The value of workers' remittances

Paul Sutaryono, Jakarta

There is a business opportunity besides tragedy in illegal migrant workers. Every month most migrant workers send money to their spouses or relatives in Indonesia. In banking terminology, such a transaction is called remittances. How are the national banks competing to win the handling of those remittances?

Today, there are some five million Indonesian migrant workers abroad (mostly in the Asia Pacific and the Middle East), each receiving an average monthly salary of US$250. This means remittances of about $1,25 billion per month or about $15 billion (Rp 135 trillion) per year. Obviously, this means huge foreign exchange earnings for the state.

The remittances are today the focus of national banking. Why? The remittances are pleasant and attractive earnings.

If we look at both the trend and progress of international banking carefully, retail banking is the prime model for achieving operational income. The question is what exactly is retail banking.

Retail banking is a subset of commercial banking. Retail banking refers to the provision of banking services for individuals. This includes deposit taking, consumer lending for home, car and other purchases, credit card services, transaction services and even insurance and investment management services for individual clients.

Retail banking brings operational revenue for banks. National banks also enjoy such an income. It is called fee-based income.

The point is that the fee-based income is meant to offset the competitive decline in traditional corporate lending services.

In fact, remittances are one of the retail banking businesses. So what's the story? Indonesia is the biggest source of migrant workers throughout the world. Indonesia sends them to Malaysia, Singapore, Brunei Darussalam, Taiwan, Japan, Thailand, Hong Kong, Kuwait, Bahrain, Qatar, Saudi Arabia, Oman, Jordan, Greece, Yemen, Cyprus and United Arab Emirates (UAE).

The remittances sent by Indonesian migrant workers are usually in U.S. dollars. The question which will follow is how the national banks can earn the remarkable income?

Firstly, charges. When the relatives of Indonesian migrant workers take the funds through the national banks, they will be subject to administrative charges. This is one of the various incomes for the national banks. The charge is relatively small. It, however, will form a mound. It can be said that Malaysia ranks second as the source of remittances following Saudi Arabia.

Secondly, the difference in exchange rates. The remittances are mostly sent in U.S. dollars. So, when their relatives take the funds in rupiah, they will be charged in lieu of exchange. What does it mean? This means they are regarded as selling the U.S. dollar and buying rupiah. They will receive the exchange rate of the U.S. dollar against the rupiah in line with valid board rates. The difference in the exchange rates is relatively tiny in the beginning. But it will grow bigger and bigger. The key word is that it will increase in size to become attractive revenue for national banks.

Unfortunately, the Malaysian ringgit (MYR) is not allowed to go out of Malaysia. This policy has made Malaysian banks send remittances to Indonesia in rupiah.

Thirdly, the growth of funds. National banks also enjoy the funds of the remittances that go directly to their saving accounts.

There are few banks involved in handling the remittances. Let us take Bank Mandiri, BCA, BNI, Bank BRI, Bank Danamon, BII, Bank Permata and Bank Niaga as concrete examples.

Bank Niaga is one of the interesting examples to pay close attention to. The majority of Bank Niaga's shares or 52.82 percent are owned by Commerce Asset-Holding Berhad, Malaysia as a holding company. Thus, Bank Niaga as their sister company in Indonesia will receive a lot of the remittances sent by BumiputraComerce, Malaysia one of commercial banks of the holding company.

The same step was also taken by Malayan Banking Berhad (MayBank), Malaysia, which owns 91.2 percent shares of a subsidiary in Jakarta, PT Bank Maybank Indocorp. Such a business relationship is a windfall. It was followed by BNI and PT Pos Indonesia (Posindo) that agreed to work toward cooperation in handling remittances. This step is very strategic in strengthening future cooperation.

The bank can increase their market share in remittances. Why? Because Posindo has about 3,500 offices scattered in Indonesia. Posindo exists in all villages. By having a channel of distribution, the bank will be able to compete more in remittances.

In sending the remittances to remote areas in Indonesia, foreign banks called correspondent banks are often confused. Let us take Bank BRI, which has thousands of village units throughout Indonesia, as an example. The village units are under a branch. Usually, Indonesian migrant workers who are going to send money only know their villages close to the Bank BRI Village Unit -- without mentioning the names of either the city or regency. Such data may result in a delay in the payment of remittances.

Here, the correspondent banks need staff members who know those areas well. The staff members are called remittance representatives. They are basically the employees of national banks who are placed in their correspondent banks. Principally, they are responsible for marketing this remittance transaction abroad.

Fundamentally, the national banks not only place remittance representatives in their correspondent banks abroad, but they can send relationship managers as well. The latter, of course, will have more responsibilities than remittance representatives.

These strategies are potent and effective weapons to win the competition in gaining the remittances, which is growing fiercer and sharper. However, it does not end there. The more important thing is how to build the value of Indonesian migrant workers in the future?

The manpower ministry and one state-owned bank, BNI, have agreed to work together in posting, protecting and empowering them. The agreement was signed on May 26, 2004. It will enable Indonesian migrant workers to monitor their own funds opened in the bank.

Each of them is obliged to open a saving account at the bank before leaving Indonesia for abroad. By having the account, the money they send will go into the account concerned or straight through processing (STP) as mentioned above. The funds are expected to grow for a longer time to earn interest.

The main objective in the long run is that when the holders of the accounts have returned home they will have enough savings to be used as capital to start a business. Such a scheme is hoped to be able to create a better quality of life.

The Indonesian government through the bank intends to have a one-stop banking system in managing the funds sent by Indonesian migrant workers. The main point of this is to improve their welfare and the safety of their funds; improving their value to be able to enjoy a brighter future.

The writer is a banking analyst.