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In 2006, the Manpower and Transmigration Ministry, reported 696,746 legally registered Indonesia migrant workers overseas, with official remittances recorded at USD 5.9 billion in 2007. Experts agreed that official statistics significantly underestimate both migration and remittances, linked to reporting weaknesses and significant flows of undocumented migration, particularly to Malaysia, as well as the persistent use of informal channels for the transfer of earnings abroad. It is clear, however, that the numbers are increasing annually and will continue to do so, with stronger support from the Indonesian government for migrant workers and ongoing high unemployment and underemployment levels.
In Indonesia, almost 80% are female migrant workers (FMW), typically with low education levels, coming from poorer families from a range of locations throughout the country. The vast majority work as domestic workers, often with very low pay scales, in destination countries mainly in the Middle East and Asia. Most FMW leave their families and country for economic reasons, often to escape poverty and provide an extra boost in cash to pay for children’s’ educations, housing and other needs. Most studies on this topic indicate that the majority of FMW remittances go to cover family basic needs and do not result in significant asset accumulation or better economic status upon return.
For a wide variety of reasons, FMW are vulnerable during the migration process, both in economic and social terms. The hiring process for FMW often lacks transparency, which can lead to very high unrecognized costs and financial arrangements that are not to their advantage. During placement abroad, some FMW essentially lose their legal status and freedom of movement. The remittance process itself can be risky, with a complex chain of agents and processes moving the funds from the country of destination to families, often in rural communities. While there are a wide range of institutions providing services to FMW with high interest in the remittance market, the effectiveness and impact of these financial services is a question.
Objectives
In conjunction with the forthcoming PNPM micro-credit strategy formulation, the current proposed activity was aimed at assessing past and current financial instruments available to FMWs and their families at pre-departure, placement and post-placement stages. The output of the activity will feed into the preparation and the subsequent implementation of the JSDF pilot women migrant workers empowerment program.
Methodology
The study included interviews with a wide range of institutions providing financial services to FMWs, including the migrant worker agencies (PPTKIS), commercial banks, money transfer companies (MTC) and microfinance institutions, including community banks (BPR) and cooperatives. The study found that there is no “one-stop shop” for migrant workers to meet their financial needs. While banks can provide savings accounts and handle transfers, they do not typically lend to FMWs or their families. Likewise, MFIs can provide savings and loans, but not popular for money transfers.
The study was conducted by the MICRA foundation from January to March, 2008. The methodology included the following components:
- Desk review of literature on migrant workers and related financial services.
- Targeting two geographic areas: East Java (Malang) and NTB (Lombok Tengah).
- Conducting interviews with 55 migrant workers and their families.
- Conducting three focus group discussions.
- Conducting interviews with key agencies related to FMW.
- Conducting interviews with financial institutions targeting services at this group.
Key Findings
The following is a summary of key findings on the profile of respondents from the study:
- The majority of FMW are under the age of 40, and married with children;
- The majority has educational levels below high school (over 70%);
- The reasons for choosing to become an FMW were complex and varied by region, but 54% chose MW due to difficulty in finding work (higher in NTB);
- However, in Malang, East Java, 40% reported that they chose to become a migrant worker in order to elevate social status;
- Other reasons for the choice include covering education costs, escaping domestic violence, dealing with debt;
- In this limited study, the majority of FMW surveyed had completed one trip only, which contradicts from other studies indicating that migrant work is a “serial” occupation, linking large numbers of two year assignments;
- It was found that while many FMW have no choice in destination (which is determined by the agency and requisite education levels), others based choice on following the highest wage potential, while many others listed cultural factors, including commonality of religion and language;
- Majority from East Java worked in Hong Kong with relatively higher wage structures, while majority from NTB worked in Saudi Arabia with lower wages; and
- The vast majority work in informal sector due to lack of education and skills.
The following is a list of key findings associated with financial products and services for FMW and their families:
- There are few tailored products for migrant workers available in the market;
- Banks mainly operating at district level, which can be far from FMW and their families. While banks have high interest in this market, their products for this group are limited mainly to remittances and savings;
- Banks typically offer FMW savings accounts with lower opening balances;
- It was found that while Banks do not lend to FMW and their families, they do lend to PPTKIS under differing schemes. Sometimes these funds are on-lent to FMW. Some BPR are also involved in these types of schemes;
- For money transfer there is a growing trend to form partnerships between banks and MTC to leverage MFI outreach to this population;
- PPTKIS and a few MFIs are main source of loans for this group;
- In particular, MFI placement fee loans appear more successful than PPTKIS loans, due to higher transparency and better terms, mainly related to loan tenor and grace periods; and
- Among MFI, BPR are very conservative lenders (collateral), while the few cooperatives involved in the survey appear to provide more flexible and responsive access.
The survey found that there are a number of obstacles to improved financial services to migrant workers. First, there is a high perceived level of risk around FMW and their families. In some cases, strong PPTKIS can serve as a guarantor for FMW, enabling them to access better financing. However, the quality of PPTKIS (of which there are over 400 in Indonesia) is highly varied. Often there is a serious lack of transparency and related high cost structure for PPTKIS placement fees and processes. This reduces FMW bankability and increases the associated risks for other financial institutions.
There is an additional problem of the lack of retail financial capacity for low-income people in general in Indonesia, which strongly touches on poorer families, such as FMW. Often there is a long processing and/or travel time for remittance collection, which can take up to five days, even with recognized commercial banks. While MFIs are more accessible, capital and regulatory constraints at the MFI level mean that they cannot directly provide some of the key services of relevance to FMW, most importantly remittances.
Often, there is perceived risk related to the international chain of loan repayment and collection from FMW abroad, linked to the lack of financial infrastructure in destination country, as well as perceived risks around the PPTKIS. It is clear that the formal financial sector does not effectively reach individual FMW & families, although there is strong interest in the remittance market. The lack of an efficient “One Stop Shop” for FMW financial services, combined with the low financial literacy of FMW and their families builds on their overall lack of bankability and means that financial services do not help them build a sustainable asset base to protect their families. In many cases, the situation is quite the reverse.
Recommendations
One of the objectives of this study was to feed into the preparation and the subsequent implementation of the JSDF pilot women migrant workers empowerment program. Based on the survey findings, the following is a list of the five key recommendations of programming to be included in this empowerment program:
- Financial literacy training for FMW and families before departure and after placement to include financial goal setting and planning
Standardized training programs should be developed and implemented throughout all PPTKIS to include basic financial literacy and also financial planning. Each FMW has a different earning goal, which could be related to improving the families’ housing, children’s educational attainment, dealing with existing debt or building a microenterprise. In all of these cases, basic financial goal setting and planning that includes a clear institutional strategy for remitting and saving money, as well as leveraging loans, would be a critical input.
- Building effective monitoring/grading mechanism for PPTKIS to ensure quality and transparency
The lack of transparency in pricing, contracting and overall financial transactions among PPTKIS is a strong factor in reducing the bankability and the ability of some FMW to effectively convert their earnings into a better life. While there are regulations to this effect, they are not clearly supervised or enforced. Improved consumer protection for FMW is needed.
- Building partnerships between MFIs and Banks to create “one-stop-shop” for FMW, with strong public information component
There is a trend to build financial partnerships between Banks and MTC with legal ability to engage in remittances, and MFIs with the retail outreach to the relevant populations for this market. The program could work to foster the development of meaningful partnerships, highlighting successes and promoting its expansion so that meaningful outreach of products is available to FMW and their families.
- Product development around FMW to include placement fees, remittances, savings, loans, insurance and mobile banking
The partnership trend, listed above, is in its early stages and as yet strong products with good mechanisms and the important ability to build savings and leverage with loans is missing. The program could work on building a suite of inter-related products that help migrant workers and their families take stronger advantage of the complex array of savings, loans, remittance and possibly insurance products available to them. In the case of loans, a broad range of loans could be applicable, from placement fee lending, to enterprise lending, to housing finance. Mobile phone banking is an emerging product that has proven strong relevance for low-income migrant workers in neighboring Philippines.
- Financial & technical support for MFIs engaged in pioneering product delivery for FMW
Many MFIs lack the technical capacity, including systems, human resources and capital, to rollout new products. The empowerment program could select a small number of model MFIs and work with them to develop and deliver a suite of meaningful products for FMW and their families. These MFIs could serve as models for replication throughout Indonesia, if a strong socialization component were included in the programming.
To implement this type of a program, a number of program partners would be essential:
- BNP2TKI: Can engage in monitoring, training enrichment and implementation.
- PNPM: Can help support outreach strategy to retail FI and FMW.
- Recruitment agencies and associations: Can engage in training development and delivery.
- Trade union of migrant workers: Can engage in monitoring and training enrichment and implementation.
- MFI support agencies: Can build products and banking partnerships, develop/deliver financial literacy training and support MFI product expansion.
- Selected commercial banks and MTCs: Can build products and banking partnerships with MFIs and other retail providers.
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