By Bianca Cuaresma
CASH remittances to the country sent by Filipino migrants back home have long been a source of the economy’s strength, with billions of dollars being pushed into the country’s cash stream annually as fresh fuel.
In 2016 cash remittances coursed through banks alone hit $26.9 billion for the year, growing by 5 percent from the previous year’s total.
Latest data from the Central Bank also showed cash sent by Filipino migrant workers beat the seasonal slack in January to grow faster than the expansion in the holiday season.
In particular, cash remittances coursed through banks in January this year grew 8.6 percent from the same month in 2016 to hit $2.17 billion.
This is also an acceleration from the 3.6 percent seen last December, where remittances are supposed to be the highest, as overseas Filipino workers (OFWs) finance holiday expenditures of their families in the Philippines.
‘Financial exclusion’
In reality, however, the volume of cash sent home by Filipino workers is significantly larger than what the Bangko Sentral ng Pilipinas (BSP) has on record, as some OFWs choose to course their remittances through informal channels, or those unregulated and unmonitored by the Central Bank.
Central Bank Deputy Governor for the Monetary Stability Sector Diwa C. Guinigundo said remittances coursed through informal channels range from 4 percent to 8 percent of the total remittance flows to the country.
This means that about $1.1 billion to $2.2 billion passes through informal couriers to the Philippines.
The move to informal channels for remittances, according to Guinigundo, posts a threat, as it decreases the reliability, certainty and safety of remittances. This is recognized as an antimoney-laundering risk, and may increase the vulnerability of financial systems.
The shift to informal channels also lessens the possibility of OFWs accessing financial services from the banks and other formal financial-service providers, this adding to so-called financial exclusion.
The World Bank also earlier said antimoney-laundering efforts resulting in the derisking of certain foreign banks prompted closures of accounts and, thus, diverting OFWs to informal channels.
Guingundo said the BSP continues to monitor the potential impact of derisking activities, particularly in major host countries where there is high concentration of Filipinos, with some Philippine banks reporting to have already opened new accounts with foreign banks, thus, making it easier for Filipinos to transfer funds.
Lowering money-transfer cost
The BSP has also been long in coordination with the Association of Bank Remittance Officers Inc. to bring down costs of formal money transfers, through the Philippine Payments and Settlements System (PhilPaSS) Remit.
“With the signing of the memorandum of agreement between the BSP and the banks, the remitting bank only pays P5 per transaction to the BSP, regardless of amount, for remittances made via the PhilPaSS Remit to transfer funds to beneficiaries’ accounts with other banks,” Guinigundo told the BusinessMirror.
“Moreover, with the use of PhilPaSS Remit, receiving banks have agreed to charge P50 per transaction as back-end fees, significantly lower than the back-end fees of P150 to P250 if remittances are not done via PhilPaSS Remit,” he added.
A local analyst said that, while fees have “significantly come down” through the PhilPass Remit, advances still need to be done in the remittance industry not only in the sending process of remittances, but also in the receiving end of money transfer.
“I’d say the use of PhilPass of the BSP has lowered the cost of sending home remittances to as low as $5 per transaction, and the clearing time has been cut down given the real-time gross settlement system. We’re a world leader in the remittance business, but perhaps the last leg of development would be to get both senders and end-users familiar with technological developments, like sending money through secure apps of banks,” an analyst said.
Flexibility
What the BSP is doing on the receiving end of the money-transfer industry, Guinigundo said in response to the BusinessMirror’s queries, is to relax particular rules to allow for more flexibility in receiving money abroad, as well as to educate OFW beneficiaries on financial literacy.
Among these include the clarification of existing regulations in the identification process of OFWs.
“The guidelines essentially relaxed the customer identification requirement to one valid photo-bearing ID issued by an official authority,” the BSP said.
The BSP is also looking into giving banks further flexibility in terms of its know-your-customer process—particularly allowing financial consumers to submit identification requirements online.
As such, government IDs and other official documents allowed for identity verification will be allowed through electronic photographic images and video-messaging service under certain conditions.
These updates, according to the Central Bank, have been approved already, and are awaiting the signature of the governor anytime soon.
Image credits: Joserpizarro | Dreamstime.com, Paul Hilton/Bloomberg News