have become part of these rural banks' portfolio that are being loaned out to micro-entrepreneurs in those areas. Ercof is currently negotiating with other microfinance rural banks in those regions to expand the coverage of participating rural banks. Overseas Filipinos would naturally wish to save or invest in banks located within their own communities of origin. More information on Milamdec Foundation can be found in ERCOF's website.

Microfinance is tailor made for Overseas Filipinos who are absent from the Philippines, but  are interested to know if their beneficiaries are using remittances for the purpose they are intended. OFs linked to an MFI assures  the presence of an institution that can help their  families to be more self sufficient and less dependent on them for support, as well as be informed of savings or investment mechanisms that they could utilise in anticipation of their return to the Philippines.  Getting more migrants to be involved with MFIs allows the additional benefit of not only getting the families left behind to have access to microfinancing in cases where this is appropriate in order to start a small business or assist an existing one, but also getting them to avail of skills training, business mentoring and values formation- services which may typically form part of the total microfinance package. Such services to poor families or small microenterprises are not normally available at commercial banks which generally cater to large businesses and borrowers who can offer collateral.

Time or savings deposits made in banks engaged in microfinance are relatively secure, mainly because they are regulated by the BSP or Central Bank, and because deposits are insured by the Philippine Deposit Insurance Corporation (PDIC) up to the amount of Php250,000 for each single deposit.

On the other hand, there are Philippine non governmental organisations (NGOs) engaged in microfinance activities.  In this case, in the event that Overseas Filipinos decide to support these institutions, it must be borne in mind that investments or loans made to these institutions are not covered by the PDIC, and are not supervised or regulated by the BSP. However, there are microfinance NGOs that have a successful and proven track record of competence and repayment rates of about 96% to 100%.  Despite lack of deposit insurance and minimal government supervision,  microfinance NGOs, especially those affiliated with big microfinance networks, have come up with a policy of self-regulation and the review and application of stringent standards.

2.      Overseas Filipino Countryside Development Fund.(OFCDF)

Republic Act No. 7160, otherwise known as the Local Government Code or the Decentralisation Act of 1991, was enacted within the context of democratizing the polity, dispersing power and autonomy from center to local, to enable local governments to become competitive in the international market as well as to encourage local governments to become more assertive and effective in articulating concerns of their own community. In the years that had passed, one of the lessons learned was that decentralization could not become meaningful unless there is financial decentralization. While there had been initial resistance on the part of local officials, progress had been made in encouraging local government officials to depend more on their own resources rather than on political patronage for the advancement of local concerns. (Dr. Alex B. Brillantes, Devolution and Decentralization in the Philippines; Some Indicative Topical Action Points, Issue paper  delivered at the IFAD Consultation Workshop on Country Strategic Opportunities Paper: Philippines, 27 October 2004, Philippines;

There are now an increasing number of local government units(LGU)s who are learning the tools of fiscal autonomy or sourcing funds for infrastructure projects using their internal revenue allotments(IRA) as guarantees for a loan facility or for a local government bond issue. With the help of professional financial managers, at least 10 LGUs had been able to build improvements such as ports, wharves, public markets and other revenue generating projects through the issuance of their own bonds guaranteed by their IRAs, or the amounts regularly received by them from the national government as their share of tax collections.

What relevance does this have to Overseas Filipinos?

As previously mentioned, money has been sent home by migrants to their families for basic family needs, housing, education, medical expenses, setting up of small businesses, and other related expenditures. Billions had likewise been donated for scholarships, schools, calamity assistance, schools, medical missions and other humanitarian causes. Savings or money left over, are then deposited into banks through savings accounts, time deposits, government securities, and other deposit instruments offered by both Filipino and foreign financial institutions. Savings are also deposited in other non-bank forms such as savings and loan associations (paluwagan), lending investor institutions and other schemes that may also pay interest. Banks aside from offering remittance and banking services, also include related services, such as insurance, housing, appliance or car loans, credit cards in an effort to cross-sell their products. Insurance companies today offer life insurance and pre-need packages which have cash guarantees.

There are two common denominators to these savings and investment choices-the interest rate and the return of the original amount deposited or invested.  But there are several factors that are considered each time an investment decision is made, and these are:

• Getting the original principal amount back(safety of the original amount)

• The length of time it would take to get your original deposit back

• Where the money is used to generate the income required to pay for the interest and to pay back your original deposit.

Given all these, one is still uncertain whether banks or financial institutions use its funds for the benefit of your hometown towards generating livelihood opportunities for your family members. One does not know whether your deposits or investments benefit the community directly or the manner in which they benefit. It makes sense to consider these as important, considering that the amount of remittances one sends could increase in time, if the general economic environment within the community does not improve, as livelihood opportunities remain limited, unemployment remains high and wages do not keep up with rising prices. This is where the Overseas Filipino Countryside Development Fund (OFCDF) shall focus.

What is the Fund all about?

The OFCDF offers an alternative to just depositing money into a bank, financial institution, savings and loan association or merely making donations.  It offers the following:

• Direct control over where your savings or investments go.

• An opportunity to directly assist your hometown, municipality, province or region, through the financing of development projects, family or individually owned microenterprise business.

• Creation of more employment and a brighter future for families, as the proceeds of the bonds, usually in the minimum aggregate amount of Php50 million, are used to fund big infrastructure projects such as agricultural projects, micro-enterprise financing, food processing and production facilities, cold storage and supply chains, marketing linkages, tool implements, machinery and equipment, health and medical facilities, fish and RORO ports, public markets, land based transportation hubs for people, goods and services, educational and training facilities, and other projects that give revenue to the government and have a multiplier effect on employment and commercial activities.

• A fair return on investment over and above existing investment rates which the migrant-investor will have a hand in setting.

The development of the fund starts with the identification of the hometown project by OF barangay, municipal and provincial groups or associations. When enough projects are identified, these projects and/or investments will be combined or pooled into a special purpose vehicle or special purpose trust properly directed, managed, invested and reinvested to create returns to migrant investors.

Although project amounts are typically in the minimum of Php50 million, one will be able to invest a minimum amount of US$100, although it would be advisable for small individual investors to combine their investments under one block. Combining small investments have advantage, some of which are:

·        Individual investors can have influence over the terms and conditions of investment, particularly on the management of the project, and the direction of investments;

·        It facilitates the eventual remittance of money or funds into the Philippines, into the project or for participation in local government bonds issues.

·        Consolidating investments can help document one’s investment and participation in the project.

ERCOF’s role in this undertaking is the conduct of awareness raising and facilitation and mobilization of potential savers and investors among Overseas Filipino associations and OF families on LGU bonds. ERCOF and its partner Preferred Ventures Corporation(PVC), a financial advisory firm with extensive experience on LGU bond floats, help identify and develop projects, while PVC will originate, design, structure and package the projects into viable investment opportunities. All the details regarding the features and procedures of participation in the microfinance program or LGU bonds, including updates and complete summaries of the projects, will be posted on the Ercof website or distributed to participating groups in various countries. More detailed information could be accessed by contacting Ercof directly, or through an investment flyer that will be uploaded on this website at the appropriate time.

3.      Financial Literacy and Financial Planning for Overseas Filipinos.

The record of the Overseas Filipino as a spender and impulse buyer is almost legendary. But then so is the Overseas Filipino’s passion for helping those in need and carrying out their responsibilities towards their family members, including  those in the extended family and circle of friends. There is overwhelming anecdotal evidence about migrant earnings from contracts or even life savings being lost or  wasted due to spending on non-essentials or erroneous business decisions, leaving the financial status of the migrant or his family no better than before working abroad. Despite their heroic effort to leave and work in often dangerous, unfamiliar or exploitative foreign work environments, sober and judicious mindsets on wealth management has given way to impulse and unplanned spending. Studies indicate that these happen either as a way of compensating for the feelings of guilt from their long absence and inability to give personal attention to family members left behind, a way of flaunting their new-found abundance of wealthy, or simply the manifestation of an inherent lack of financial discipline in the Filipino psyche.  Be it one or the other, Ercof believes that the introduction in its programs of modules or information on financial literacy, personal financial planning may be the key to their self-empowerment, but also to the empowerment of the communities in which they live.

Ercof has identified two sources of these materials on migrant financial planning, and encourages not only Overseas Filipino Workers but also the general public to get seriously acquainted with the principles and guidelines contained in these two publications. Information not only in ways of getting hold of these books, but also participating in regular workshops or orientation seminars organized by Ercof in coordination with our two partners, may be done by contacting Ercof.

"Wealth within your Reach, Pera Mo Palaguin Mo!" by Francisco J. Colayco

The main message is financial independence is within one's reach. If today, one is able to generate income, one has the capital and one can grow it! But one must act now!

This book will demonstrate the means to achieve 'Kalayaan sa Kakapusan' (KsK) that are available to anyone who is willing to learn and avail of them. Readers are assured that the required tasks are not at all difficult, that all it takes is your commitment to learn to save and provide for your future. This book is the first in a series that will explain the fundamental rules of wealth generation, income and debt management.

People need to be aware that they have to prepare for their personal and their family's financial future. Achieving financial well being is not an option. It is an obligation. It is hoped that in some way, the book will help to fulfill that obligation.

Going back to the basics of personal financing has never been as fun. Mr. Colayco manages to chat with his readers into an otherwise difficult journey of self-discovery with his delightful insights on the very serious subject of money.

This book's message is clear and simple: financial independence is within the reach of anyone, even those who struggle with economic difficulties. Readers will walk away from this book with ideas and tools that can be used immediately.

This book fills a need that has always been there but has not been really paid much attention to. As it needs to inform, it also inspires, encourages and gives hope.

The author uses simple, straightforward talk. Shifting effortlessly from English to Pilipino, he puts finance in a much simpler light, very understandable to the OFWs who can develop a culture of entrepreneurship in our country.

"Pwede Na! The Complete Pinoy Guide to Personal Finance" by Efren Ll. Cruz

Are you living payday to payday, never quite moving forward, weighted down by credit card debt, and just barely getting by?

This is the book that can put you on the right path. Not a pyramid investment scam. Not a quick guide to making the past buck and just as quickly losing it. But a solid guide to the principles of personal finance as applied to the Philippine situation.

Personal financial planning is a guide to a relatively comfortable way of life. You may not get rich with this guide. Then again, getting rich does not necessarily mean living comfortably either, especially when money becomes an obsession. The road to financial freedom may be difficult, and  may at times lead back to square one, the Pinoy should take heart from "A Winner's Creed" which said, "Life's battles don't always go to the stronger or faster hand; They go to the one who trusts in God and always think, 'I can'."

A book on personal finance is so timely during the present economic difficulties. Pwede Na's practical, step-by-step, and easily understandable approach renders it so useful for our kababayans.

It is about time that a book on personal financial planning in the Philippine setting is written, and in a style that makes it appealing to a wide readership spectrum. It makes personal financial planning delectable to those who otherwise find the subject of finance unappetizing. A must-read for all employees, professionals and businessmen.

CAPABILITY OF ERCOF AND PARTNERS.

1.   Ercof Philippines Inc. has internal capability among its trustees, consultants and staff   who collectively have extensive education and experience in finance and investment banking.   It will also draw expertise from focal persons of Ercof Overseas, many of whom are already involved in conducting livelihood and investment forums in their own host countries.

2.   Ercof Partners in the Microfinance and OFW Trust Fund Initiatives.

APPEND (Alliance of Philippine Partners for Enterprise Development, Inc.) is a nationwide microfinance network consisting of 10 microfinance organisations and OMB, the first microfinance thrift bank registered by the BSP.

As of end of year 2001, its loan portfolio was at Php529million, benefiting about 126,210 microentrepreneurs, who aside from the financial assistance, had gone through the transformational programs inherent in microfinance programs. Append is present in about 27 provinces.

MILAMDEC FOUNDATION/XAVIER TIBOD RURAL BANKS.  Milamdec Foundation based in Xavier University in Cagayan de Oro City, has long been engaged in social and financial services to farmers and agricultural growers for the past 20 years. Its microfinance services presently have about 14,000 members, a service which will be continued under a new license it has obtained for Xavier Punla Rural Bank in Pangantucan, Bukidnon, and another in Lanao del Norte, that is expected to be issued in the near future. The moving force behind Milamdec and these banks is Fr. Emeterio J. Barcelon, SJ, who is also a trustee of Ercof. Fr. Barcelon is an expert on banking and finance, and was on the faculty of the Development Academy of the Philippines, the Asian Institute of Management, at one time the Treasurer of the Ateneo University and President of the Ateneo de Davao, and Director of the People’s Credit and Finance Corporation.

PREFERRED VENTURES/DR. SIXTO K. ROXAS.  Preferred Ventures is a Philippine corporation engaged in financial advisory services to local governments in the last 7 years. 4 years ago, it successfully launched the first bond float at the LGU level, and which has been followed by several more LGU bond floats. Because of its competence and expertise in such areas, there are more than 40 projects from different LGUs in the pipeline. Among income generating projects it has created through bond issues are public markets, water systems, convention and tourism facilities, slaughterhouses, warehouses, common production facilities, container ports, cold storage and housing.

 The Chairman of Preferred Ventures is Dr. Sixto K. Roxas, a Filipino investment banker who is well respected not only in the Philippines but also internationally. He is credited with having designed in the 1970s the Philippine treasury bills as we know today, as well as major roles in the development of the Philippine capital market. Dr. Roxas contributes to the main design of the Overseas Filipino Countryside Development Fund t, which he considers as the first step of a systemic approach towards getting overseas Filipino resources to contribute to the development of local economies to jumpstart real national development.

For further information, please contact:

Economic Resource Center for Overseas Filipinos(ERCOF) Philippines, Inc.

Rm. 314, Philippine Social Science Center Bldg.

Commonwealth Avenue, Diliman, Quezon City, Philippines

Telefax;  00 632 920 3610

Email:     info@ercof.org

Ding F. Bagasao

dbagasao.ercof@gmail.com

Manuel M. Goyena

mmginmanila@gmail.com

Tony V. Ranque

tvrank@gmail.com