10 Facts to Know About OFW Remittances: Can Digital Money Help Reduce Fees?

Overseas Filipino Workers (OFW), estimated at around 2 million temporary workers, are often referred to as the “Bagong Bayani” (modern day heroes).

That’s not the whole story. Their numbers and estimated status are only an indication of a bigger picture. While most have become naturalized citizens or permanent residents in their adopted country, a significant portion of their overseas earnings are sent home in the form of remittances.

As a result, the Philippines consistently ranked among the top recipients of remittances. Here’s what you need to know about OFW remittances:

#1. There are 10 million Filipinos abroad

Officially, there are 2 million people listed as OFW, but the total number of overseas Filipinos (including their families) is estimated to be 10 million, or about 10% of the country’s population. This is equivalent to 18,382 fully loaded Airbus A380s.

Most maintain close ties to their homes and regularly send money to loved ones. Total remittances – according to the country’s central bank (Bangko Sentral ng Pilipinas, BSP) reached a record $34 billion in 2021 – and account for a significant portion of the country’s foreign exchange earnings.

#2. What it means to be an OFW

To be a bona fide OFW means to be an official member of the Philippine Overseas Employment Administration, now under the Department of Migrant Workers (DMW).

Under Republic Act No. 11641, which created the Department of Migrant Workers (DMW), the following agencies will now report to the department to address the concerns of Filipino migrants:

  • International Labor Affairs Office
  • OFW National Reintegration Center
  • National Maritime Polytechnic School
  • Philippine Overseas Employment Administration (POEA)
  • The Office of the Social Attaché
  • All Philippine Labor Offices Overseas (POLO)

Unlike OFWs, Overseas Filipinos (OF) refers to those who have permanent resident status or who have acquired another nationality and retained their Philippine nationality (under RA 9225 or the maintaining and reacquiring citizenship). A “Balikbayan”, on the other hand, comes from the word “balik” (“return | return”) and “bayan” (country | nation) – usually means “back to basics”, regardless of citizenship status.

#3: OFW transfers: 4th highest in the world

The Philippines received a record $34 billion in remittances in 2021, making it the 4th largest remittance recipient in the world. For many decades, the country (population: 110 million) has consistently ranked 4th among remittance-receiving countries, behind India, China and Mexico.

$34b

value of foreign currency remitted by Filipinos abroad in 2021u

Non-resident Indians (NRIs) sent home $87 billion in 2021, according to a UN report, but India (population: 1.38 billion) is almost 13 times more populous than the Philippines.

Image Credit: Gulf News

#4: Huge Source of Foreign Currency

Remittances represent the equivalent of one-third of the country’s total export earnings. Personal, cash or in-kind remittances between families totaled $34.88 billion in 2021, up 5.1% from $33.19 billion, according to BSP, the central bank of the Philippines. in 2020.

By comparison, the Asian country earned $101.45 billion in 2021 from exports of goods and services. Its main exports are electronic products (42%), other manufactured products (10%) and wood products and furniture (6%). The Philippines is also the world’s largest producer of coconuts, pineapples and abaca (hemp).

#5: Remittances boost the national economy

Money sent home by OFWs ends up directly in the hands of people and households across the country, resulting in a “multiplier effect.”

Among the ways remittances help the local economy:

  • Stimulate domestic demand | consumption (through the purchase of food, consumer goods, transportation, healthcare, property, insurance, other services, etc.)
  • Facilitate access to credit
  • Stimulate asset accumulation and business investment
  • Financing private consumption by increasing purchasing power
  • Alleviate credit constraints of unbanked households (especially in poor rural areas)
  • Lighten the burden of public finances
  • Financing education
  • Promote economic growth
  • reduce poverty

#6: Forex conversion costs and margins

To attract customers, some remittance companies | banks offer “zero fees” or “no commission” – but customers are then charged according to their increased exchange rate.

Depending on the money transfer service you choose and the amount of money you send, the exchange rate determines the value of one currency against another.

For example, at the time of this writing, Friday, July 29, 2022, the peso-dollar exchange rate was Php 55.7220 to $1, according to the BSP Reference Exchange Rate Bulletin. When sending large sums of money, even a small rate change can have a significant impact.

#7: Exchange rate: Php vs US$

Data on the exchange rate of the Philippine peso against the US dollar is updated monthly, with data available dating back to January 1945 to present. The peso reached an all-time high of Php2 against $1 in January 1962.

In 1970, the exchange rate fell to Php 6.43 against $1. It dropped further to Php7.77 in 1980; fell to Php19.030 on December 31, 1985; at Php28 against $1 on December 31, 1990. The US dollar reached an all-time high of Php56.341 against $1 against the Philippine peso in October 2004 and settled at Php55.7220 against $1 on Friday July 29, 2022.

US DOLLARS IN STOCKS

The US Dollar hit an all-time high of Php56.341 against $1 against the Philippine Peso in October 2004 and settled at Php55.7220 against $1 on Friday (July 29, 2022).

#8: Allocation of remittance fees

The remittance fee (usually paid by the sender) covers the costs of a remittance transaction. It includes the following elements:

[a] Fees charged by the posting agent
[b] Currency conversion fee for delivery of local currency to recipient in another country.

#9: Cost to send money to the Philippines: $4 per $100

According to a World Bank report published in December 2021, the average cost of sending $200 to the Philippines from the United States is around 4% of the total amount sent. This means that your recipient only receives $96 for every $100 sent.

Meanwhile, an IMF paper published in April 2022 analyzed data from 365 “corridors” to document temporal and national variations in remittance fees. Although a general reduction in these fees has been observed over the past 10 years, the IMF noted that the goal of fees below 3% has not yet been achieved in many corridors.

Typical payout fees

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#ten. Lower transfer fees “possible”

The same IMF report said they were looking at ways to bring the average fee for transferring funds around the world to less than 3%.

In general, lower remittance fees are associated with (or made possible by) lower risk due to the stability of fixed exchange rates and paying over the internet rather than cash.

Currently, two factors are associated with higher remittance fees: higher transaction costs charged due to a more rural population in the sending country, and lower scale (fewer amounts sent). In general, remittance corridors dominated by banks and few players are characterized by higher fees, the IMF noted. If internet payments become the norm for remittances, fees will be further reduced, the Fund said.