enhancing access to finance for indonesian overseas migrant...

Evidence from a Survey of Three Provinces

Enhancing Access to Finance for Indonesian Overseas Migrant

Workers:

Australia - Nusa Tenggara Assistance for Regional Autonomy(ANTARA)

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

wb20439

Typewritten Text

52058 v2

THE WORLD BANK OFFICE JAKARTA

Indonesia Stock Exchange Building, Tower II/12-13th Fl.

Jl. Jend. Sudirman Kav. 52-53

Jakarta 12910

Tel: (6221) 5299-3000

Fax: (6221) 5299-3111

THE WORLD BANK

The World Bank

1818 H Street N.W.

Washington, D.C. 20433 USA

Tel: (202) 458-1876

Fax: (202) 522-1557/1560

Email : [email protected]

Website : www.worldbank.org

Printed in June 2010

Enhancing Access to Financial Services for Migrant Workers in Indonesia is a product of staff of the World Bank. The fi ndings,

interpretation and conclusion expressed herein do not necessarily refl ect the views of the Board of Executive Directors of the World

Bank or the government they represent.

The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denomination and other

information shown on any map in this work do not imply any judgment on the part of the World Bank concerning the legal status of

any territory or the endorsement of acceptance of such boundaries.


Workers:


ii

Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers:Evidence from a Survey of Three Provinces

Acknowledgements

Acknowledgements

This report is the result of a team eff ort involving staff and consultants of the World Bank, as well as

representatives from donor agencies and agencies of the Government of Indonesia. The report team was

led by Yoko Doi with major contributions from P.S. Srinivas; Lloyd Kenward; Djauhari Sitorus; Cynthia Clarita

Kusharto; I Gede Putra Arsana; Neni Lestari; Chitra Buchori and Rodolfo Wehrhahn. The team gratefully

acknowledges government support from the Coordinating Ministry of Economic Aff airs; BNP2TKI; the

Ministry of Manpower and Transmigration; and Bank Indonesia. The Survey work was conducted by REDI.

The report was prepared under the overall guidance of Tunc Uyanik, Sector Manager, Finance and Private

Sector Development at the World Bank. Peer reviewers for the report were: Bobby Hamzar Rafi nus, Assistant

Deputy Minister of the Indonesian Coordinating Ministry of Economic Aff airs; Gillian Brown, Gender Advisor

(AusAID); and Tatiana Nenova, Senior Economist, Private and Financial Sector Development, the World

Bank.

Financial support was provided by the Dutch Trust Fund for Improving Indonesia’s Investment Climate;

the Australia Nusa Tenggara Assistance for Regional Autonomy; and the World Bank’s Gender Action Plan

(GAP).


iii

List of Abbreviations


A2F Access to Finance

ANTARA Australia Nusa Tenggara Assistance for Regional Autonomy

APEC Asia-Pacifi c Economic Cooperation

API Arsitektur Perbankan Indonesia (API)

ASEAN Association of Southeast Asian Nations

ATM Automated Teller Machine

Bapepam-LK Indonesia Capital Market and Financial Institution Supervisory Agency

BI Bank Indonesia

BNP2TKI Badan Nasional Penempatan dan Perlindungan Tenaga Kerja Indonesia

(National Agency for the Placement and Protection of Indonesian Overseas Workers)

BP3TKI Balai Pelayanan Penempatan dan Perlindungan Tenaga Kerja Indonesia

(Service Offi ce for the Placement and Protection of Indonesian Overseas Workers)

BPD Bank Pembangunan Daerah (Regional Development Bank)

BPR Bank Perkreditan Rakyat (People’s Credit Bank)

BPS Badan Pusat Statistik (Central Bureau of Statistics)

BRI Bank Rakyat Indonesia

CGAP Consultative Group to Assist the Poor

FMW Female Migrant Worker

GDP Gross Domestic Product

GoI Government of Indonesia

GTZ Gesellschaft fur Technische Zusammenarbeit

IDIC Indonesian Deposit Insurance Corporation (LPS)

INPRES Presidential Instruction

MFI Micro Finance Institution

MICRA Microfi nance Innovation Center for Resources and Alternatives

MoF Ministry of Finance

MSME Micro Small and Medium Enterprises

MMW Male Migrant Worker

MW Migrant worker

MoU Memorandum of Understanding

MYR Malaysian Ringgit (currency)

NTB Nusa Tenggara Barat

NTT Nusa Tenggara Timur

NGO Non-Government Organization

PAM Perusahaan Air Minum (Water Utility Company)

PDAM Perusahaan Dareah Air Minum (Local Government Owned Water Utility Company)

PPTKIS Pelaksana Penampatan Tenaga Kerja Indonesia Swasta (Privately-owned Indonesian

Manpower Placement Company)

PODES Statistik Potensi Desa (Village Potential Statistics)

Rp Indonesian Rupiah (currency)

SKB Surat Keputusan Bersama (Joint Ministerial Decree)

TKI Tenaga Kerja Indonesia (Indonesian Overseas Workers)

iv


Table of Contents

Table of Contents

Acknowledgements ii

List of Abbreviations iii

Table of Contents iv

Executive Summary 7

Chapter 1 Introduction 13

1.1 The Importance of migrant workers in the World, the Region and Indonesia 13

1.2 Objectives of this Report 16

1.3 Approach of this Report 16

1.4 Organization of this Report 20

Chapter 2 Profi le of Surveyed Migrant Workers and Their Households 21

2.1 Introduction 21

2.2 Results of the Village Head Survey 21

2.3 Key Characteristics of the Surveyed migrant workers’ Households 23

2.4 Profi le of the migrant workers 30

2.5 Strategic Matters Arising in this Chapter 33

Chapter 3 Migrant Workers and Financial Services 35

3.1 Introduction 35

3.2 Pre-Departure Costs & Financing 36

3.3 Remittances 39

3.4 Migrant Workers and Savings Accounts 45


Chapter 4 Surveyed Migrant Worker Households’ Use of Financial Services 49

4.1 Introduction 49

4.2 Who Saves and Where? 50

4.3 Who Are ‘Financially Excluded’ from Saving? 56

4.4 Econometric Results Concerning Access to Savings 59

4.5 Who borrows? Where? How much? And at what price? 60

4.6 Who Are ‘Financially Excluded’ from Credit? 64

4.7 Econometric Results Concerning Access to Credit 66

4.8 The ‘Truly Financially Excluded’: No Savings Account and No Credit 66

4.9 Households of Migrant Workers and Insurance 68

4.10 Econometric Results Concerning Access to All Types of Insurance 70

4.11 Migrant Workers and Their Insurance 71


Chapter 5 Summary of Gender-Based Results 75

Chapter 6 Policy Conclusions 79

6.1 General 79

6.2 Policies on Access to Savings 79

6.3 Policies on Related to Access to Credit 80

6.4 Policies on Remittances 81

6.5 Policies on Insurance 82

6.6 Broader Policy Issues 82

Annexes 85

Annex A: Comparison of Results with the Nationally Representative Survey 85

Annex B: Comparison with Bank Indonesia’s Survey Results 87


v

Table of Contents

Annex C: Analytical Results Concerning Savings 90

Annex D: Analytical Results Concerning Credit 93

Annex E: Analytical Results Concerning Insurance 97

Annex F: Special Documents Required for TKI Insurance Claims 98

List of References 99

List of Boxes

Box 1: Considerations in the Survey Design 17

Box 2: Portrait of the Typical Migrant Worker 30

Box 3: Key Features of the Recruitment Process for Migrant Workers 30

Box 4: Financing Pre-Departure Costs 37

Box 5: Indonesian Migrant Workers and Issues Concerning Mobile Banking 41

Box 6: Village Culture and Banking 47

Box 7: Migrants’ Use of Financial Services, Evidence from the Field: West Java 53

Box 8: Migrants’ Use of Financial Services, Evidence from the Field: West Kalimantan 58

Box 9: Diagnostic Review of MWs’ Insurance 72

List of Figures

Figure 1: Migrant Worker Placement, by Gender 14

Figure 2: Remittances Received, East Asia-Pacifi c Region (in millions of US$) 15

Figure 3: Forms of Saving in the Village (% of villages) 22

Figure 4: General Characteristics of Surveyed Households of Migrant Workers (in %) 24

Figure 5: Economic Characteristics of Surveyed Households of Migrant Worker (in Rupiah or %) 25

Figure 6: Household Amenities of Surveyed Migrant Worker Households ( in%) 28

Figure 7: Financial Interest & Literacy of Surveyed Migrant Worker Households ( in %) 29

Figure 8: Key Characteristics of Surveyed Migrant Workers (in %) 31

Figure 9: Migrant Workers’ Needs for Financial Services 35

Figure 10: Surveyed Migrants’ Pre-departure Costs & Financing (in %, except as indicated) 38

Figure 11: Characteristics of Remittances as Surveyed (in%, except as indicated) 42

Figure 12: Characteristics of Remittances as Surveyed , continued (in%, except as indicated) 43

Figure 13: Use of Remittance as Surveyed (%) 45

Figure 14: Financial Service Use as Surveyed (in %) 50

Figure 15: Financial Service Use as surveyed, by Province (in %) 50

Figure 16: Overlap Among Savings Providers, as Surveyed 51

Figure 17: Use of Bank Savings Accounts by Surveyed Households 52

Figure 18: Usage of Bank Accounts by Surveyed Households of Migrant Workers (in %, except as

indicated) 54

Figure 19: Usage of Bank Accounts as Surveyed, Continued (in %, except as indicated) 55

Figure 20: The Financially Excluded From Savings, as Surveyed (in%, except as indicated) 57

Figure 21: The Financially Excluded from Savings, as Surveyed continued (in%) 58

Figure 22: Overlap Among Credit Providers, as Surveyed 60

Figure 23: Use of Credit by Surveyed Households of Migrant Workers (in %, except as indicated) 61

Figure 24: Use of Credit by Surveyed Households of Migrant Workers, Continued (in %, except as

indicated) 62

Figure 25: The Financially Excluded from Credit, as Surveyed (in %) 64

Figure 26: The ‘Truly Financially Excluded’, as Surveyed (in %) 67

Figure 27: Insurance on Surveyed Households of Migrant Workers (in %, except as indicated) 69

Figure 28: More Gender-Related Results (in %) 77

vi



List of Tables

Table 1: Remittances, by Region 14

Table 2: Basic Data on Surveyed Provinces 17

Table 3: Comparative Data on Surveyed Villages & migrant workers 19

Table 4: Key Characteristics of Villages Surveyed 22

Table 5: Villages’ Use of Financial Institutions (of 50 villages) 23

Table 6: Indicators of Indebtedness of Surveyed migrant workers’ Households 26

Table 7: Cost of Remitting to Indonesia (Cost in %) 40

Table 8: International Comparison of Remittance Costs (Average Cost, in %) 40

Table 9: Sample Savings Products Off ered by Banks and the Post Offi ce 46

Table 10: Statistically Signifi cant Determinants of Access to Saving

(at 95% level of signifi cance, or higher) 59

Table 11: Statistically Signifi cant Determinants of Access to Credit

(at 95% level of signifi cance, or higher) 66

Table 12: Coverage & Documentation of TKI Insurance 71

Table 13: General Documents Required for Claiming Against TKI Insurance 73

Table 14: Comparison of Survey Structures

(* Indicates important information not covered by other survey) 87

Table 15: Comparison of Survey Results 88

Table 16: Linear Probability Regressions for Savings of Any Kind 90

Table 17: Linear Probability Regressions for Formal Savings 91

Table 18: Linear Probability Regressions for Informal Savings 92

Table 19: Linear Probability Regressions for Credit from Any Source 93

Table 20: Linear Probability Regressions for Formal Credit 94

Table 21: Linear Probability Regressions for Semi-formal Credit 95

Table 22: Linear Probability Regressions for Informal Credit 96

Table 23: Linear Probability Regressions for All Types of Insurance 97


Executive Summary

The number of Indonesian migrant workers has increased steadily in recent years. More than 800,000 legally registered Indonesian workers now go abroad each year, in addition to many more workers without legal status, particularly in Malaysia. In 2007, Bank Indonesia estimated that the total number of Indonesian workers abroad was approximately 4.3 million. Balance of payments statistics indicate that the combined total value of net remittances amounted to US$6 billion in 2008, with the gross infl ows be in considerably higher.

Nonetheless, among countries in the East Asia–Pacifi c region, Indonesia ranks third in terms of the total dollar value of remittances received (behind China and the Philippines, and comparable to Vietnam). As a proportion of GDP, the total value of remittances from Indonesian workers is considerably lower than that of the Philippines, Vietnam and Cambodia.

This report builds upon the World Bank (2009b) report, which presents a general, nationally representative examination of households’ access to fi nancial services in Indonesia. The earlier study singled out households of overseas migrant workers for further study, owing to their unique needs for access to fi nancial services and their pivotal role in poverty alleviation. This report’s higher-level Goal is to identify policy interventions that will improve migrant workers’ access to fi nancial services in cost eff ective ways. Its more immediate, primary Purpose is to inform policy-makers which sectors of society do not have access to fi nancial services and what are the constraints to broader access.

The key analytical tool of this study is an extensive Survey conducted in three provinces (East Java, Nusa Tenggara Barat (NTB) and Nusa Tenggara Timur (NTT)) from where large numbers of migrant workers originate. Although these provinces are not nationally representative, the broad issues facing migrant workers in these provinces are likely to be similar to the kinds of issues facing migrant workers and the households throughout Indonesia. The study takes a broad perspective on migrant workers’ needs for fi nancial services, including savings, remittances, credit and insurance, and suggests policy reforms to improve services in each of these areas.

8


Executive Summary

Profi le of Indonesia’s Migrant Workers and Their Households

The majority of Indonesian migrant workers are females from rural regions with lower levels of educational

attainment. The most popular destinations for migrant workers are in the Asia-Pacifi c region (especially

Malaysia) followed by the Middle East (mainly Saudi Arabia). The majority of female migrant workers with

legal status work in the informal sector as domestic helpers. Roughly half of these female migrant workers

are working abroad for the fi rst time. Male migrant workers are more likely to have a job in the formal sector,

working in environments such as factories, plantations and construction sites. Men and those working in the

Middle East are more likely to be working abroad on second or later contracts.

Migrant workers mainly come from poor households in rural areas where agriculture is the main economic

activity. In terms of religious belief, just over half of Survey respondents are Muslims, which is well below

representative national levels. This is due to the inclusion of NTT, where a signifi cant proportion of the

population is not Muslim, in the Survey. A high proportion of surveyed migrant workers’ households are at

least moderately indebted, which limits the room for narrowly defi ned policies intended simply to increase

their use of credit. A more appropriate strategy would be to increase the reach of fi nancial service providers

that off er relatively low-cost credit (e.g., banks versus MFIs and MFIs versus private money lenders).

Migrant Workers’ Needs for Financial Services

Savings Accounts: The single most important fi nancial service for surveyed households is a savings account.

A savings account provides a safe, convenient means of remitting money as well as a repository for

personal savings. A rate of ownership of a savings account is low relative to the national average, including

in representative rural areas. However, rates for the use of a savings account are much higher, because

households of migrant workers often receive remittances by bank transfer through the account of a trusted

third party. There is a strong positive correlation between income levels on the likelihood of holding savings

account. The vast majority of savings accounts are held at BRI’s Unit Desa.

At present, Government regulation makes it compulsory legal migrant workers to open a bank account

before they leave the country. Such an account appears to be a good entry point for the migrant workers

and their families to access formal fi nancial services. However, rates of utilization of these accounts are very

low, with the great majority of these accounts being inactive. Apparently, a high proportion of migrant

workers quickly abandon these accounts. There appears to be a need to improve savings products to make

them more appropriate to the needs of migrant workers and their families.

Credit: Access to credit is also important to surveyed households of migrant workers. At present, migrant

worker households seek loans from a wide variety of service providers, banks being the least popular choice.

Many migrant workers—especially females on their fi rst work contract—borrow from high cost sources

(usually their recruiting agency, known as a PPTIKS) to cover roughly 80% of their up-front expenses. There

are also signifi cant taxes in the host country; various administration fees; and, in the case studied, a large

‘guarantee fund’ that is returned to the migrant worker at the end of the contract if all goes well. In addition,

the tenor of these credits is much shorter than the migrant workers work contract, draining a large part of

the worker’s earnings during the fi rst year abroad. For their part, banks—even those that specialize in small

scale lending—believe that migrant workers are excessively high risk unless there is a local guarantor.

Remittances: Bank services for remittances are relatively expensive, but they are very popular and appear

to work reasonably well, subject to two important qualifi cations. First, it may not be easy for the migrant

workers to visit a bank during operating hours, especially if cultural norms do not encourage females to

journey outside the household independently, as in some Middle Eastern countries. Secondly, the recipient


9

Executive Summary

needs to live reasonably close to a bank branch. Unless these prerequisites are fi lled, the migrant workers

normally rely upon the employer to remit the money; they utilized other informal money transfer agencies,

or they ask a trusted third party to deliver the money to intended recipients by hand.

The cost of remittances to Indonesia is about average relative to available comparators, and there is a range

of services available to meet diff erent needs, with varying levels of speed, convenience, security, low cost,

etc. Migrant workers can reduce the cost of remittances by a third or more, just by shopping around to fi nd

a service appropriate to their needs. Of course, this implies that they understand the options off ered by the

various service providers, or can fi nd out at low cost.

Insurance: Take-up rates for insurance are low in Indonesia, with insurance being mainly regarded as a

fi nancial product for higher income, urban households. By contrast, legal migrant workers, who are required

to have migrant workers’ insurance before going abroad, come from poor, rural areas. Not surprisingly, the

current, compulsory system does not provide a high level of benefi t to the migrant workers.

This study fi nds that the current system of supervision and regulation of insurance for migrant workers is

ineff ective. This results in regulatory duplication in some areas; contradictory interpretations of claims;

policy exclusions that contradict regulations; the revocation of licenses by diff erent agencies; and gaps

in supervision. In addition, not all the benefi ts can be managed in an eff ective way through insurance

and several of the risks currently covered are related to poor performance of the PPTKIS. Furthermore, the

current system of a consortium of insurance companies using their appointed broker is expensive; it adds

administrative complexity; and confl ict of interests is involved. Moreover, mandated reporting requirements

are inadequate to determine claims’ costs and settlement delays; the quality of underwriting; and claim

patterns that could prevent fraud. As a fi nal matter in this area, data reported are not easily accessible to the

consortiums nor the public.

Who Are ‘Financially Excluded’?

Financial exclusion is high among surveyed migrant worker households (27% for savings and 59% for credit),

with the rates being considerably higher in rural areas. Survey evidence from the three provinces indicates

striking similarities among the ‘fi nancially excluded’, independent of the type of fi nancial service from which

they are excluded. The excluded tend to be at the lower end of the income distribution, at the extremes of the

age distribution and living in rural areas. The ‘truly excluded’ (that is, those with no savings and no credit)

represent slightly more than 18% of the population, which is only slightly above the national average of 17%.

This probably refl ects migrant workers’ origins in predominantly poor regions of the country, which roughly

off sets their need for a remittance channel.

Physical accessibility is not perceived as a signifi cant problem by Survey respondents, although the implicit

costs involved in travel to banking facility and waiting once having arrived appear to be substantial. Gender

diff erences tend to be small and not statistically signifi cant, with the exception that men are more likely to

use certain savings services providers than women. This said, there is some indirect evidence that supports

the view that women’s saving rates from migrant worker earnings are higher than men’s.

The data suggest a strong element of voluntary exclusion from fi nancial services, mainly for economic reasons.

For example, more than three quarters of ‘excluded savers’ state that they lack suffi cient money or a job

to justify opening a bank account. Other reasons (such as physical accessibility or high fees) are relatively

unimportant. As for ‘excluded borrowers’, roughly 75% see no perceived need to borrow. Such a high level of

voluntary exclusion is clearly made with reference to the prevailing prices of fi nancial services. It is likely that

the level of voluntary exclusion would change if the prices were to change, especially for credit.

10


Executive Summary

Another important point concerns the relationship between income and access to credit. Namely, access to

credit does increase in a statistically signifi cant way as incomes increase. However, sources of credit also change

markedly. As incomes rise, there is signifi cantly greater use of banks, but not micro-fi nance institutions and

community welfare schemes. Indicative interest rates are generally in the range of 15 to 45% per annum,

with banks and shop credit at the lower end. Rates of interest on loans from friends, neighbors and family

are at the higher end of the scale.

The Way Ahead: Policy Suggestions

Broader PoliciesThe Government of Indonesia has made a high priority of increasing access to fi nancial services for a larger

portion of the population--including migrant workers. The government acknowledges that the low level of

access to fi nancial services is a key constraint to development. It is important for policymakers to maintain

certain broad, strategic objectives when addressing issues of access to fi nancial services. Given that higher

income levels are a major determinant of access to fi nancial services, the most important strategic objective

should be the implementation of broad-based policies to raise economic growth and incomes. Likewise, it is vital

to maintain the stability of the fi nancial sector in order to ensure confi dence in the system on the part

of the population at large. Likewise, the provision of better rural infrastructure and improved public services,

including basic education and health services, would also assist lower-income populations. Policies aimed

at increasing access to fi nancial services are likely to be much more eff ective if based on the foundation of

policies aimed at sustainable growth and fi nancial sector stability.

Continuing at the broad policy level, certain institutional reforms appear to have the potential to off er

enormous benefi t. In particular, policies for licensing and supervision of migrant workers recruitment agencies

(PPTKIS) need reform. This could begin with revoking the licenses of known, under-performing PPTKIS. As

follow-up, the licensing process should be placed under the management of a Licensing Board that would

include the Offi ce of the Coordinating Minister for Economy. The number of well-functioning PPTKIS

and associations of PPTKIS could be increased with intentional overlap among jurisdictions to increase

competition. To improve supervision and to encourage better self-regulation, there could be greater use of

independent external stakeholders, including NGOs and the industry associations. The Government might

also consider joint-venture PPTKIS where one role of the foreign partner would be to safeguard the interests

of the migrant workers while they are overseas.

Also at a broad level, Memoranda of Understanding (MoU) with host countries concerning migrant workers could

be re-negotiated to address specifi c matters. The main objective would be to better balance protection of

the migrant workers with the commercial interests of the employer and the recruiting agency. Specifi c

issues include matters such as acceptable forms of identifi cation for migrant workers to access fi nancial

services abroad; and exemptions to Know Your Customer regulations for small remittances.

SavingsTurning to narrower policies, the most important fi nancial service required by migrant workers and migrant workers’ households is a savings account. Any of the regulatory reforms mentioned below (under Credit) for extending the reach of banks and MFIs would be helpful, as would be public programs to meet minimum standards of access to fi nancial services. Other possibilities include:

• The Introduction of ‘No Frills’ Bank Savings Accounts: Bank Indonesia is encouraging banks to off er very basic, low-cost savings services to all customers, including migrant workers and their households. However, many banks already off er such a service, and it will be important not to disrupt this service. It is also important to minimize the cost of regulatory compliance. In refi ning its approach, Bank


11

Executive Summary

Indonesia could set minimum acceptable standards, letting the banks decide the details of meeting those standards. Also, explicit exemptions could be permitted for banks with limited branching networks;

• A Review of the Compulsory Bank Account Requirement for Migrant Workers: The current system of requiring migrant workers to open a bank account appears to be an ineff ective means for meeting the migrant workers’ needs. The Government could consider allowing wider access to the account by permitting joint accounts with family members who will rely on the MW’s remittances and/or replacing the current, compulsory system by a voluntary system, bolstered by upgraded fi nancial literacy training.

CreditAs mentioned, surveyed migrant workers’ households are characterized by at least a moderate level of debt,

which limits the role for narrowly-defi ned policies intended to increase access to credit. A better strategy

would be to increase access to relatively low-cost sources of fi nance by encouraging the substitution of

banks for MFIs and MFIs for informal lenders. Specifi cs include:

• Encouraging the Development of More Credit Providers and a Broader Range of Providers: Almost any of the many policies advocated in the recent World Bank study (2009b) for improving access to fi nancial services amongst the general population would benefi t migrant workers and their households. To cite just a few examples detailed in that study, these include regulatory changes to encourage commercial banks to increase their branching and ATM networks and to reduce reporting burdens. For rural banks (BPRs), these recommendations include opening up ownership of BPRs to include foreign investors and NGOs; the establishment of lower tier of capital adequacy requirements for small BPRs in isolated regions; and restructured reporting and managerial requirements for small BPRs in remote areas. For pawnshops, these recommendations include opening up the state monopoly and encouraging private competition. For MFIs, these recommendations include resolving certain legal issues concerning the status of some institutions (the former LDKPs) and implementing the joint degree on microfi nance institutions, while restoring momentum to drafting a new microfi nance Law in early 2009, lead by the Coordinating Ministry of Economic Aff airs (CMEA), a joint decree was signed between the Ministries of Finance, Cooperatives, Home Aff airs and Bank Indonesia. The joint decree created a regulatory framework under existing laws to govern non-bank and non-cooperative MFIs that currently operate outside a regulatory framework. The joint decree recognize four categories of MFIs; (1) People Business Credit (BPR); (2) Saving and Loan Cooperatives; (3) Village-owned microfi nance institutions (BUM Desa); or (4) Venture Capital Companies. However, the joint decree has yet to be fully implemented.

• Co-signers for TKI Credits: One simple, eff ective way to improve access to credit would be for NGOs and development partners with special interests in this area to act as co-signers for commercial bank loans directly to migrant workers (not to the PPTKIS). A relatively small investment, perhaps a few million dollars, could facilitate great improvements. The initiative could be undertaken on a pilot basis to demonstrate to commercial banks that migrant workers are low risk borrowers.

RemittancesExtending bank branch and ATM networks would make it easier for migrant worker households to receive

remittances. Likewise, re-negotiations of MoU on migrant workers with more host countries could help

migrant workers, even illegal migrant workers, to make remittances. In addition, the following steps could

help:

• The Development of Mobile Banking: Advances in mobile banking hold considerable promise for facilitating remittances. On the side of banks, it is a low-cost option compared to wider branching networks. For the migrant workers, the transactions costs are very low and there is already wide access to mobile phones, even among the poor in remote areas. However, signifi cant regulatory

12


Executive Summary

hurdles need to be overcome. For example, it is necessary to allow service providers to use networks of non-bank agents to off er and maintain their products and to sign-up new customers.

• The Provision of Remittance Services as a Public Service Obligation: the Indonesian government could explicitly subsidize remittance services by asking Indonesian banks abroad to make remittances at no cost to the remitter. The government could then reimburse the bank for its costs and pay them a small fee. The subsidy scheme could be justifi ed as a poverty alleviation measure or on the basis of the positive externalities of remittances.

InsuranceIt would greatly benefi t migrant workers to simplify insurance products and the claiming process. Pre-

departure fi nancial literacy training could also encourage migrant workers to derive added value from

insurance products. Other, more specifi c steps could be taken in the area of supervision and reporting.

Most importantly, the responsibility for supervision should be transferred to Bapepam-LK (the regulatory arm of

the Ministry of Finance for insurance); BNP2TKI could retain authority for the special regulations applicable to

migrant worker insurance, and MoMT could continue to evaluate regulatory impact and suggest regulatory

changes. Also, data reporting requirements need to be improved in order to monitor actors such as the time

required for payment; cause of claim; and brokerage and other fees collected.

Also, the insurance product should be re-designed in some areas. Helpful steps include separation of individual

protection for migrant workers from corporate protection for the PPTKIS, with non-insurable risks covered

by the government. Also, diff erent classes of insurance could be introduced for diff erent destinations and

diff erent types of work. Moreover, the role of the broker should be re-considered with a cap placed on

the brokerage fee, particularly given the mandatory nature and full regulation of benefi ts and costs of the

product. Furthermore, the consortium model could be re-considered, taking into consideration the costs

and benefi ts of this approach.

Other Policy SuggestionsA recurring theme in this study is the potential for fi nancial literacy training. In general, the objective of

such training should be to better inform migrant workers and their households of the available options for

services such as the sending of remittances and cheaper sources of credit. The World Bank, with the support

of the Dutch Government, is currently piloting an initiative along these lines.

Finally, it would be helpful to off er better counseling services for migrant workers through the Indonesian

government’s embassies, possibly beginning in the most popular migrant worker destination countries,

Malaysia and Saudi Arabia. The Indonesian government might also consider encouraging third parties such

as NGOs to provide such services; recruiting expatriate Indonesians on a volunteer basis; or out-sourcing

this service to the private sector through a competitive bidding process. Another option, mentioned

above, would be to establish joint-venture PPTKIS where the contractual obligations of the foreign partner

would include the provision of counseling services in the host country and pre-departure fi nancial literacy

training.


Chapter 1

Introduction

This report follows a major, more general World Bank study relating to access to fi nancial services in

Indonesia (World Bank 2009b). This study involved the collection of data related to the accessibility of

fi nancial services amongst a signifi cant subset of the general population in Indonesia, these being migrant

workers. The great majority of Indonesians working abroad are unskilled and from lower income households

in rural areas where job opportunities are scarce. The availability of work abroad, with relatively high salaries,

therefore has considerable signifi cance for poverty alleviation. Making fi nancial services more accessible to

migrant workers could benefi t not just the workers themselves, but also their dependents and extended

families in their villages of origin, thereby contributing directly to poverty reduction and regional economic

development.

The current study singles out migrant workers (migrant workers) for further study, using two surveys

very similar to those implemented for the collection of data in the earlier report (World Bank 2009b). To

supplement these surveys, World Bank staff made two fi eld trips to West Java and West Kalimantan for

additional input.

This study takes a broad perspective on the range of fi nancial services that may be required by migrant

workers, including remittance services, savings facilities, credit and insurance, rather than focusing merely

on remittance services, as has been the case with a number of previous studies.

1.1 The Importance of migrant workers in the World, the Region and Indonesia

Globally, overseas migrant workers make up a signifi cant portion of the world’s population. The particular needs and circumstances of groups of migrant workers, including in Mexicans in the United States; Turks in Germany; citizens of former Soviet states in Russia; and Indonesians in Malaysia have formed the focus of a number of studies.1 In 2005, migrant workers were estimated to number approximately 190.6 million worldwide, which is about 3% of world population (United Nations 2005). The vast majority of these migrant

1 Many of the problems of Indonesians in Malaysia run parallel to those of Mexicans in the United States, especially in the respective border areas. The Mexican-US experience points towards the productive, proactive role that can be played by various kinds of NGOs (for example, service oriented; grassroots support organizations; and binationals; see Zabin (1996)). The potential for NGOs is a recurring theme of this report.

14


Chapter 1Introduction

workers are from developing countries.2 Migrant workers are a human resource that provides valuable low-cost labor to host countries and who remit large sums of money to their countries of origin. The combined value of remittances sent home from the top labor exporting countries (India, China, Mexico and the Philippines) amounted to tens of billions of dollars in each case in 2007.

In terms of the geographical distribution of host countries, the greatest proportion of migrant workers resides in Europe (64 million in 2005). Asia provides employment to the second largest number, with some 53 million; North America is third with more than 44 million. In terms of the combined total value of remittances, the East Asia and Pacifi c region ranks fi rst as remittance receiver and second as sender (see Table 1).

Table 1: Remittances, by Region

Remittances Received Remittances Sent

(US$, bn) (% of GDP) (US$, bn) (% of GDP)

East Asia & Pacifi c 65.2 1.6% Europe & Central Asia 25.9 0.9%

Latin America & Caribbean 63.1 1.8% East Asia & Pacifi c 12.9 0.3%

South Asia 52.1 3.7% Middle East & North Africa 5.5 1.6%

Europe & Central Asia 50.4 1.8% Sub-Saharan Africa 4.4 0.6%

Middle East & North Africa 31.3 4.5% Latin America & Caribbean 3.6 0.1%

Sub-Saharan Africa 18.6 2.6% South Asia 2.0 0.1%

Source: International Monetary Fund 2008. Data are for 2007.

Figure 1: Migrant Worker Placement, by Gender

0

200.000

400.000

600.000

800.000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

MALE FEMALE

Source: National Authority for the Placement and Protection of Indonesian Overseas Workers

(BNP2TKI)

As stated previously, the number of Indonesian migrant workers, especially female workers, has increased steadily in recent years (Figure 1).3 Indeed, remittances from migrant workers now total approximately US$6 billion (2008)4 , making it one of the most signifi cant infl ows of revenue to the country. Around 800,000 offi cially registered migrant workers go abroad each year. In addition, there are a large number of unrecorded illegal workers, 5 particularly in Malaysia.6 In total, Bank

Indonesia estimates that there were approximately 4.3 million Indonesians working overseas in 2007.

2 World Bank fi ndings (World Bank 2008) show that over 47% of migrants are working in other developing countries.

3 The drops in 2001 and 2003 are largely the result of a temporary bar on placements in Middle East and Taiwan; a stricter approach to migrant worker departure requirements; spread of the SARS epidemic in several migrant destination countries; and rising inter-national tensions in the Middle East.

4 See http://www.bi.go.id/seki/tabel/TABEL5_2.pdf. These are reported on a net basis, that is, gross infl ows minus gross outfl ows. The gross infl ows are likely to be considerably larger than the reported net number. For example, estimates by the Ministry of Manpower and Transmigration put the annual gross infl ow at US$10 billion.

5 See, for example, World Bank 2008b and 2009b.

6 Joseph Liow (‘Malaysia’s Illegal Indonesian Migrant Labour Problem: In Search of Solutions’, on http://www.questia.com) writes that Indonesians into Malaysia are arguably the second largest fl ow of illegal migrants in the world (after Mexicans into the United States).


15


Despite these developments, Indonesia does not rank highly as a recipient of worker remittances on a worldwide basis.7 Compared to other countries in the region, in absolute terms, in terms of the total combined value of remittances in dollars, Indonesia ranks third behind China and the Philippines, and almost equal to Vietnam (see Figure 2). As a proportion of GDP, the total value of remittances received by Indonesia is considerably lower than that received by the Philippines, Vietnam and Cambodia.

In light of the Indonesian government’s stated concern with poverty alleviation and the potential of migrant

workers to play a role in the achievement of this goal, it is clear that there is a need to improve access for

members of this group to fi nancial services and physical infrastructure. Bank Indonesia has taken a lead

through its Indonesia Banking Architecture (API), launched 9 January 2004, which contains a number of

“pillars”, including Pillar #1 (Healthy Banking Structure) and Pillar #5 (Adequate Infrastructure).8 In addition,

the new government is expected to pay increased attention to the needs of migrant workers over the next

fi ve years. Furthermore, issues related to the welfare of migrant workers are integrally related to the various

other major issues, particularly women’s rights and human traffi cking, because, as stated previously, the

great majority of Indonesian migrant workers are female (Figure 1).

From an economic point of view, migrant workers have particular signifi cance for a number of reasons. First, they hold relatively high-paying jobs abroad, when they might otherwise be unemployed (or seriously underemployed) at home. Bank Indonesia’s 2008 Remittance Survey of migrant workers found that the main reason for migrating is to earn a higher income.9 Second, their remittances are a major, stable source of foreign currency earnings. Third, remittances are usually sent to migrants’ families, typically in poor remote areas of Indonesia, where fi nancial resources are sorely needed. Fourth, many migrant workers will return home with new skills and experiences that provide added value to the community in which they live. While the contribution of migrant workers is already extremely signifi cant, it appears that with structural and other support, remittances could have a larger and more sustainable impact on poverty reduction in rural areas.

Figure 2: Remittances Received, East Asia-Pacifi c Region (in millions of US$)

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

China Philippines Indonesia Vietnam Malaysia Thailand

Source: International Monetary Fund, Balance of Payments Yearbook, 2008 (data for 2007).

7 For example, see Figure 12 in World Bank 2009b.

8 Pillars #1 and 5 (see http://www.bi.go.id/web/en/Perbankan/Arsitektur+Perbankan+Indonesia/) emphasize, among others, fi nan-cial access by the poor. They are the basis for BI’s interest in the area of fi nancial inclusion.

9 The great majority (78.5%) of respondents cited this reason. The second reason (collecting capital for new business) was cited by only 29.5%; the third reason (additional income for the family, 29.0%) is essentially the same as the most popular reason.

16



Given this potential, the Indonesian government is aware of the need to improve the required services, with

this commitment being expressed in numerous public statements10 and in discussions with the World Bank

and other donors. Indeed, the Government has made access to fi nance one of three cornerstones of its

fi nancial sector reform agenda.11 However, at this stage, it is not entirely clear exactly what interventions are

most likely to yield results. The key goal of policymakers should be to identify important barriers that can be

overcome by relatively low-cost means.

1.2 Objectives of this ReportThis report demonstrates two main points:

• Migrant workers are an important instrument in poverty alleviation and regional economic development; and

• The fi nancial system can be more eff ective in meeting the needs of migrant workers and their

families.

The report’s primary Goal is to identify policy interventions that will help migrant workers by facilitating improved

access to fi nancial services in cost eff ective ways.

It’s more immediate, primary Purpose is to raise the awareness of policy-makers regarding the identity of

groups whose access to fi nancial services is currently limited and of the constraints to broader access.

In more practical terms, the report is a response to a request from the Offi ce of the Economic Coordinating

Minister, which asked for assistance in the preparation of them analytical basis for the development of

policies to improve access to fi nancial services. However, the report has a much broader audience within

government. For example, other government agencies (including Bank Indonesia, BNP2TKI and the Ministry

of Manpower and Transmigration) have expressed interest in the report’s fi ndings and recommendations.

Outside government, the results of the household survey may encourage increased interest on the part of

fi nancial institutions to broadening their services to migrant workers.

The report also identifi es opportunities for other aid donors, including NGOs, to contribute signifi cantly to

wider access, sometimes on a demonstration basis.

1.3 Approach of this ReportThis report is primarily based on a large survey which should be discussed at this point. The Survey involved

three provinces (East Java, Nusa Tenggara Barat (NTB) and Nusa Tenggara Timur (NTT)) from where a

signifi cant proportion of migrant workers originate. The Survey’s key features are presented in Box 1. To

provide some contextual information on the Survey’s underlying demographics and its coverage, some

details on these provinces, the villages and the migrant workers are presented here.

Geographically, the three provinces are located in the eastern half of Indonesia. East Java, a very populous

10 See, for example, the statement of 1 April 2009 by the Minister of Manpower and Transmigration to the Indonesian Workers Pro-tection and Development Association in the Cilacap City Hall. Also, the speech by the President of the Republic on Developing Educated Workers, 30 August 2006, at the offi cial opening of the TKI waiting lounge at the Soekarno-Hatta International Airport.

11 The other two, which overlap with access, are: reducing the cost of fi nancial services; and increasing the stability and diversity of the fi nancial system. The three are articulated in GoI’s fi rst Financial Sector Policy package of 5 July 2006, which was a joint decree (SKB) of the government and Bank Indonesia. A follow-up package (INPRES Number 6 of 2007), released 12 June 2007, continued the fi nancial sector reform initiative while broadening the agenda to include empowerment of MSMEs.


17


province, occupies the eastern one third of the island of Java; NTT and NTB comprise groups of islands

further to the east, immediately beyond Bali. All three lie along the confl uence of the Indo-Australian and

Eurasian tectonic plates, which leaves them vulnerable to natural disasters, including volcanic eruptions,

earthquakes and tsunamis.

From the data on the three provinces presented in Table 2, three features stand out. First, the provinces

together include approximately 20% of Indonesia’s total population. By far the largest proportion in terms of

absolute numbers is East Java, where the population density is also far higher than in NTT and NTB. Second,

the three provinces are relatively poor, especially NTT. Third, Muslims constitute a very low proportion of the

total population in NTT.

Table 2: Basic Data on Surveyed Provinces

Characteristic East Java NTB NTT Indonesia Notes

Land mass (1,000 of sq km) 48.0 20.2 47.4 1,910

Population (millions) 34.8 4.0 4.0 206.3 For 2000

Population density (number/sq km) 725 198 84 108

Number of poor (millions) 6.7 1.1 1.1 35 For Mar 2007-08

Incidence of poverty (%) 18.5% 23.8% 25.6% 15.4% For Mar 2007-08

Average monthly income (Rp) 882,788 986,205 1,147,068 1,077,312 For 2007

Minimum monthly needs (Rp) 458,755 643,557 735,000 766,350 For 2007

Ratio of average income to needs 1.92 1.53 1.56 1.41

Muslims as % of total population 96.2% 95.7% 9.7% 87.2% For 2005

Source: BPS and Ministry of Religion in the Province of NTT.

Box 1: Considerations in the Survey Design

This report’s Survey is a follow-on to the large survey used in World Bank (2009b), using virtually the same questionnaire (see Annex B of World Bank 2009b for more details). That survey was designed to be nationally representative on certain criteria, but not as regards MWs. Nonetheless, that Survey provided substantial information on 241 individuals and 340 households of migrant workers, and underscored the importance of MWs in poverty alleviation. To extend that work, this report’s Survey covered 3,368 individual migrant worker and 2,724 migrant worker households in East Java, Nusa Tenggara Barat (NTB) and Nusa Tenggara TimurTimurTimur (NTT).a/ These provinces supply large numbers of overseas migrant workers.

Practical considerations dominated the choice of regions for this Survey. Most importantly, it was not possible to design and implement a survey that was nationally representative of migrant workers or their households, due to budgetary considerations. As originally conceived, the Survey would cover villages in East Java with large numbers of migrant workers abroad. However, the region was expanded to include NTT and NTB, owing to the interests and fi nancing of ANTARA, a Government of Australia program in eastern Indonesia. A subsequent guideline was established to focus on 30 families in the 8 villages with the largest numbers of migrants in each province, with close attention to gender balance. b/ Signifi cant deviations from these guidelines are noted below.

Exact village selection criteria varied slightly by region, but were based upon numbers of migrant workers as indicated by the PODES 2005/06 Survey. c/ In the case of East Java, Kabupaten Gresik was chosen because it had the largest number of migrant workers (some 36,500 or roughly 10% of the total from East Java). In choosing villages within Gresik, several candidate villages (in sub-districts Tambak and Sankapura) were excluded because of their very remote location and poor transport access. Ultimately, 5 villages were selected with 2 more held ‘in reserve’ in the event that PODES data proved unreliable.

18



Box 1: next

Turning to NTT and NTB, 5 island clusters were chosen in consultation with ANTARA, 3 in NTT (Sumba Barat, TimurTimurTimur-Kupang and East Flores) and 2 in NTB (Sumbawa and Lombok TimurTimurTimur). The choice of villages in NTB proved the simplest; the 8 with the largest number of migrants were selected in each of the two clusters. For NTT, the size-of-village criterion was eased for Kabupaten Kupang, for the sake of urban-rural balance. Ultimately, roughly half of the largest villages were substituted in favor of smaller, but more representative villages. In total, the surveyed villages cover approximately ¼ million persons or 1/10th of 1% of Indonesia’s overall population. Surveyed MWs are a bit less than 1/10th of 1% of the estimated total number of Indonesian MWs.

The Survey itself is in two parts. The fi rst Survey is an extensive (50-page) survey of MWs’ households (HHs), and the topics covered by this Survey are noted in the right half of Table 14 in Annex B. Respondents of this survey are considered to be representative of MWs’ households in the three provinces, and the issues facing MWs in these provinces are likely to be a good indicator of issues that face MW households throughout Indonesia. The second Survey, of village heads, is much shorter (8 pages) and covers characteristics of fi nancial services available in the selected villages.

A few other characteristics of the HH Survey need to be mentioned at the outset. The Survey is a hybrid household and individual level survey that blends individual level socio-economic characteristics with household level fi nancial statistics. (For a discussion of this approach, see Annex B of World Bank 2009b.) Questions concerning household expenditures refer to the entire household on the premise that the household is the level at which these types of decisions are normally made. Questions pertaining to migrant workers refer specifi cally to the migrant worker. This has some important implications. For instance, in sorting household data by specifi c attributes (age, education, gender, etc.), the attribute of the Survey respondent is normally used to sort the data.

Sorting the data in this manner is very useful because the respondent is in a position of authority in the household. d/ This process may, however, dilute the signifi cance of the conclusions to the extent that the respondent is responding on behalf of the entire household, not the respondent herself. It should be noted that for matters where the decision is made at the household level, (e.g., expenditure or determining credit risk), this is exactly the right approach. Still, this represents a signifi cant analytical complication for addressing issues related to individual members of the household (e.g., women’s access to fi nancial services).

Field work for this Survey was conducted in two phases. All of NTT and NTB and roughly half of East Java were surveyed during the period from mid-July to the fi rst week of August 2008. The second half of East Java was surveyed in December 2008.

a/ The incidence of poverty is high in each of these provinces. NTT is the highest at 25.6% of the population, followed by NTB at

23.8% and East Java with 18.5%. The national average is 15.4%. East Java, being very populous, has about 6 times as many poor

as either NTT or NTB.

b/ In East Java, the target ratio of male to female households was 50:50. In NTT and NTB, it was 1:2.

c/ Village Potential Statistics (PODES) is a nation-wide census of all villages in Indonesia and contains information on various socio-

economic conditions at the village level. The Survey teams were expected to verify the PODES information on migrant workers

by consulting with local authorities and specialized, local NGOs. Also, a particular eff ort was made to ensure implementation in a

manner that did not introduce unintended biases into the response patterns.

d/ In a majority of cases (59%) the survey respondent was the head of household. In other notable cases (spouse and son/

daughter, 23% and 13%, respectively), the respondent was the person with fi nancial decision-making power. The Survey

respondent was female 58% of the time.

Contextual data for surveyed villages and migrant workers are provided in Table 3, with a breakdown by

kabupaten/island cluster. The standards for comparison are the two available PODES Surveys (see footnote

c in Box 1).12 For villages, the sample coverage is very good (averaging more than 4% of villages) at the

kabupaten/island cluster level. However, the level of coverage is lower at the provincial level and it is very

12 More detailed information (for example, a breakdown by gender) are not available on a comparative basis as between the two PODES surveys.


19


small (1/10th of 1%) at the national level. For migrant workers, the sample coverage is exceptionally good

at the village level, especially for NTT (18½%). At the national level, migrant worker coverage is about twice

that of village coverage (these villages were chosen because them had large numbers of migrant workers),

but coverage is still limited (about ¼ of 1%).

Table 3: Comparative Data on Surveyed Villages & migrant workers

Number of Villages with migrant workers Number of migrant workers

PODES 2005 PODES 2008 Current Study PODES 2005 PODES 2008 Current

Study

East Java

Kabupatan Gresik 224 220 5 36,604 23,126 388

Kabupatan Malang 369 378 5 31,040 32,380 302

NTB

Sumbawa 143 158 6 8,347 8,304 495

East Lombok 119 115 6 32,022 38,215 513

NTT

West Sumba 140 88 9 1,405 1,255 508

Kupang 167 234 12 2,120 3,693 509

East Flores 240 333 7 13,134 30,046 653

Total for Indonesia 35,955 39,913 50 1,108,834 1,335,417 3,368

Source: BPS

These fi gures underscore a point that is repeatedly emphasized in this report, namely, that the data cannot be

considered nationally representative.13 Nonetheless, the results provide striking evidence of the challenges

that migrant workers face in accessing fi nancial services with current interest rates and regulatory policies.14

Related discussions with the Indonesian government and other stakeholders have indicated many steps

that could be taken to improve the situation.

As a further, presentational matter, this report is intentionally drafted in a compact format with sharply

focused points of discussion. The objective is to minimize the length of the document while at the same

time presenting the maximum possible amount information in a readable format.

To assist in this regard,15 each of the large survey-related Chapters begins with a brief summary of the issues

discussed in chapter. Each of these Chapters ends with a section that identifi es the strategic issues that

emerged in the course of the Chapter. In addition, italics are used to emphasize key points throughout the

report. Technical material is usually assigned to Annexes or Boxes, usually with summaries in the main text.

The footnotes are intended to serve as an integral part of the report.

Chapter 4 is the analytical heart of the report. In this chapter, extensive use is made of Charts that are presented

in clusters of types of fi nancial service, for quick reference. Of course, these Charts are two-dimensional,

13 As follow-up, the World Bank is in discussions with Bank Indonesia as to whether the Bank’s results and experience can contribute to strengthening Bank Indonesia’s biannual survey in this area (see Annex B).

14 For changes to regulatory policies that would improve access to fi nancial services, see Chapter 4 of World Bank (2009b).

15 To assist further, survey results are generally not presented by region, that is, for each of the three provinces, as this would eff ec-tively treble the volume of the Survey material to be reported. Instead, regional variation is reported on an exceptional basis, that is, when it is considered noteworthy.

20



which creates limitations in the analysis of a multi-dimensional problem such as access to fi nancial services.

To address the multi-dimensional nature of the issues in question, Chapter IV also summarizes the results

of multivariate linear probability regressions, which identify the statistically signifi cant determinants of access

to the major fi nancial services. In addition, the magnitude of the coeffi cients in these regressions is an

indicator of the relative importance of 19 socio-economic factors infl uencing access to fi nancial services.

Details are presented in Annexes.

1.4 Organization of this ReportThe remainder of this Report is divided into fi ve chapters:

Chapter 2: Characteristics of the Surveyed Groups: This section begins with information on the surveyed

villages, followed by the profi le of surveyed households with migrant workers and concluding with the

characteristics of the migrant workers themselves. This Chapter includes the results of an assessment of

households’ fi nancial literacy and interest in fi nancial matters.

Chapter 3: The Special Needs of Migrant Workers: This section discusses two areas where migrant workers

have special needs for fi nancial services. Specifi cally, it discusses the need of migrant workers for a source

of funds to fi nance their pre-departure costs and the need for a means for sending money home once they

are working overseas. The Chapter also covers certain issues related to migrant workers’ use of bank saving

accounts.

Chapter 4: Migrant Workers Households’ Uses of Financial Services: This section looks at the use of the services

and the prioritization of the needs for these services by migrant workers. The main fi nancial products

examined here are savings accounts and credit facilities. The section seeks to determine who is ‘fi nancially

excluded’ from each product and from both products. This Chapter also looks at insurance, which is a fi nancial

product with special signifi cance for migrant workers, because all offi cial migrant workers are required to

have insurance before they go overseas.

For each of the major fi nancial products (savings, credit and insurance), Chapter 4 also presents certain

analytical, econometric results. These indicate the statistically signifi cant socio-economic variables that

determine the probability of having access to those fi nancial services.

Chapter 5: Gender Related Issues: This section addresses issues specifi cally related to gender.

Chapter 6: Policy Recommendations: This section draws upon discussions surrounding the preparation of this

report to make recommendations. The recommendations are extensive and specifi c, intended to extend

this report beyond a documentation of Survey results or an advocacy report in support of migrant workers.

In some cases, policy options are discussed and areas for further investigation are noted.


Chapter 2

Profi le of Surveyed Migrant Workers and Their Households

2.1 IntroductionThis Chapter looks at the characteristics of the groups covered by the two surveys that are the primary

source of data for this report.16 The presentation cascades downwards, beginning with an overview of

the villages as described by the relatively small Survey of Village Heads. Moving lower in the hierarchy, it

continues with a description of the demographic and socio-economic characteristics from the large Survey

of Households with overseas migrant workers, including an assessment of their fi nancial literacy and interest

in fi nancial information. It concludes with a profi le of the migrant workers themselves, covering areas like

demographics, legal status and education

.

2.2 Results of the Village Head SurveyThe general characteristics of the 50 surveyed villages are presented in Table 4. These villages are largely

rural. The total combined population of these villages is more than ¼ million persons, including some 19,000

overseas migrant workers, of which more than 1/3rd are female.17 This proportion of migrant workers in the

total population (6.66%) is more than three times the estimated national average (see Section 5.2 World

Bank 2009b), refl ecting the deliberate choice of these villages for the Survey (Annex A) because of the high

proportion of migrant workers in these locations.

16 For a comparison of results with the nationally representative survey, see Annex A. A comparison with the results of a similar Survey by Bank Indonesia is provided in Annex B. As will be noted later in this report, regional variations largely refl ect the state of economic development in each of the three provinces.

17 It should be noted that this proportion (taken from the Survey of Village Heads) is signifi cantly lower than reported by the House-hold Survey (almost 62%). The Household Survey is considered more reliable in this regard, because its respondents are more familiar with the details of issues being addressed by the questionnaire.

22


Chapter 2Profi le of Surveyed Migrant Workers and Their Households

Table 4: Key Characteristics of Villages

Surveyed

Characteristic Number

Number of villages 50

o/w rural 70%

Total population 282,980

Total households 72,484

o/w poor 44%

Total migrant workers 18,927

o/w female 37%

Proportion of Villages with Stated Facilities

Landline phone access 54%

Mobile phone access 96%

Internet access 16%

These villages represent more than 72,000

households, which are disproportionately ‘poor’,

with village amenities refl ecting this status. For

example, barely half of the villages have access to

a landline telephone and only 16% have Internet

access. Nevertheless, 98% have access to a

mobile phone (Table 4).

As reported by the Village Heads, the dominant

vehicle for saving in these villages is a bank account

(see Figure 3),18 although many villages use

several forms of savings. Saving in various forms

of real assets (such as cattle, property and jewelry)

is also signifi cant. Indeed, the total value of real

assets is higher than the total value of funds

deposited in bank savings accounts. Among the

least important forms of saving are non-bank

fi nancial institutions, including cooperatives,

savings associations and credit unions. These

rankings are similar by province, although NTB

tends to have a higher incidence of saving in real

assets.

Figure 3: Forms of Saving in the Village (% of villages)

0

20

40

60

80

100

Bank Savings Account

Land/Property Jewelry/Gold Other

The villages’ use of diff erent

fi nancial institutions is

presented in Table 5. Almost all

villages make use of BRI’s Unit

Desa system. Other popular

institutions include

government banks other than

the Unit Desa; shop credit;

pawnshops; and rotating

savings schemes. It is important

to note that a relatively small

percentage of these services

are actually available in the

villages themselves, the

exceptions being various forms

of community welfare schemes and some cooperatives. However, virtually all these services are available

within one hour’s travel of the village.19

18 It should be noted that the percentages reported in Figure 3 are percentages of villages (with many village heads reporting more than one form of saving). There is no information on the relative value of savings by instrument (for example, saving in real assets versus saving in a bank account).

19 Time travelled is one-way, by the respondent’s choice of transport mode.


23


Table 5: Villages’ Use of Financial Institutions (of 50 villages)

Type of Institution

# of villages using

the institution

# available in

the village

Accessible within

1 hour (in %)

Bank:

BRI Unit Desa 47 7 93.6

BPR 18 5 100.0

Government Bank (excluding BRI Unit Desa) 40 1 80.0

Private Bank 14 2 100.0

Credit union/savings association:

Cooperatives 16 10 93.8

Village credit institution 6 6 100.0

Village credit fund institution 2 2 100.0

Other credit union/savings association 12 11 91.7

Community welfare scheme:

Community revolving fund 28 23 96.4

Other neighborhood rotating savings group 34 34 100.0

Other community welfare scheme 25 21 100.0

Other:

Pawn shops 36 6 100.0

Daily banks 25 8 100.0

Shop credit 40 9 87.5

2.3 Key Characteristics of the Surveyed migrant workers’ Households

This section presents a profi le of migrant workers households in terms of four broadly defi ned

characteristics:

1. socio-demographic features;

2. economic traits;

3. household amenities; and

4. fi nancial literacy.

The section demonstrates that the surveyed households are mainly in poor, rural areas of three provinces:

East Nusa Tenggara (NTT); West Nusa Tenggara (NTB); and East Java. The age distribution is fairly uniform;

education levels are low; women and Muslims are in the majority; and levels of gross debts are moderately

high.

Socio-demographic Characteristics: Beginning with socio-demographic details (see Figure 4), all surveyed

households are in one of three provinces, for reasons discussed in Box 1. Almost half come from NTT;

one-third from NTB and the rest from East Java. The surveyed households are predominantly rural (see the

24



upper panel of Figure 4)20 and poor. The age of survey respondents is tilted towards the prime age category

with smaller representation from the older groups; the younger groups are barely represented (see the

middle-left panel of Figure 4).21 By level of education, respondents tend to be relatively poorly educated,

with less than one third having completed junior high school or above; only about half having attended

or completed primary school; and more than 10% never attended school (see the middle-right panel of

Figure 4). By gender, somewhat more than half of respondents are female. By religious belief, just over half

are Muslims, which is considerably lower than the overall proportion for Indonesia.22 Of the non-Muslims,

approximately 20% are Catholics, with Protestants making up a similar proportion and a small proportion

consisting of adherents of Marapu.23 The average size of a family (see Table 4) is 3.9.

Economic Characteristics: Turning to surveyed households’ economic characteristics (Figure 5), the income

distribution (using income as the metric) is relatively uniform in urban areas;24 rural incomes are highly

skewed towards lower incomes, with almost two thirds of households falling into the two lowest income

categories. Using expenditure as the metric, the middle classes are relatively well represented, especially in

the rural category. In relation to the offi cial poverty line, 25% of urban households are below the poverty line,

compared with approximately 20% in rural areas. In dollar terms, the average yearly expenditure (Table 4)

and average household size of 3.9 persons (Table 4) imply per capita expenditure of less than US$2 per day,

which is very low. Looking at employment information (the lower panel of Figure 5), two thirds of members

of households are involved in agriculture, with smaller proportions involved in services, trade and other non-

agriculture fi elds. The great bulk of respondents are self-employed or casual laborers. Government or private

employees (or employers) make up a very small proportion of the total.

Figure 4: General Characteristics of Surveyed Households of Migrant Workers (in %)

by Province

18.4 32.5 49.1

East Java

West Nusa Tenggara

East Nusa Tenggara

0 25 50 75 100

by Regional Area

17.0

83.0

Urban Rural

20 The Survey included no urban areas in East Java.

21 On a regional note, the population of NTT is markedly older than the other 2 provinces.

22 This relatively low proportion of Muslims stems from the selection of NTT for this Survey (see Box 1). Inhabitants of this province tend to be Christians.

23 This is a religion common among the people of the Sumba Islands of NTT. It is based upon ancestor worship.

24 By province, East Java had a relatively large concentration of high income earners in the Survey.


25


by Age

0.78.8

36.9

32.7

20.9

0

20

40

60

80

100

>55

40-<55

25-<40

17-<25

<17

by Education Level

11.7

20.8

35.3

15.6

14.8

1.7

0

20

40

60

80

100 University

Senior high school/eq.

Junior high school/eq.

Primary school/eq.

Did not complete primary school

Never go to school

by Gender

42.3

57.7

Male Female

by Religion

2.8

21.3

21.5

54.4

0

25

50

75

100

Moslem

Catholic

Protestant

Marapu

Figure 5: Economic Characteristics of Surveyed Households of Migrant Worker (in Rupiah or %)

Income Level

by Urban-Rural

< 5 mln

5-<10 mln

10-<14.6 mln

14.6-<29.2 mln

>29.2 mln

Rural Urban

Expenditure Level

by Urban-Rural

< 5 mln

5-<10 mln

10-<14.6 mln

14.6-<29.2 mln

>29.2 mln

Rural Urban

26



Poverty Line

by Urban-Rural

25.0 19.2

75.0 80.8

Urban Rural

Below Above

by Field of Work

67,5

32,5

Agriculture Non-agriculture

by Type of Work

1.0

2.5

4.2

14.4

22.5

55.3 Self employed

Freel anceworker/Casuall abor

Unpaid familyworker

PrivateE mployed

Governmentemployed

Employer

66.7

12.9 11.8 8.7

Farming

Service

Trade

Other

Another important feature of these households is that gross indebtedness is already moderately high (see

Table 6), although roughly in line with the representative national average reported in World Bank 2009b.

For most socio-economic groups, total outstanding debt ranges from 13-27% of annual income. For the

poor (that is, for those below the poverty line), total household debt is 21% of annual income, which is

appreciably above average levels of indebtedness (17 ½%).

Table 6: Indicators of Indebtedness of Surveyed migrant workers’ Households

Total Household

Indebtedness* (in Rp)

Average Yearly Household

Expenditure (in Rp)

Debt/Expenditure

(in %)

Amount 4,429,599 25,300,000 17.5

- Rural 4,045,027 25,900,000 15.6

- Urban 6,167,711 22,600,000 27.3

- Male 5,539,220 23,200,000 23.9

- Female 3,546,502 26,900,000 13.2

- Above poverty line 4,951,399 28,700,000 17.3

- Below poverty line 2,042,748 9,672,286 21.1

* Loan amount = household total loans from all sources.


27


These levels of gross indebtedness constitute a sizable burden for households. For example, at typical rates

of interest (say 35%; see Section 4.5), the average household needs to spend roughly one tenth of its income

on interest payments, if it can continually rollover its short-term debt. If the principal has to be re-paid, about

a quarter of an average household income will be assigned for the servicing of the dead in that year. For

the poor (that is, those below the poverty line; see Table 6) the situation is even more troublesome, because

debts are larger in proportion to income and the interest rates will probably be considerably higher. If

their short-term debt cannot be rolled over, the poor may be required to dedicate up to a third of a year’s

household income to the repayment of debt.

From a policy point of view, it is a risky strategy to increase access to credit, if borrowers are already having

diffi culty meeting their obligations. It would be a safer strategy to reduce the costs associated with servicing the

debt by increasing their access to lower-cost fi nancing. For example, it may be an eff ective strategy to promote

the use of a bank or MFI, rather than the village money lender.

Amenities of surveyed households are summarized in Figure 6.25 The Survey indicates that the great

majority of households with migrant workers own their homes, with access to electricity. More than half own

a mobile phone, which stands in sharp contrast to the very limited availability of telephone land lines. Water

sources are predominantly wells or lakes and streams, with less than a quarter of these households obtaining

water through a public service provided by the government water company (PDAM/PAM) or similar service

provider. The most common building materials are tile roofs; cement fl oors; and brick walls (see the lower

panel of Figure 6).

This Survey also collected information on the fi nancial interests and math skills of respondents.26 The vast

majority (85%) of survey respondents—of both genders—indicate an interest in fi nancial issues (see the top

panel of Figure 7); a third or more say that they often follow fi nancial issues closely, with a slightly higher

proportion for males. Their main sources of information on fi nancial issues are their friends and relatives and

radio or television.

Test results of these households’ fi nancial literacy and math scores compare quite unfavorably with those of

the broader population (see the lower panels of Figure 7). The respondents’ test scores were, on average,

about 10 points lower than for the national average, and they scored lower in every category reported in

Figure 7.27 Financial literacy is higher among urban households and households with a bank account, while

gender diff erences are minor. Math scores are low and relatively homogeneous. As for fi nancial literacy,

households with a bank account score appreciably higher on the math test than non-savers.28

25 By province, East Java has much better access to electricity and phone service (both landlines and mobiles). NTT is markedly worse off in almost all categories.

26 All respondents to the Household Survey were administered a set of simple questions on mathematics and interest rates. The answers yielded the math and fi nancial literacy scores, respectively, which are reported in Figure 7. Data on the national average (used in the lower panels of Figure 7) are drawn from World Bank 2009b.

27 By region, NTB scored lowest in every category.

28 In this context, a ‘non-saver’ has neither a formal or informal savings account.

28



Figure 6: Household Amenities of Surveyed Migrant Worker Households ( in%)

House Ownership

89.5

0.4 10.1 Own

Rent

Resident withoutrent

Do You Have Electricity?

Landline Phone

2.3

97.7

0255075

100

Have Don'th ave

Mobile Phone

0 20 40 60 80 100

Have Don't have

41.9 58.1

Water Source

6.611.0

13.321.1

48.0 Well

Lake/stream

Public hydrant

0 10 20 30 40 50

Main Material of Floor

0.04

15.8 18.1 18.4

47.7

01020304050

Other Soil Tile Wood/bamboo Cement

Main Material of Roof

47.2

40.3

12.5

Tile Tin Other

Main Material of Wall

0.5

0.2

0.1

0.10.1

BrickBambooWoodLime stoneOther


29


Figure 7: Financial Interest & Literacy of Surveyed Migrant Worker Households ( in %)

Interest in Fin. Issues

14.9

15.5

85.1

84.5

Male

Female

Interested Not Interested

0 20 40 60 80 100 10.5

11.1

48.4

53.6

41.1

35.3

Male

Female

Often Seldom Never

0 15 30 45 60

Sources of Fin. Info

0.22.93.44.3

7.857.9

74.5

OthersRelated institution

Adverti sementMagazines, books

NewspaperRadio/TV

Friends& rel atives

0 20 40 60 80 100

Fin. Literacy Avg. Level

by Urban Rural

0.42 0.47

0.470.60

00.250.500.75

1.0

Rural Urban

TKI

Nationwide


by Gender

00.250.500.75

1.0

0.42 0.44

0.50 0.54

Female Male

TKI

Nationwide


by Savings Ownership

00.250.500.75

1.0

0.39 0.51

0.410.62

Non-savers Bankaccount

TKI

Nationwide

Avg. Math Score

by Urban Rural

00.250.500.75

1.0

0.69 0.69

0.77 0.86

Rural Urban

TKI

Nationwide

Avg. Math Score

by Gender

00.250.500.75

1.0

0.67 0.70

0.79 0.83

Female Male

TKI

Nationwide

Avg. Math Score

by Savings Ownership

00.250.500.75

1.0

0.65 0.75

0.710.89

Non-savers Bankaccount

TKI

Nationwide

30



2.4 Profi le of the migrant workersThe following subsection contains the story of a typical Indonesian migrant worker of the sort survey, in Box

2. Issues related to recruitment are covered in Box 3.

Box 2: Portrait of the Typical Migrant Worker

Bela Dapa Bulu, a composite character, is a thirty-year old, single mother of three from Kupang, NTT. Despite barely

fi nishing primary school, she can read and write well in Bahasa Indonesia and she speaks a little English.

Bela had heard of work opportunities overseas from her friends and she was easily recruited by an agent who

works for a Jakarta-based international employment agency (PPTKIS) with an offi ce in Kupang. Originally, she left

NTT almost 5 years ago, looking for a better way of life, working as a domestic helper with legal status in Malaysia.

However, she is fi nding the search for a better life to be elusive. Bela’s employer has treated her well enough during

this, her second contract. But her take-home pay still is not as much as she had hoped; the children in her care are

spoiled and she does not dare to discipline them; she gets very little time off ; and she misses her children, especially

her teenage daughter. All of Bela’s children are currently living with their grandparents in Kupang.

Still, Bela considers herself to be lucky because she has heard terrible stories of mistreatment among her friends,

especially the illegal newcomers. Bela fi nds that if she is careful with her money, she is able to send home a few

million rupiah every few months and she knows that her children and parents rely heavily upon her earnings. None

of them has a regular job that pays as well as hers, and the money that she sends provides her with considerable

status back in the village.

Looking back, Bela recognizes that life has been easier during her second contract. She has repaid most of her

debts and learned the pitfalls to avoid (like borrowing excessively from the village loan shark in Kupang). Also, she

has learned to cope with the confusing, intimidating processes that banks use for moving money between places

like Malaysia and Kupang. It would have been very helpful if she had been better prepared for these processes

before her fi rst contract, because she had to learn so many things on her own.

On balance, Bela remains hopeful for the future, especially for her teenage daughter who will be better prepared to

follow the same path in a few more years.

Box 3: Key Features of the Recruitment Process for Migrant Workers

The process of recruitment of legal migrant workers appears simple enough, but it is important to understand

certain institutional and licensing details, presented below.

From the villagers’ viewpoint, the key player is a local recruitment ‘agent’ or ‘sponsor’, who may work independently

or for a so-called PPTKIS.a/ b/ In due course, the agent turns the would-be migrant worker over to a PPTKIS whose

main functions are:

• To receive placement requests from overseas clients;

• To recruit migrant workers in Indonesia;

• To prepare all necessary documentation for migrant workers (e.g., ID card, family card and passport); and

• To provide training, especially for those who plan to work as household domestics.

Depending on the type of job and the timing of the job order from overseas, migrant workers usually stay at the

PPTKIS’s training center (with accommodations for migrant workers) for 2 ½ to 9 months before departing for the

destination country. The training includes 1 or 2 days of familiarization with fi nancial matters, near the end of the

training period. The available information indicates that PPTKIS normally work with counterpart hiring agencies in

host countries.


31


Box 3: next

According to government offi cials, there are roughly 900 PPTKIS, which are privately owned. The vast majority have

head offi ces in Jakarta and regional offi ces throughout the country. The PPTKIS are organized into 4 associations of

PPTKIS, mainly it seems for purposes of internal coordination. Both the PPTKIS and their associations are licensed

and supervised by the Department of Manpower and Transmigration, which is under the umbrella of the Economic

Coordinating Minister.

a/ PPTKIS = Pelaksana Penampatan Tenaga Kerja Indonesia Swasta (Privately Owned Indonesian Placement Agency). b/ Interviews with government offi cials indicate that independent sponsors are declining in numbers. Apparently, they

are being recruited to work as representatives for specifi c PPTKIS.

The key attributes of surveyed migrant workers are presented in Figure 8. To summarize the details very

briefl y, the migrant workers closely refl ect the surveyed households, described above. Most are poorly

educated females from East Nusa Tenggara (NTT), followed by West Nusa Tenggara (NTB) and East Java. For

the most part, they are bound for the Asia-Pacifi c region followed at a distance by the Middle East, usually as

legally registered workers. Roughly half are on their fi rst contact.

Figure 8: Key Characteristics of Surveyed Migrant Workers (in %)

by Province

20.5

29.9

49.6

East Java

West NusaTenggara

East Nusa Tenggara

by Regional Destination

20.5

79.5

0

20

40

60

80

100

Middle East

0 20 40 60 80 100

by Gender

38.4 61.6

Male Female

Freq. of Working Abroad

by Gender

48.5 56.0

51.5 44.0

0255075

100

Male Female

First time Repeater

32



Freq. of Working Abroad

by Destination

41.356.158.7

43.9

015304560

Middle East

First time Repeater

Level of Education

by Gender

0.6

14.9

42.3

24.4

16.6

1.2

0.4

9.0

42.7

28.9

18.5

0.4

Never go to school

Inc. prim. school

Primary school

Junior high school

Senior high school

University

Female Male

Legal Status

by Working Sector

4.7

8.0

5.7

15.6

64.6

5.2

10.7

21.9

33.3

24.6

Other

Service

Construction

Plantation

Domestic

Illegal Legal

Legal Status

by Destination

95.459.9

4.6 40.1

0

25

50

75

100

Middle East

Legal Illegal

Legal Status

by Gender

26.074.063.7

36.30

255075

Male Female

Legal Illegal

Continuing with some detail, half of the survey of migrant workers come from NTT; 30% from NTB; and the

rest from East Java. In terms of their destination, 80% were destined for the Asia-Pacifi c region (dominated by

Malaysia) and the remainder to the Middle East (mainly Saudi Arabia).29 Over 60% are female.30

The typical migrant worker tends to be poorly educated (see the rightmost middle panel in Figure 8).

Approximately 10% have not completed primary school and slightly more than 40% have completed only

primary school. Considerably smaller proportions (25% and 17% respectively) have completed junior and

senior high school. At the extremes of the education scale, very few have completed university or never

attended school.

29 As a matter of regional variation, it’s particularly notable that virtually all migrant workers from NTT go to destinations in the Asia-Pacifi c region.

30 This percentage is appreciably lower than the 80% cited in World Bank 2009b, Section 5.2.1. It probably refl ects the particular characteristics of NTT and NTB, namely large numbers of illegal MWs who are usually males.


33


In terms of the number of times that they have travelled abroad to seek employment (the middle panel

of Figure 8), about half are repeat overseas workers, with repeat trips being more common to Middle East

destinations and more common among men. By province of origin, repeat terms abroad are more common

amongst workers from East Java (74%) and less common amongst those from NTT (32%).

In terms of the type of employment with which the migrant workers are involved, amongst legal placements,31

the Survey indicates that the vast majority of migrant workers are employed as domestic helpers (almost two

thirds of the total), followed at a distance by plantation workers and workers in various service industries. The

spread amongst illegal migrant workers is much more even, with workers in this category being employed

on plantations, as domestics, and in the construction and the service industries. By gender, men are much

more likely to work illegally, with illegal migrant workers being far more common in the Asia-Pacifi c region

than the Middle East. In terms of province of origin, the incidence of illegal migration is highest in NTT,

where 45% of migrant workers are illegal.

2.5 Strategic Matters Arising in this Chapter Key Economic Characteristics of the Survey Villages: The key economic characteristics of the surveyed

villages are low levels of income and limited education. In the shorter-term and despite low incomes, the

fi nancial sector could be more eff ective in meeting the needs of migrant workers. For example, 96% of

the surveyed villages have access to a mobile phone. This may constitute an important prerequisite for

participation in mobile banking, which is still not developed to its full potential for this group.

At present, and no savings are held in a savings account at a government bank (usually BRI’s Unit Desa) with

private banks being barely represented. This indicates the potential for private banks in this market, if they can

be convinced that migrant workers are a commercially viable market segment. At the same time, the fact

that most banks used by migrant workers are owned by the government provides the government with a

direct instrument for introducing some of the policies described in Chapter 6.

Characteristics of Migrant Worker Households: Surveyed migrant worker households characteristics are

essentially the same as those of their villages. In addition, their gross indebtedness is already moderately high,

which limits the room for policies designed simply to increase their credit. Curiously, the majority of migrant

worker households own their own home, which ought to provide the collateral necessary for substantial

access to credit. However, for reasons described later, this is not the case.

Key Characteristics of Migrant Workers: The survey indicates that migrant workers’ key characteristics

refl ect those of their villages and households. The majority is females who face many specifi c problems

that are well documented elsewhere (e.g., World Bank 2008b). Also, the majority of migrant workers work

in the Asia-Pacifi c region, which means that regional associations (such as APEC and ASEAN) are viable forums

for raising migrant worker issues. Another key characteristic is that roughly half of migrant workers are on

their fi rst contract. This has implications for initiatives such as fi nancial literacy training, because, given the

large number of workers going overseas every year, it points to the magnitude of the problem. Specifi cally, it

indicates that approximately 350,000 persons would need to be given some initial training every year.

31 Legal migrant workers are defi ned as those who register as a migrant worker to Ministry of Manpower and Transmigration, and hold a proper migrant workers’ passport and working permit in the destination country.


Chapter 3

Migrant Workers and Financial Services

3.1 IntroductionBecause of the manner in which they live and work and because of the economic role they play, migrant workers require a range of specifi c fi nancial services to meet their needs.

The fi nancial needs of migrant workers can be divided into three categories (Figure 9). First, migrant workers have pre-departure needs, most notably for fi nancing their up-front costs (see Section 3.2). They have needs for particular fi nancial services during their time abroad. The most important of these are services to send money home (Section 3.3). Finally, migrant workers have post-migration needs (savings, credit and investment), which discussed together with the issues related to Migrant Workers Households’ Uses of Financial Services in Chapter 4.

Figure 9: Migrant Workers’ Needs for Financial Services

SavingsCredits

PostMigration

DuringMigration

Pre-Departure

Remittance ChannelSavingsInsurance

CreditsSavingsInsurance

36


Chapter 3Migrant Workers and Financial Services

3.2 Pre-Departure Costs & FinancingMigrant workers face signifi cant up-front costs before their departure to work abroad. Pre-departure

costs vary widely, mainly depending upon destination country (see the upper left panel of Figure 10).32

Evidence from this Survey indicates a median fi nancial cost of roughly Rp 2.5 million (an average of near Rp4

million), which appears to be on the low side.33 Migrant workers also bear signifi cant costs in terms of their

investment of time into the pre-departure processes. For example, average clearance times, or the time taken

to prepare the required documentation, are between 3-4 weeks, depending upon gender.34 For female

migrant workers, several more months may be spent at the training center of the recruiting agency (PPTKIS;

see Box 3) immediately prior to departure.

Surveyed migrant workers have a limited number of possible sources of fi nancing to cover these costs (see

the middle panel of Figure 10), with some migrant workers using more than one source. The single most

popular source of funds to fi nance pre-departure costs is personal savings, especially among repeat migrant

workers. In total, borrowing from various diff erent sources is more common than the use of personal savings.

However, no one particular source of credit predominates (the middle panel of Figure 10). Among sources of

credit, the most common is the sponsoring employment agency: that is, the PPTKIS or its agent (see immediately

below). Other signifi cant sources of fi nancing are friends; family; and employers. Sale of assets ranks low on

the list, while borrowing from banks is at the very bottom of the list.

As surveyed, there are some notable exceptions concerning fi nancing. For example, females are far more

likely than males to borrow from the sponsor or the employer, possibly because such a high proportion of

the males of the surveyed households are illegal migrant workers. Also, repeat migrant workers are much

more likely to use their accumulated savings as a source of fi nancing, which implies that the fi rst work

session abroad has allowed them to accumulate some savings. Conversely, repeat migrants are less likely to

borrow from the sponsor or the employer.

Among those who do borrow, the size of borrowing (relative to fi nancing needs) is consistent across available

breakdowns (see the bottom panel of Figure 10). Namely, migrant workers borrow about 80% of their fi nancing

needs. Males, illegals, repeat migrants and those headed for the Middle East tend to borrow slightly less than

80%.

Female, fi rst-time migrant workers are particularly likely to borrow funds from the PPTKIS (or its agent). Typically, migrant workers repay these loans through deductions from their salaries during the early months of the work contract. This source of fi nancing is controversial, essentially because some researchers have indicated very high eff ective rates of interest. As discussed in Box 4, analysis here indicates that eff ective interest rates are indeed very high, with the cost structure being complicated. Lower costs would markedly benefi t migrant workers because this is such a common source of fi nancing for vulnerable groups, like women and fi rst-time migrant workers. Options are presented in Box 4 and Chapter 6.

32 These include: the administrative cost of a passport; government levy and working visa for the destination country; medical exami-nation fees; insurance; transportation; and fees for the domestic and foreign recruitment agencies.

33 World Bank (2009b) estimates a nationally representative range of US$335 to US$950 for legal workers. This is some 25-50% higher than cited in the main text. Locational diff erences associated with NTT and NTB do not appear likely to account for this discrep-ancy because NTT and NTB are relatively remote, which should push up travel costs.

34 On average, males have a shorter clearance time, because many are illegals.


37


Box 4: Financing Pre-Departure Costs

If the MW cannot aff ord to pay pre-departure costs from her own savings, she may face problems. Recruitment

fees are high (typically in the range of US$1,200 to US$2,000 for workers in the informal sector, according to Bank

Indonesia; World Bank estimates are roughly half of these amounts). Sources of fi nancing are limited and probably

expensive. For example, comparing recruitment costs with total salary deductions reported by Bank Indonesia,

there is a wide range of eff ective interest rates, some of which seem extremely high, of the order of 15-20% per month.

These are in line with rates reported by MICRA 2008 (p.24), namely 10-20% per month.

Reliable estimates of implicit interest rates require far more detailed information by country than was available for

this study. However, the limited available information does provide insights into one fi nancing scheme for a mid-

sized Asian destination. The following points are relevant in examining the cost structure of this particular source

of fi nancing:

• The loan principal essentially covers recruitment fees, of which roughly 80% goes to the PPTKIS. The remaining 20% goes to the service agency in the host country.

• The nominal interest rate on the loan is low, some 10% per annum and the tenor is 1 year.

• There are additional fees of another 5% and a ‘guarantee fee’ (of the same tenor as the loan) equivalent to

an annual interest rate of about 50%. This guarantee fee protects the lender against risks that the migrant

dies, runs away, is deported, etc. before the loan is repaid. However, if all goes well, the money is paid in full

to the migrant at the end of the work contract.

• In total, these various deductions amount to an annual interest rate of some 65% per annum, with the great

bulk accounted for by the ‘guarantee fee’, which is eff ectively forced savings.

The migrant worker has other large deductions from her salary, too. These include various host government taxes

and admin fees, some of which are paid up-front. In total, these deductions amount to approximately 2/3 of the

size of the migrant’s fi nancing costs noted above.

Taking all this into account—and because many of the costs are front-loaded—the migrant’s average ‘take-home’

pay is barely one third of her gross salary in the fi rst year of the contract. During subsequent years, deductions are

small (insurance and a few taxes), leaving take-home pay at about 85% of gross salary.

To reduce these deductions in a signifi cant way, four options look feasible:

1. Reform of the PPTKIS system to reduce recruitment costs and improve performance (see Chapter 6);

2. Extend the tenor of the loan to match the tenor of the migrant’s contract;

3. Have an external third party (see Chapter 6) guarantee the loan, thereby eliminating the ‘guarantee fee’;

and

4. Spread the costs over a longer time period, by increasing the migrant’s initial contract by an additional year

(in general, from 2 to 3 years).

It would also be helpful if the PPTKIS were to itemize costs for the MW, before a fi nal agreement is reached.

38



Figure 10: Surveyed Migrants’ Pre-departure Costs & Financing (in %, except as indicated)

Frequency Distribution of Total Departing Cost

Total Departing Cost (IDR ,000)

Fre

qu

en

cy

0200

400600

800

0 5000 10000 15000 20000 25000

ClearanceT ime

by Gender (in weeks)

34

01.32.53.85.0

Male Female

Clearance Time

by Legal Status (in weeks)

2

5

01.32.53.85.0

Illegal Legal

Sources of Financing

0 10 20 30 40

Borrow from bankGiven by parents

OtherDon't know

Sale of assetsBorrow from employer

Borrow from familyBorrow from friends

Borrow from sponsorPersonal savings


by Freq. of Going Abroad

0 10 20 30 40 50

Repeater First Time


OtherDon't know

Sale of assetsBorrow from friendsBorrow from family

Borrow from employerBorrow from sponsor

Personal savings


by Gender

0 15 30 45 60

Female Male


OtherDon't know

Sale of assetsBorrow from friendsBorrow from family

Borrow from employerBorrow from sponsor

Personal savings

by Destination

82.4 79.2

17.6 20.8

0255075

100

Middle East

100% Below 100%

by Freq. of Working Abroad

78.7 82.0

21.3 18.0

0255075

100

First time

100% Below 100%

Repeater


39


by Legal Status

79.0 83.3

21.0 16.7

0255075

100

Legal Illegal

100% Below 100%

by Gender

83.0 78.6

17.0 21.4

0255075

100

100% Below 100%

An interesting initiative in pre-departure credits is underway in East Java. According to World Bank fi eld

reports, Bank JATIM (The East Java Regional Development Bank, a BPD) is off ering credits through PPTKIS

located around Surabaya and Sidoarjo, in amounts that range from Rp 5-20 million, depending upon the

destination country. The interest rate charged by Bank JATIM is 6% per annum. Not surprisingly, at this price,

the product is proving very popular with the total value of credit is growing by as much as 100% per annum

in recent years. According to press reports, Bank JAKTIM’s target was to provide fi nancial services of this kind

to 5,000 migrant workers in 2008, a signifi cant increase from the average of previous years.

More details35 are needed before an assessment can be made of this program. It would be very useful

to track loan repayment records over several years in order to determine the likelihood of achieving self-

sustainability. If the program proves successful, it will be an important example of a commercial initiative

into the fi eld of fi nancial services specifi cally intended to meet the needs of migrant workers, very diff erent

from the subsidized credit provided by other programs that have failed in the past.

3.3 RemittancesThe broad characteristics of Indonesian workers’ remittances are presented in Figures 11 and 12. The fi gures

show that just over two thirds of Indonesian migrant workers remit money (or something of value) at some

time during their time abroad, usually on special occasions. The typical amounts are small, which means that

the costs associated with sending them in are relatively expensive. On average, a slightly higher proportion of

males make remittances than females (72% versus 66%), but the value of females’ average remittances is

higher.

In addition to this, just over half of migrant workers remit only on special occasions and a relatively small

percentage (13%) remit only once. Among those who remit regularly,36 the most signifi cant proportion

makes remittances once every 3-4 months. Males tend to remit more frequently than females; females

remit more often on special occasions and are more likely to carry money home on return trips. Decisions

regarding the method of remittance are generally made by the migrant worker, and the main criterion is

convenience, with convenience of the recipient dominating those of the sender (Figure 11).

The average size of the remittance is quite low, about Rp 2 million (about US$200), although there are some

notable variations in the value of remittances (see the middle panels of Figure 11). For instance, the average

remittance by females is almost twice as large as that of males, which off sets the tendency of males to remit

more frequently. The average value of remittances from destinations in the Middle East are much higher

than from the Asia-Pacifi c region; legal workers remit much more on average than illegal workers; and repeat

females remit more than others.

35 For example, the extent to which this highly subsidized interest rate is shared between the PPTKIS and the MW. Also, there is the matter of guarantees, if any, through government agencies.

36 By region, migrants from East Java remit signifi cantly more frequently than the others, often once per month.

40



As for cost, there is a wide range depending upon the type of service provider (Table 7). Services provided by the

Post Offi ce (data available only for Malaysia) are the cheapest, with charges equal to approximately 4½% of

the value of a small remittance, of about US$200. However, this method is also the slowest, requiring about

a week after remittance to reach its destination. Money transfer agents (such as Western Union or Money

Gram) are the fastest (normally same day service). These services are usually price competitive with those

provided by banks, which are the most expensive of all and generally take a couple days.

Table 7: Cost of Remitting to Indonesia (Cost in %)1/

SourceAverage

Cost

Average Cost

Via Bank

Average Cost

Via Money

Transfer Agent

Malaysia 7 ¼% 10 ¼ % 5 ½%

Singapore 6 ½% 9 ½% 6%

The Netherlands 12% 10 ½% 13 ½%

United States 8 ½% N/A 8 ½%

1/ Cost for small transfer, of roughly US$200.

Source: World Bank; http://remittanceprices.worldbank.org/RemittanceCosts/?to=90

By international standards, the cost of remitting funds to Indonesia is about average, at least among the few

available, direct comparators (Table 8). Among the comparators, it is notable that Pakistani banks do not

charge for remittances made from abroad to Pakistan (see World Bank (2009a), Chapter 5). Indonesia might

consider encouraging the development of this model, treating the transaction as a public service obligation,

for which banks are reimbursed by the government (see Chapter 6).

Table 8: International Comparison of Remittance Costs (Average Cost, in %)1/

Source:Destination:

Indonesia Turkey Philippines China India Pakistan

Singapore 6 ½ n/a n/a 6 4 ½ n/a

The Netherlands 12 11 ½ n/a n/a n/a n/a

United States 8 ½ n/a 7 12 ½ 4 ½ 9 ½

1/ Cost of a small transfer, roughly US$200; for Pakistan, $300 (average of banks and money transfer agents).

Source: Table 5.7, World Bank (2009a) and http://remittanceprices.worldbank.org/RemittanceCosts/?to=90

With the cost of making a small remittance amounting to approximately 5-13% of the value of the remitted

sum (Table 7), it clearly pays for the migrant worker to shop around for the cheapest means of transfer.37 However,

cheap services may not be available at all, or there may be constraints in a way of using these services. For

example, illegal workers often make small remittances and have trouble accessing formal channels. The

policy answer is to encourage lower-cost means for transferring money. This could utilize innovative technologies

to facilitate mobile banking. Issues and opportunities in this area were discussed in detail in Section V.3

of World Bank report (2009b) and will not be repeated here. However, the policy issues currently appear

complicated (see Box 5) and may take considerable time to resolve. T-cash, Telkomsel mobile wallet service,

has domestic transfer ability in the form of airtime but with limited38 amount per month.

37 As another small example of the benefi ts from shopping around, MoneyGram has recently introduced a rewards program whereby members receive, among others, a 5% discount on money transfer fees. This is useful information for MWs, but most would be unaware of it.

38 For registered costumer (comply with KYC) has maximum of IDR 5 million transactions per month, with daily maximum limit of IDR 200,000.


41


Box 5: Indonesian Migrant Workers and Issues Concerning Mobile Banking

Mobile phone technology has great potential to extend accessibility to fi nancial services. Amongst other such

services, it could act as a vehicle for MWs’ remittances. It could off er the unbanked population access to fi nancial

services easily, cheaply, conveniently and securely through a popular, existing delivery channel.

The examples of Kenya, the Philippines and South Africa illustrate the technology’s potential (see World Bank

2009b, Section 5.3.1). Indonesia is moving ahead quickly with mobile banking services, but there are few examples

to date of the successful provision of fi nancial services to low-income Indonesians through branchless banking.

Some of the reasons are related to existing regulations. These and other issues this signifi cance extends beyond

the provision of services merely to migrant workers are discussed in greater length elsewhere (World Bank 2009b,

Section 5.3.2).

In terms of issues directly impacting migrant workers and their remittances, person-to-person fund transfers

through mobile banking services are allowed in some countries under current regulations. Reports indicate that

Pilipino migrant workers in Singapore, Hong Kong and the Middle East send home millions of US dollars every

month over mobile banking networks. The same situation could unfold in Indonesia, if the regulatory framework

were to permit.

According to recent research by the IFC, Telco-led mobile banking players in Indonesia are not allowed to conduct

person-to-person funds transfer; only bank-account-to-bank-account transfers are permitted. Operating within

this framework, Maxis, a cellular operator in Malaysia, provides remittance services to Indonesian migrant workers

in Malaysia and Singapore. Indonesian migrant workers in the two countries can use Maxis services to remit money,

provided that the recipient has a bank account in one of 5 banks that cooperate with Maxis in Indonesia. At the

same time, two operators in Indonesia were working on a pilot with Indonesia banks to allow Indonesian migrant

workers in Malaysia and Hong Kong to remit money using Indonesian mobile operators.

To make further signifi cant progress, mobile operators would need to be allowed to take two large steps. First,

to make person-to-person transfers (with the incoming transfer stored electronically on the mobile phone). And

second, to build a chain of (non-bank) cash-out agents to allow for convenient cash withdrawal. This currently looks

diffi cult, owing in part to Know Your Customer regulations and concerns over terrorism fi nancing. To accelerate the

process, there may be a role a pilot program of some type, possibly in the form of a public-private partnership.

Source: World Bank 2009b, Chapter 5.

42



Figure 11: Characteristics of Remittances as Surveyed (in%, except as indicated)

Ever remitt money?

31.6

68.4

No Yes

Freq. of Remittance

0 15 30 45 60

Not appliedCarried on return trips

Once in one yearOther

Every 6 monthsEvery 2 months

Every monthOnly once

Once every 3-4 monthsOnly on special occasions

Who decides remittance channel?

0.1

0.3

0.3

4.3

17.7

77.4

Hiring company (PJTKI)

Others

Sponsor

Family in Indonesia

Employer

The migrant him/herself

Avg. Remittance Value

by Gender (in IDR)

1.500.000

2.700.000

0

1.000.000

2.000.000

3.000.000

4.000.000

Male Female


by Regional Destination (in IDR)

1.500.000

4.000.000

0

1.000.000

2.000.000

3.000.000

4.000.000

Middle east


by Legal Status (in IDR)

1.000.000

3.000.000

0

1.000.000

2.000.000

3.000.000

4.000.000

Illegal Legal

Time Bef. 1st Remittance

by Gender (in months)

68

0

3

6

9

12

Male Female


by Freq. of Working Abroad (in months)

6

11

0369

12

Repeater First time


by Regional Destination (in months)

69

0369

12

Middle east


by Legal Status (in months)

79

0

3

6

9

12

Illegal Legal


43


Figure 12: Characteristics of Remittances as Surveyed , continued (in%, except as indicated)

Method of Money Transfer

0 15 30 45 60 75

OtherInformal money transfer agent

Bank cheque through air mailWestern Union

Carry own on return tripsThrough relatives or friends

Bank wire transfer

Who received the money?

50.646.5

2.9

Family member Account Mediator Other

Criteria for Choosing Method of Transfer

0 15 30 45 60

otherFlexibilityReliability

CostSender convenience

SecuritySpeed

Recipient convenience

Reason to Use

Bank Wire Transfer

otherFlexibilityReliability

CostSender convenience

SecurityRecipient convenience

Speed

0 14 28 42 56 70

Reason to Remitt

Through Relatives or Friends

0 14 28 42 56 70other

FlexibilityCost

SecurityReliability

SpeedSender convenience

Recipient convenience

Reason to Remitt

by Carrying Own Money

0 15 30 45 60

otherFlexibility

CostReliability

SpeedSender convenience

Recipient convenienceSecurity

Problems in Remitting

by Types of Transfer Method

0 14 28 42 56 70

Mailed bank cheque

Bank wire transferWestern Union

Informal MTAOther

Carry own on return tripsThrough relatives/friends

Problems in Using

Bank Wire Transfer

0 10 20 30 40 50

OtherLack of legal doc.

Fin./bank illiterateCost

Distance

Time

Bad service

OtherBad service

Lack of legal doc.Fin./bank illiterate

Time

Cost

Distance

Problems in Using

Relatives/Friends Channel

0 15 30 45 0 15 30 45 60

OtherLack of legal doc.

Bad serviceDistance

TimeCost

Fin./bank illiterate

Problems in

Carrying Own Money on Return Trips

44



The Survey indicates it takes slightly longer than seven months before the average migrant worker makes

the fi rst remittance, but again there is some important variation (see the lower panel of Figure 11). For

example, females take longer than males to make their fi rst remittance, perhaps refl ecting their greater

reliance (noted earlier) on more costly sources of loans and their lower-paid jobs.39 Repeat migrant workers

make their fi rst remittance relatively quickly, probably indicating more familiarity with the process and less

reliance upon expensive sources of fi nancing. Illegal workers remit faster than legal workers, suggesting that

dire needs at home motivate their decision to work abroad outside the law. Perhaps surprisingly, the wait

before the fi rst remittance is much longer in the Asia-Pacifi c than in the Middle East.

Concerning the type of service used to make remittances (Figure 12), electronic bank transfers are by far

the most popular remittance vehicle. Friends or relatives are the second choice, followed by carrying the

remittance on return trips. Other vehicles (such as Western Union, the Post Offi ce or informal agents) are

relatively uncommon. Most of the time, a family member picks up the money, but it is also common to use

an account mediator.

The main criteria for choosing one service rather than another are: convenience (with recipient convenience

ranked as a more important factor than convenience for the sender); speed; and security. Cost is ranked relatively

low down the list. These rankings are fairly consistent across vehicles, a notable exception being the perceived

security of carrying the money on one’s person during a return trip (see the middle panel of Figure 12).

Most problems are encountered through the use of one or the other of two of the more popular vehicles,

namely friends and relatives and carrying the money on one’s person (see the lower panel of Figure 12).40

The least troublesome, electronic bank transfer, is also the most popular. For the relatively small proportion

of recipients reporting problems with bank transfers (less than 8%), the most common complaints are poor

bank service, cost and implicit costs. Importantly, fi nancial literacy and lack of legal documentation rank

lower on the list. These results suggest that bank transfers already work relatively well as a vehicle for making

remittances. Assistance to migrant workers in remitting would be better focused on raising awareness of the

risks of—and alternatives to—remitting via friends and relatives and carrying sizable amounts of money on

one’s person. Financial literacy training may play a role in raising such awareness.

Once the funds arrive back in the village, questions arise as to the use of the money (see Figure 13). Decisions

in this regard are almost always made by the head of household or by the sender, with the head of household

tending to dominate. The greatest proportion of respondents (53%) stated that the remittance was used to meet

daily needs, refl ecting the high incidence of poverty and acute need in these villages. Other signifi cant

uses remittances were reported to be loan repayment (15%) and various forms of real asset accumulation,

typically housing (about 15%). Emergencies, such as health care expenses, don’t rank high on this list, and

business investment is very low.

Roughly 25% of surveyed households say that they save remittances (lower left panel of Figure 13). This

looks high, but casts no light upon the amounts actually saved. Indeed, it seems very likely that only a

small amount is actually saved, in which case the implied overall saving rate is very low, perhaps only a few

percentage points.41 Among those who do save, saving accounts and other vehicles provided by banks are by far

the most popular choice, but approximately 15% of respondents state that they prefer to keep the money

39 According to Bank Indonesia’s 2008 Remittance Survey of Migrant Workers (p.36), female migrant workers earn roughly 2/3rds as much as males (an average of Rp1 to 1½ million per month versus 1½ to 2 million per month). No information is available on benefi ts, for example, room and board normally provided to household workers.

40 On a regional basis, migrants from NTT had far and away the most problems with remittances. This may refl ect the fact that so many are illegals (see Section 2.4).

41 Offi cial data on personal savings rates are not available in Indonesia because the national accounts do not include any income side information. However, indirect World Bank estimates suggest a private savings rate of around 20%. Personal savings rates would be somewhat lower than private savings rates because the latter includes corporate saving, which is relatively high.


45


at home. Other options are relatively unimportant. By far the most common (98%) reason for not saving is

because the money has all been spent on consumption.42

These reported uses of remittances together with their other characteristics (Figures 11 and 12) off er some

tentative insights into the choice of transmission mechanisms. Namely, the occasional nature of most

remittances, combined with their use for daily consumption back in the village, mean that migrant workers

tend to value the security and convenience of bank transfers, despite the relatively high cost of those

transfers. Still, it is perhaps surprising that there is not a higher rate of usage of low cost Post Offi ce transfers

for routine spending and money transfer agents for emergencies. Financial literacy training may be useful

to ensure that migrant workers are aware of their options for remitting and other benefi ts and costs of each

vehicle.

Figure 13: Use of Remittance as Surveyed (%)

57.7

37.0

5.20.1

0

15

30

45

60

Who decides on use of remittance?

Head of the household

Sender Other family member

Non-family member

0 15 30 45 60

OtherBuying motorbike

Business investmentSpecial occasions

Covering health expenseBuying asset

Payment of school feeBuilt/buy/renovate house

Loan RepaymentDaily needs

Main Use of Remittance

25.2

74.8

Yes No

78.9

15.63.4 2.2

0

20

40

60

80

100

Bank Athome

Other Coop.0.5

1.2

2.7

5.9

98.4

Other

Don't want others toborrow

Don't know how to use

Don't know how to save

All spent on consumption

Do you save the

remittance?

Where do you save the

remittance?

Why don’t you save the

remittance?

3.4 Migrant Workers and Savings AccountsThe survey shows the banks play a very important role in providing services to make transfers (Figure 12)

and to save money (Figure 14). However, there are problems that limit the eff ectiveness of banks providing

services to migrant workers and their families. For example, migrant workers with limited fi nancial literacy

may fi nd banks to be intimidating institutions (see Box 6); the hours of operation in the host country are

likely to be diffi cult for migrant workers with little free time; and considerable travel time (one hour or more,

each way) may be needed to pick up the remittance.

42 Another factor may be a bias in the questionnaire that favors fi nancial saving, rather than saving (or investing in) real assets, like housing or jewelry.

46



One promising possibility in this regard is mobile banking (see Box 5). Another frequent proposal is to require

banks to off er a ‘no frills’ account, which would have low opening and minimum balances and small monthly

admin fees. While the number of costly services provided through this account would be limited, it could

still facilitate remittances. However, fi eld discussions indicate that many commercial banks and Peoples’

Credit Banks (also known as BPRs) already off er such a service (see the ‘BNI TKI’ and ‘e-Batara Pos’ lines in Table

9).43 Consequently, it is not clear how much additional value would be provided by requiring all banks to off er

such a service and it might create a compliance burden on banks with limited branching networks.

Table 9: Sample Savings Products Off ered by Banks and the Post Offi ce

Savings

ProductInitial Deposit Minimum Balance

Monthly

CostNotes

e-Batara Pos Rp20,000 Rp20,000 Rp1,500 - Product of BTN Bank jointly

operationalized with PT Pos

Indonesia

- ATM card available

Simpedes Rp100,000 Rp50,000 - Product of BRI Bank

- ATM card available (with an

additional monthly cost of Rp

3,000)

Tabungan

Mandiri

Rp50,000 Rp50,000 Rp9,000 - Product of Mandiri Bank

- ATM card mandatory

- Minimum deposit Rp 10,000

BNI TKI Rp10,000 Rp250 - Product of BNI

- Should be requested collectively

(minimum 10 persons) and

coordinated or recommended

by the PPTKIS

BNI Taplus Rp200,000 Rp6,000 - Product of BNI

- ATM card available

TabunganKu Rp20,000 (commercial)

Rp10,000 (BPR)

Rp20,000 (commercial)

Rp10,000 (BPR)

- BI led savings program provided

by 70 commercial banks and

more than 1,000 BPR

Source: Interview with banks & post offi ce, Cirebon, September 2007; www.posindonesia.co.id; www.btn.co.id; www.bri.co.id; www.

bankmandiri.co.id; and www.bni.co.id.

TabunganKu is a new aff ordable savings product with simple terms, condition, and no administration fees

as its main features. Released in late February 2010, this product is widely commercialized by 70 commercial

banks and more than 1,000 BPR (both conventional and sharia). Although its generic features are meant to

educate the costumer to have saving habit (has limited transaction features), banks are allowed to make

some modifi cations with incurred cost which plainly disclose to customer upfront.

A related issue is the requirement that migrant workers open a bank account before they leave the country

(see World Bank (2009b), Section 5.2). As one immediate benefi t, the account serves as proof of status for

the migrant worker, providing exemption from the Rp 1 million exit tax at the airport. However, discussions

with a key local bank indicate that the great bulk (80%) of these accounts are inactive; the migrants open the

accounts as mandated, but quickly abandon them. To meet their genuine needs for an account while

they are overseas, migrant workers simply open a new account abroad, as convenient, or make other

arrangements.44

43 Staff at a major private bank (not included in Table 9) reports a special TKI account that has zero monthly admin fees.

44 They may also make simple arrangements for transferring money home, like sending an extra ATM card back to the village.


47


Box 6: Village Culture and Banking

A recurring theme in access to fi nance is the intimidation factor in dealing with imposing, modern banks. For

migrant workers, this doubtless stems in large part from their modest, average levels of education and their origins

in relatively poor, remote villages. But they are hardly unique, as illustrated by plight of Stephan Leacock, an English-

born Canadian author, who wrote about the same problem almost 100 years ago.

“When I go into a bank I get nervous. The clerks make me nervous; the little windows at the counters make me

nervous; the sight of the money makes me nervous; everything makes me nervous.

The moment I go through the door of a bank and attempt to do business there, I become an irresponsible fool. I

knew this before I went in, but my salary had been raised to fi fty six dollars a month and I felt that the bank was the

only place for it.

So I walked in with dragging feet and looked shyly round at the clerks. I had an idea that a person about to open an

account was obliged to consult the manager.

I went up to a counter marked ‘Accountant’. The Accountant was a tall, cool fellow. The very sight of him made me

nervous. My voice was deep and hollow.”

Disaster unfolds in this humorous short story. It is only resolved by the author fl eeing the bank’s premises.

“As the big door swung behind me I caught the echo of a roar of laughter that went up to the ceiling of the bank.

Since then I bank no more. I keep my money in cash in my trousers pocket and my savings in silver dollars in a

sock.”

Source: “My Financial Career”, Stephen Leacock, Humourist and Humanist, 1869-1944.

The migrants’ attitude indicate problems with these compulsory accounts. Also, there is no obvious reason

why exemption from the exit tax should be linked to opening a bank account; other proof of status should

suffi ce for the exemption. What is less obvious is exactly what should be done to make these accounts

more relevant to the migrant workers’ legitimate needs. At this point, there are several options that the

Government might consider. For example, the opening of the account could be made voluntary; it could

be supported by better pre-departure fi nancial literacy training, emphasizing aspects that are in the best

fi nancial interests of the migrant worker. Accounts could take the form of joint accounts with other family

members to facilitate remittances, given that convenience for the recipient is the main criterion in choosing

the vehicle for remitting (second left panel of Figure 12).

3.5 Strategic Matters Arising in this Chapter

Strategic Matters Concerning Financing Pre-departure Costs: Migrant workers have large up-front

costs, which are fi nanced most frequently from personal savings, especially among repeat migrants. This

is encouraging because it implies accumulated savings during the fi rst contract. Still, large numbers of

migrant workers borrow, with the most common source of credit being recruiting agencies (PPTKIS),

which charges very high (10-20% per month) eff ective rates of interest. The available evidence indicates

a complicated structure for these PPTKIS loans, not simply usurious nominal rates of interest. Nonetheless,

there are various options to reduce these high eff ective rates of interest. The most promising may involve

a reform of the PPTKIS licensing and supervision system and encouraging the development of lower-cost

credit to migrant workers (Chapter 6). It is also notable that among the various sources of credit, banks

rank at the very bottom of the list in terms of rate of usage, further evidence of banks’ potential, if their risk

concerns can be overcome.

48



Strategic Matters Concerning Financial Services Abroad: While abroad, most migrant workers remit at

some time, typically in small amounts, which makes for relatively high costs (roughly 5-13% of the transfer,

depending upon method). Despite being the most expensive, bank transfers are by far the most popular

and the least troublesome. They also seem to work reasonably well, if the migrant worker can get to a bank

during offi ce hours or if the recipient lives near a bank branch or an ATM machine.

Regarding the cost of transfers, Indonesia is about average relative to the available comparators, suggesting

only limited gains from policies that focus on this area. However, the wide range of costs suggests that

migrant workers can reduce their remittance costs by 1/3 or more, just by fi nding the service provider most

appropriate to their needs.

Strategic Matters Concerning Use of Remittances: Once back in the village, the remittance is mainly used

to meet daily needs, refl ecting the high incidence of poverty. Other notable uses are loan repayment; home

improvements; and school fees. Very little is saved or invested. To assist, there may be a role for training in

personal fi nancial management for migrant worker households.


Chapter 4

Surveyed Migrant Worker Households’ Use of Financial Services

4.1 IntroductionThis Chapter examines the fi nancial services utilized by surveyed migrant worker households and the barriers

to the use of those services. The household nature of the survey on which this report is based has some

important implications. For example, references to socio-economic characteristics (such as gender, age and

education) refer to the characteristics of the survey respondent.45 This would tend to reduce the signifi cance

of lack of access on the part of individual members of the household because the respondent is likely to

answer on behalf of the entire household, not just herself. Still, this is the correct analytical approach, if the

decision in question is made at the household level.

This Survey indicates that the single, most popular fi nancial service is a bank account (see Figure 14). Credit

facilities are important. However, a range of diff erent service providers act as sources of credit, which complicates

policy solutions. Indeed, informal loans (from neighbors, family or friends) are by far the most important

source of credit; at the bottom of the list are the more sophisticated products, such as mobile banking and

credit cards. This ordering of the popularity of credit sources is almost identical to that of the general population,

as indicated in Chapter 3 of World Bank (2009b), although the level of usage of most products by surveyed

migrant workers’ households is substantially lower than that of the general population. This was particularly

evident in the area of bank savings accounts, with only 29% of surveyed migrant worker households hold in

such accounts, compared to more than 40% for the general population,46 despite migrant workers’ special

needs for remittance services, which often go through another person’s account.

45 It is also important to note that Survey respondents were persons of authority in the household. In 59% of cases it was the head of household; otherwise, it was the person with fi nancial authority. 58% of all respondents were woman.

46 This is also low in relation to representative national rural areas (Figure 18 of World Bank 2009b).

50


Chapter 4Surveyed Migrant Worker Households’ Use of Financial Services

Figure 14: Financial Service Use as Surveyed (in %)

0 5 10 15 20 25 30 35

Credit cardEmployer loan

Mobile bankingDaily bank loan

Bank loanWelfare scheme loan

Pawnshop loanMFI loan

Debit cardCredit from shop

Loan from neighbor, family, or f riendsBank savings account

There is notable regional variation in the rate of usage of these fi nancial services (see Figure 15). Specifi cally,

a signifi cantly greater proportion of the population in East Java than in NTT and NTB hold bank accounts,

probably refl ecting the more advanced state of development of Indonesia’s fi nancial system on Java. As will

be seen later in this Chapter, such patterns largely refl ect the diff erences in income levels and incidence of

poverty between these three provinces.

Figure 15: Financial Service Use as surveyed, by Province (in %)

0

15

30

45

East Java NTB NTT

Credit card

Employer loan

Mobile banking

Daily bank loan

Bank loan

Welfare scheme loan

Pawnshop loan

MFI loan

Debit card

On credit from a shop

The following Sections begin with an examination of the use of bank accounts and continue by examining sources of loans with special attention to the ‘fi nancially excluded’. The fi nal Section in this Chapter looks at Insurance, which is of special interest to migrant workers and their families. For each fi nancial service (savings, credit and insurance), the Chapter includes analytical econometric results that identify the statistically signifi cant socio-economic factors that aff ect access.

4.2 Who Saves and Where? Beginning with a summary of the broader picture, the surveyed households of migrant workers hold

savings with a number of diff erent service providers (see Figure 16). However, banks dominate among both

single- and multiple-use providers, and there is only a moderate amount of overlap among users. Banks

dominate because they have direct and immediate access to the clearing system, which is the main vehicle

for workers’ remittances. Physical access to banks is not perceived as a constraint, although transport and


51


other associated costs appear to be signifi cant. There is relatively little use of non-bank formal institutions.

In total, 27% of the population does not have any savings with any service providers.

There are a few notable diff erences between migrant worker households and the general population

(see Chapter 3 of World Bank 2009b). For instance, the fi nancially excluded component is slightly smaller

amongst migrant worker households (27% versus 32%). There is a much higher rate of usage of banks and

much less reliance on the informal sector. Again, this refl ects reliance upon the bank clearing system for

transfer of remittances.

Turning to details, Figure 16 hides some regional variation by province. Most notably, NTB relies much more

heavily upon banks (rate of exclusive use of 73% versus the average of 49%), whereas East Java has a higher

rate of usage of informal institutions. NTT has the highest level of fi nancial exclusion, at 38% compared with

the average of 27%. By contrast, NTB’s level of fi nancial exclusion is considerably lower than the national

average, it only 16%.

In looking more closely at the dominant role of banks, it is important to note that the ownership of bank

accounts is not nearly as widespread as the use of bank accounts. In particular, most surveyed households

that use a bank account don’t actually have their own bank account (Figure 17). It is more common for them

to use the account of an intermediary in remittance transactions, especially in NTT and NTB.47 This distinction

accounts for NTB savers’ heavy use of banks, whereas residents of East Java have greater ownership of bank

accounts (Figure 15).

Figure 16: Overlap Among Savings Providers, as Surveyed

48.7%

2.6%

11.9%

4.8%

2.5%1.6%

0.9%

Bank

Formal Other

Informal27.1%

FinanciallyExcluded

A signifi cant proportion of survey of households (almost 60%) have never had their own savings account (see

the upper left panel of Figure 18).48 Not having a savings account is more common in rural areas, but there

is little diff erence between genders (see Figure 18). By province, the proportion of surveyed households

with bank accounts is highest in East Java, despite the fact that urban areas were not included in the Survey.

This probably refl ects the more developed state of the fi nancial system in Java than in the outer islands.

With regard to education, there is a strong positive relationship between educational levels and the likelihood of

holding a bank account (see the lower left panel of Figure 18).

47 The use of someone else’s bank account is not the same as sharing a joint bank account.

48 As noted in Figure 17, 29% currently have a savings account and 12% previously had one.

52



Concerning the all-important metric of household expenditure (a reliable proxy for household income),

there is a clear upward relationship between income levels and the likelihood of holding a savings account (see

the lower right panels of Figure 18). The relationship is particularly striking for savings accounts at banks

(rather than savings account at any type of institution). There is little distinction between urban and rural

areas.

Figure 17: Use of Bank Savings Accounts by Surveyed Households

Total observations 100

Currently have bank savings Using other's bank savings No bank savings 29.3 35.2

Always use other's bank savings Previously had Previously had 30.1 bank savings bank savings

5.4 6.3 Never had

bank savings 28.9

Use other savings Never save1.8 27.1

35.5

Regarding the choice of bank, virtually all bank accounts held by surveyed household members are at BRI’s Unit

Desa or at another government bank, with private banks being barely represented (the second-left panel in

Figure 18). In explaining their reasons for having an account, the most common explanation was the stated

need for a vehicle to facilitate the transfer of money, which is not surprising for households with a migrant

worker abroad. Safety and security are the only other signifi cant reasons stated for holding a savings account

(Figure 19).

Looking at those who have previously held a bank account, but who have chosen to close it, the explanations

are dominantly economic, with respondents stating that they do not have enough money to justify holding

an account. Oddly, this explanation drops off only very slowly as incomes rise (see the upper right panel of

Figure 19). This suggests the lack of saving culture, or a low savings rate with low income elasticity.

Physical accessibility is not perceived as a problem. Only 13% of respondents with a bank account rate the

location of the nearest bank as ‘inconvenient’, rural areas are not much diff erent than urban areas (see the

middle panel of Figure 19). Even for respondents without a bank account, inconvenience is not a large issue.

Notwithstanding these favorable perceptions, access to the closest bank looks costly. For instance, almost

50% of respondents require an hour or more to get to the nearest bank, and for nearly 45% of respondents

the Rp12,000 (about US$1.25). Once having reached a bank, waiting times seem to be quite lengthy:

approximately two thirds of respondents estimate wait times of 30 minutes or more with little variation

between respondents in rural and urban locations. The fact that respondents do not rate these wait times

as ‘inconvenient’ suggests a low opportunity cost of their time.49

49 This is not to say that the villagers do not have other important things to do. The point is that the remittance is probably far more valuable than any other immediate use of their time. Consequently, it gets priority and the inconvenience factor seems unimport-ant.


53


Box 7: Migrants’ Use of Financial Services, Evidence from the Field: West Java

In early September 2007, a World Bank team consulted with 26 people in the village of Cangkring,

Kabupaten Cirebon, on the north coast of West Java near the border with Central Java. The fi ndings

focus on ex-migrant workers and the issues are considered typical of the regions covered by the Survey

in the main text, particularly East Java. Of the 26 persons consulted, 10 were female ex-migrant workers

(FMW); 7 were family members of the FMWs; 1 was a village offi cial; 2 were Post Offi ce employees; and

6 were from commercial banks.

Overseas migration in the village began as early as 1988, mostly women going to Saudi Arabia, Malaysia

and Brunei. Villagers usually migrate through a sponsor, who helps with the preparation of the necessary

initial documentation and brings them to a PPTKIS. One sponsor of a PPTKIS lives in the village, assisting

with migration to Brunei. There are other sponsors in neighboring villages and sub-districts.

The main fi ndings of the fi eld trip are:

• Pre-departure costs are commonly fi nanced by salary advances from the sponsor or PPTKIS. Others sell assets or borrow from friends or family. Use of moneylenders is uncommon.

• FMWs normally do not open a bank account in the destination country. The employer keeps

their salary and remits when the FMW is ready, usually by means selected by the employer.

• Bank account transfers are the most common method of remitting. If the family doesn’t have

a savings account, they will open one when the FMW is ready to remit.

• FMWs typically do not have a bank account before going overseas. However, they often open

an account after they return home with money saved abroad.

• FMWs receive little fi nancial training before departure. They learn informally through their

sponsor; experienced peers; colleagues in the host country; and their employer.

• Little information on banks’ fi nancial products is available in the village. FMWs mainly rely on

friends, family and neighbors in deciding to access fi nancial services.

• Bank BNI is far and away the largest player among the commercial banks in the local area.

However, the banks and the post offi ce appear to be interested only in the FMWs’ remittance

business. The FMWs are not seen as good, long-term customers.

The bulk (approximately 65%) of respondents without a bank account are not aware of the requirements

for opening a savings account, which suggests a useful role for fi nancial literacy training. Other identifi ed

problems (like ‘proof of identity’ or ‘minimum balance requirements’) are minor in comparison (the lower

right panel in Figure 19).

54



Figure 18: Usage of Bank Accounts by Surveyed Households of Migrant Workers (in %, except as

indicated)

Usage of Bank Account

0.3

0.10.6

Currently Banked

PreviouslyBanked

Never Banked


by Rural-Urban

0

20

40

60

80

100

Curr. Banked Prev. Banked Never Banked

Urban

Rural

Bank Account Distribution

32.8

62.7

0.1

3.5

0.1

0.8

0 14 28 42 56 70

BRI Unit Desa

Gov't bank ex BRI Unit Desa

DSP

Private bank ex DSP

Bank Syariah

BPR

Usage of Bank Account in Rural Areas

by Province

0 14 28 42 56 70

Curr. Banked

Prev. Banked

Never Banked East Nusa Tenggara

West Nusa Tenggara

East Java

Usage of Bank Account in Urban Areas

by Province

0 10 20 30 40 50

Curr. Banked

Prev. Banked

Never Banked

East Nusa Tenggara West Nusa Tenggara


by Gender

0 20 40 60 80

Curr. Banked

Prev. Banked

Never Banked

Female Male


by Education Level

0

25

50

75

Curr. Banked

Prev. Banked

Never Banked

Incomplete primary schoolPrimary school

Junior high schoolSenior high schoolUniversity

Do you have a savings account of any kind?

by Monthly Per Capita Expenditure

0.5

1

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans

Monthly Per Capita Expenditure DecilesNote: Vertical line corresponds to poverty line.

Do you have a bank account?

by Monthly Per Capita Expenditure

0.2

.4.6

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans



55


Figure 19: Usage of Bank Accounts as Surveyed, Continued (in %, except as indicated)

Reasons to Have Bank Account

0

10

20

30

40 Transfer money

Keep money safe

For predicted future needs

Other

Reasons to Stop Using Bank Account

0

15

30

45

60

75Not enough money

Bank fees too high

No advantage

Got unemployed

Other

Reason to Stop Using Bank Account

by Yearly Household Income

0 20 40 60 80

Not enough money

Bank fees too high

No advantage

Got unemployed

Other

< 5 mln5-<10 mln

10-<14.6 mln14.6 -<29.2 mln

>29.2 mln

Main Bank Location

Respondent with Bank Account

6.8

79.9

13.3

0

25

50

75

100

Inconvenient

Convenient

Very Convenient

Main Bank Location

by Rural-Urban

9.4

6.0

85.6

78.3

5.0

15.7

Urban

Rural

Very Convenient Convenient Inconvenient

Period of Waiting Until Served Respondent with Bank Account by Rural-Urban (in minutes)

010203040

Less than 15'

15 to less than 30'

30 to less than 60'

60' or more

Urban

Rural

4.3

79.1

16.6

0

25

50

75

100

Inconvenient

Convenient

Very Convenient

Nearest Bank Location

Respondent without Bank Account

0 10 20 30 40 50

60' or more

30 to less than 60'

15 to less than 30'

Less than 15'

Est. Travel Time to Nearest Bank

Respondent without Bank Account (in minutes)

0 15 30 45

12000 or more

6000 to less than 120003000 to less than 6000Less than 3000

Est. Cost to Nearest Bank

Respondent without Bank Account (in IDR)

0

15

30

45

60

75 Don't know

Proof of identity

Initial minimum balance

Knowledge of Requirements to Open Bank Account


56



4.3 Who Are ‘Financially Excluded’ from Saving?The most commonly stated reasons for not holding a savings account were economic (Figure 20). More than three quarters of Survey respondents indicated that they lack suffi cient funds or a job to justify opening a bank account. Other reasons, like physical accessibility (see Section 4.2) or high fees (see the upper left panel of Figure 20) were relatively insignifi cant. Clearly, the great bulk of surveyed migrant worker households voluntarily exclude themselves from holding a savings account. Overcoming their negative perceptions and their belief that there are no benefi ts to be gained from opening a bank account will be no small task. These perceptions are clearly conditional on existing regulatory and pricing arrangements, but they do suggest a role for fi nancial literacy training or a public education program of some sort.

Other summary characteristics include the following (see Figure 20).

• The excluded are mainly lower income earners, with the incidence of exclusion dropping off sharply

as income rises. On this evidence, the threshold for exclusion appears to be somewhere near Rp10

million per annum or roughly US$1 per person per day;

• They tend to be at the extremes of the age distribution (that is, less than 17 and more than 55), with

less education;

• They are a bit more likely to be males than females;

• They are more likely to be in NTT than in other regions; and

• They tend to be agricultural sector workers or not owners of non-farm enterprises.

It is interesting to examine how those without savings accounts facilitate remittances from the family

member who is working abroad. These survey results indicate (see the left panels of Figure 21) that the

preferred method of transfer is still by electronic bank transfer. The main diff erence is that the transfer goes

through a third party, identifi ed in the Survey as an ‘account mediator’. That trusted person picks up the

money from his/her own bank account and makes the delivery to the intended household member.

The dominant role of an ‘account mediator’, combined with limited ownership of own bank accounts and

the dangers of carrying large amounts of cash on one’s person during return trips, underscores a policy

issue that was mentioned earlier (Chapter 3). Namely, if simpler, low-cost means were available for moving

money—for instance, banking by mobile phone—they would probably be very popular among migrant workers

and their households.


57


Figure 20: The Financially Excluded From Savings, as Surveyed (in%, except as indicated)

Reason for Not Opening Bank Account


58.8

18.8

7.7 5.9 4.3 4.5

0

15

30

45

60

Not enough money No job No advantage

Unfamiliar with bank Bank fees to high Other

by Income level, in Rupiah

0 15 30 45 60

< 5 mln

5-<10 mln

10-<14.6 mln

14.6 -<29.2 mln

>29.2 mln

by Province

23.315.6

36.0

0

10

20

30

40

East Java

West NusaTenggara

East Nusa Tenggara

by Rural-Urban

23.927.7

0

10

20

30

Urban

Rural

by Gender

28.5 26.0

0

6

12

18

24

30

Male

Female

by Age Distribution

0

8

16

24

32

40

<17

17-<25

25-<40

40-<55

>55

by Education Level

0

7

14

21

28

35 Incomplete primary school

Primary school

Junior high school

Senior high school

University

by Working Category & Enterprise

Ownership Distribution

0

6

12

18

24

30Agriculture Sector Worker

Salaried Employees

Non-Farm Enterprise Owner

Non-Owner of Non-Farm Enterprise

58



Figure 21: The Financially Excluded from Savings, as Surveyed continued (in%)

62.6

22.414.4 8.0

0

15

30

45

60

75

Method of Receiving Remmitancefor Never Banked Respondent

Wire Transfer

Through relatives or friends

Carry own on return trip

Other

91.1

6.9 5.5 3.8

0

20

40

60

80

100

Method of Receiving Remmitancefor Respondent Using Other's account

Wire Transfer



Other

57.0

28.7

11.2 15.90

15

30

45

60

Method of Receiving Remmitancefor Previously Banked Respondent

Wire Transfer



Other

89.8 7.82 2.4

Who picks up the money?for Respondent Using Other's Account

Account Mediator Family member Other

Box 8: Migrants’ Use of Financial Services, Evidence from the Field: West Kalimantan

In mid-December 2007, a World Bank team consulted with 37 people in 2 villages of Kabupaten Bengkayang in

West Kalimantan. The fi ndings complement those of Box 7, owing to Benkayang’s location, which is near Indonesia’s

border with Malaysia. Of the 37 persons consulted, 9 were female ex-migrant workers (FMWs); 6 were male ex-

migrant workers (MMWs); 9 were family members of the MWs; 5 were village offi cials; 2 were Post Offi ce employees;

and 6 were from fi nancial service providers (formal and informal).

The two villages are markedly diff erent. The fi rst, Sahan, is rural and mountainous only 30 kilometers from the

Malaysian border with a majority of Catholic Dayaks and a minority of Muslim Javanese who transmigrated in the

1980s. Migration from Sahan to Malaysia has existed for as long as any local can remember. Only Dayaks migrate,

normally without passport or visa, using a Pas Lintas Batas (issued to accommodate this traffi c). Most are women

(only single or divorced women) working as domestic workers or waitresses. As for offi cial recruitment, some

agents work independently, informing potential recruits of job vacancies in Malaysia.

The second village, Sei Pangkalan I, is urban on the west coast of Kalimantan. Road transport is good, but it is several

hours to the Malaysian border. The majority of households are offi cially classifi ed as ‘poor’. Malayu Kalimantan

Muslims are the majority of residents with only a few Javanese Muslims. As with Sahan, overseas migration has

existed as long as anyone can remember. In contrast to Sahan, the majority migrate legally to Malaysia with a

roughly equal gender balance. Married and single men—but only single women—migrate to work in the plywood

mills; informal jobs, like domestic helpers, are perceived as too dangerous, owing to past cases of abuse. Concerning

recruitment, agents operating in the village (or in neighboring villages) are usually formally appointed by a PPTKIS.

The main fi ndings in the area of fi nancial services are:

• Informal service providers dominate fi nancial services, owing to weak services from formal providers.

• The most important services to migrant communities are: a money changer; remittance services; and a savings

account.

• The most popular way of remitting money is by entrusting it to other migrants who are making the trip home.

The last few months of earnings are usually carried home in cash.

• Most MWs remit money every 2-4 months in amount equivalent to US$55-US$200.

• Informal channels are preferred for remittances because of lower cost; door-to-door delivery; and better

exchange rates.


59


4.4 Econometric Results Concerning Access to SavingsThe socio-economic determinants of access to fi nancial services is a multi-dimensional issue that is not well-addressed by 2-dimensional Charts, such as those in the previous Section. This Section goes an analytical step further, by attributing the likelihood of saving to 19 socio-economic characteristics covered by the A2F Survey. As an analytical tool, this report follows the lead of World Bank (2009b), using linear probability regressions to identify the statistically signifi cant socio-economic determinants of savings, including a breakdown as between formal and informal savings.50

Table 10: Statistically Signifi cant Determinants of Access to Saving (at 95% level of signifi cance, or

higher)

Determinant of Formal Savings Informal Savings

Savings of Any Kind (relative to ‘Any Kind’) (relative to ‘Any Kind’)

Household size (-) √ X

Gender (M) (+) √ X

MW in the Middle East (+) √ √ (-)

First time MW (-) √ √ (+)

More than primary education (+) √ X

Consumption (income) (+) √ √ (-)

Some household amenities (+) √ √ (+ and -)

Plus: Urban resident (+)

Plus: Legal status (+)

Plus: MW works in informal sector (-)

Plus: Score on cognitive test (+)

Plus: Urban resident (-)

Plus: MW works in informal sector (+)

Source: Annex C.

Detailed analytical results are presented in Annex C with an abridged version in Table 10, with the direction of

impact indicated by the sign in parenthesis (+ or -). To summarize, overall statistical fi ts are poor, ‘explaining’

only 3 to 15% of sample variation, with informal savings at the lower end. That said, the data identify several

signifi cant determinants of savings of any kind, with probabilities, as follows:

• Consumption (a proxy for income) is positively correlated with (7%) the likelihood of having a savings

account and the probability is roughly trebled by various household amenities, which are probably

secondary proxies for income;

• Gender: There is 7% greater chance of men holding savings account;

• First time migrants are 5% less likely to save;

• Larger households have a slightly lower probability of saving; and

• Families with workers in the Middle East are 6% more likely to save, probably because they have

greater need of a bank account to transfer money. But curiously, this is not refl ected in either the

‘formal’ or ‘informal’ components of saving.

There are some notable diff erences between the components of savings (that is, formal and informal; see the

two rightmost columns of Table 10). For instance, gender is not signifi cant for informal savings; household

size is not signifi cant for informal saving; and directional impact (that is, positive or negative) is often diff erent

for formal versus informal, indicating that informal service providers are sometimes a substitute for formal

ones. The most notable additional factor (+17%) for formal savings is the score of the cognitive tests; urban

residency and legal status add a bit more.

50 In addition to the ‘Basic Results’ (summarized in Tables 10 and 11), Annexes C-E also present results that control for variation across provinces (see columns labeled ‘Province Fixed Eff ects’) and island clusters (see ‘Cluster Fixed Eff ects’). In general the ‘Basic Results’ are robust relative to provincial and island cluster variability.

60



4.5 Who borrows? Where? How much? And at what price?

Almost 60% of survey respondents do not have access to credit of any type,51 and may be considered

‘fi nancially excluded’ from credit in these terms (see Figure 22). Of those who are ‘included’, informal sources

are by far the most signifi cant, and semi-formal sources are considerably more signifi cant than banks.52

Among sources of credit access by Survey respondents, the most popular source is friends, family or neighbors,

which accounts for almost 70% of loans (see Figure 23). Shop credit and pawnshops are also notable, but

formal sources (such as banks or MFIs) are only important if the household has a savings account (the upper

panel of Figure 23). In this context, a savings account may allow the household to establish a relationship

with a fi nancial institution and, if necessary, for the savings account to serve as collateral for that institution.

Another possibility is that the fi nancial institution uses the savings account as a low-cost indicator of

repayment capacity.

At the aggregate level, having a loan is almost unrelated to household expenditure, with this remaining true in

both urban and rural areas (see the second panel of Figure 23). In this regard, the only notable characteristic

is that when rural respondents crossed beyond the poverty line, there is a moderate rate of increase in

inclusion.

Figure 22: Overlap Among Credit Providers, as Surveyed

1.8% 0.6%

0.8%

28.6%

6% 0.2%

3.5%

Bank Semi - Formal

Informal

58.6% Financially Excluded

Nonetheless, the Survey indicates major diff erences in the composition of credit relative to income (see the

lower panels in Figure 23). For example, as income rises, there is greater rate of usage of bank loans amongst

both urban and rural households (that is, a loan from a bank is a ‘normal good’). The rate of increase begins

sooner and is more pronounced for surveyed urban households than poor rural households. Informal

loans also tend to rise with income, but the tendency is less marked. By contrast, the use of an MFI loan

51 This looks high, considering the limited fi nancing alternatives for the MW (see Figure 10). As for insurance (see Section 4.9), this casts some doubt on the household’s knowledge of the migrant worker’s actual use of fi nancial services.

52 It should be noted that institutions that provide credit are not exactly the same as those that off er a savings service, especially in the informal and semi-formal sectors. Consequently, Figures 16 and 22 are only comparable in their broader characteristics.


61


declines as urban income rises (that is, an MFI loan is an ‘inferior good’ for urban households). Borrowing from

pawnshops or community welfare schemes tend to be relatively neutral with respect to incomes.

In terms of the sources of loans, borrowing patterns are very similar whatever the breakdown (gender,

province or rural-urban split). Informal sources predominate, with the rate of usage fairly evenly split between

other sources (see Figure 24). Men borrow a bit more often than women (43% versus 40%; see the upper left

panel in Figure 23), although the source of borrowing is very similar for both. This said, women tend to favor

community welfare schemes, whereas men lean towards other sources. As surveyed, rural households make

somewhat greater use of informal sources and community welfare schemes than urban households, where

there is a preference for pawnshops, MFIs and banks.

By contrast, average loan size varies markedly by type of institution (see lower left in Figure 24). Banks

make the largest loans. Loans facilitated by employers and shop credit (which includes credit facilities for the

purchase of consumer goods, such as motorcycles) are smaller, while loans provided by pawnshops and

daily loans are the smallest. By and large, the size of loan repayment by institution simply refl ects the size

of loan (Figure 24).

As for indicative interest rates, most median rates lie in the range of 15% to 45% (at annual rates) with banks and

shop credit at the lower end (lower right in Figure 24). Pawnshops and neighbors, friends and family are at the

upper end of this range and MFIs are right in the middle. The high-side outlier is credit from a daily bank,

because the term is so short (indeed, normally one day), so extrapolated annual rates are extremely high.

Figure 23: Use of Credit by Surveyed Households of Migrant Workers (in %, except as indicated)

0

25

50

75

Have Loan Don't Have Loan

Loan of Any Kindby Gender

Male Female

0 14 28 42 56 70

Ever Borrowed by Savings Account Ownerships

Without Savings Account With Savings Account

Bank LoanMFI Loan

Employer LoanPawn Shop LoanDaily Bank Loan

Comm. Welf. Scheme LoanNeighbor, fam., & friends Loan

On credit from shop

0 15 30 45 60

Bank Loan

MFI Loan

Pawn Shop Loan

Comm. Welf. Scheme Loan

Informal Loan

Purpose of Loan

Business exp.

Inv. Exp.

Cons. Exp.

Paying unforeseen exp.

Paying school fee

Other

0.2

.4.6

0 5 10 0 5 10

Urban Rural

Weig

hted

Mea

ns


By Monthly Per Capita ExpenditureDo you have a loan?

62



0.0

5.1

.15

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureDo you have a bank loan?

0.0

5.1

.15

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita Expenditure0

.05

.1.1

5.2

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureDo you have a pawn shop loan?

.05

.10 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureDo you have a community welfare scheme loan?

0.2

.4

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureDo you have an informal loan?

Figure 24: Use of Credit by Surveyed Households of Migrant Workers, Continued (in %, except as

indicated)

Loan of Any Kind

by Education

0 20 40 60 80 100

Never go to schoolInc. primary school

Primary schoolJunior high schoolSenior high school

University


Types of Loan

by Gender

0 6 12 18 24 30

Formal Loan MFI Loan

Pawn Shop LoanComm. Welf. Scheme Loan

Informal Loan

Female Male


63


Loan of Any Kind

by Types of Work

020406080

Gov't Employee Private Employee Self Employed Employer Freelance/Cas. Worker

Unpaid Fam. Worker


Types of Loan

by Urban-Rural

0 7 14 21 28 35



Informal Loan

Rural Urban

Types of Loan

by Province

0 10 20 30 40



Informal Loan

East Nusa Tenggara West Nusa Tenggara East Java

0 4 8 12 16 20

Daily Bank Loan

Pawn Shop Loan

Comm. Welf. Scheme

Neighbor, fam., & friends

MFI Loan

On Shop Credit

Employer Loan

Bank Loan

Average Loan Size

by Type of Loans (IDR million)

0 15 30 45 60

Daily Bank Loan

Pawn Shop Loan

Comm. Welf. Scheme


MFI Loan

Employer Loan

On Shop Credit

Bank Loan

Average Size of Loan Repayment

by Type of Loans (IDR million)

0 50 100 150 200 250

Bank Loan

MFI Loan

Employer Loan

Pawn Shop Loan

Daily Bank Loan



On credit from shop

Indicative Annual Interest Rate

by Types of Loan

64



4.6 Who Are ‘Financially Excluded’ from Credit?Almost 60% of surveyed households have never borrowed from any source (see the upper right in Figure 25),53

with this proportion being fairly stable across all three provinces. Rates of exclusion are much higher in rural

regions than in urban regions (84% versus 16%). This is striking evidence of the failure of Indonesia’s fi nancial

system to service a large segment of society.

Surprisingly, exclusion from credit bears very little relationship to household expenditure for surveyed urban

households. In the case of surveyed rural households, there is a limited downward relationship at lower

levels of income, but this relationship is not evident above the poverty line (upper left in Figure 25).

Broken down by other factors (Figure 25), there is relatively little variation in the general pattern of 60%

exclusion, noted above. For example, exclusion declines as education increases, but the gains are modest

and they reverse at the university level. In terms of age, only the oldest group is a signifi cantly higher rate of

exclusion than the others (69% compared to approximately 55%). In terms of gender, exclusion is only a bit

more severe for females than males (60% compared to 57%). In terms of type of work, salaried employees

are less likely to be excluded than other categories, particularly agricultural workers or a non-enterprise

owner’s.

As for reasons for not borrowing (see the lower panel in Figure 25), the dominant identifi able reason—

independent of type of lending institution—is no perceived need to borrow.54 The most important secondary

reason is the fear of not being able to repay. Both of these suggest a high degree of voluntary exclusion.

Financial literacy or other training may result in changed perceptions regarding the desirability of credit.

Figure 25: The Financially Excluded from Credit, as Surveyed (in %)

0.2

.4.6

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureNever Borrowed

0 15 30 45 60

East Java

West Nusa Tenggara

East Nusa Tenggara

by Province

53 This is markedly higher than the 40% reported for the typical Indonesian in Chapter 3 of World Bank 2009b. This is also appreciably higher than representative rural areas of Indonesia, which are not much diff erent than urban areas (see Section 3.5.1 of World Bank 2009b).

54 In this context, a weakness of the questionnaire should be noted. Namely that the questionnaire asks ‘reasons for stopping bor-rowing [from various institutions]’; this is reported in the main text. The Survey does not ask about the reasons for never borrowing. The questionnaire also asks ‘reasons for loan rejection [if rejected in the past 12 months]”, which covers diff erent ground, but still does not address the reasons for never borrowing. It is also notable that the number of respondents to the loan rejection question is too small (17, or 0.6% of the total sample) for statistical reliability. For this reason, it is not included in Figure 25.


65


0 25 50 75

University

Senior high school

Junior high school

Primary school

Inc. primary school

Never go to school

by Education

0 20 40 60 80

<17

17-<25

25-<40

40-<55

>55

by Age

56.5 60.1

0

15

30

45

60

75

Male Female

by Gender

61.053.2

63.8

0

25

50

75

Agri. sector worker

SalariedEmployee

Don't have non-farm Ent.

by Selected Categories

56.9 59.3

0

15

30

45

60

Bank savings No bank savings

by Bank Savings Ownership

55.367.6

0

15

30

45

60

75

Have Don't have

by Any Savings Ownership

0 25 50 75 100

Bank Loan

MFI Loan

Pawn Shop Loan


Informal Loan

Reason to Stop Loan

Don't need to borrow Afraid unable to repay Other

66



4.7 Econometric Results Concerning Access to CreditDetailed analytical results of the linear probability regressions for access to credit are presented in the tables

of Annex D and summarized in Table 11. As for savings, the statistical fi t of these regressions is poor, usually

explaining 10% or less of the total variation in access to loans. Still, the data identify several statistically

signifi cant factors aff ecting the probability of having a loan. For loans from any source the most important

factors are (see the leftmost column of Tables 11 and 19):

• The presence of a government worker in the household. This increases the likelihood by a very large 21%;

• The ownership of an enterprise is another important factor (17%);• Consumption expenditure (a proxy for income) is also important; and• Household size makes an additional, small contribution.

These results are robust as regards controlling for provincial and island cluster eff ects (see Annex D)

Table 11: Statistically Signifi cant Determinants of Access to Credit (at 95% level of signifi cance, or

higher)

Determinant of Credit

from Any Source

Formal Credit Semi-formal Credit Informal Credit

(relative to ‘Any Source’) (relative to ‘Any Source’) (relative to ‘Any Source’)

Household size (+) X √ X

Consumption (income) (+) √ X X

Gov’t Employee (+) √ X X

Own an Enterprise (+) √ √ √

Plus: some household

amenities (+)

Plus: fi n. lit. score (+)

Plus: urban (+); some HH

amenities (-); respondent

is Head of HH (-); legal

status (-); and cognitive

score (+).

Plus: urban (-); legal MW status

(+); > primary education (-);

some HH amenities (+ and -);

and cognitive score (-).

Source: Annex D.

Looking at the three components of credit (the rightmost columns in Table 11), the determinants of access

from formal sources are similar to credit from any source, despite accounting for a relatively small proportion

of total credit. However, household size drops out and consumption is boosted by several household

amenities (which also proxy income). Financial literacy makes a sizable, additional contribution.

There is more variation in the determinants of other providers of credit (semi-formal and informal providers),

indicating that these are substitutes for formal providers. This is particularly the case for informal providers,

where diff erent variables are important (for instance, legal status and education) and the direction of impact

sometimes changes (e.g. urban, legal status and cognitive scores) relative to semi-formal providers

4.8 The ‘Truly Financially Excluded’: No Savings Account and No Credit

Slightly more than 18% of respondents to this Survey have never had either a bank savings account or a

loan. This group is referred to here as the ‘truly fi nancially excluded’. The rate amongst the migrant worker

households is slightly higher than the rate of 17% for the general population (World Bank 2009b), probably

refl ecting the relative state of economic development of the survey and regions. This is particularly the case


67


for NTT, where the truly fi nancially excluded constitute more than 25% of the population (see the second-

right panel of Figure 26).

Not surprisingly, the incidence of true fi nancial exclusion drops off steeply as incomes rise, especially in rural

areas, where the rate of incidence is much higher for respondents around the poverty line (Figure 26). At

upper levels of income, the diff erences are minor. Among other economic indicators, the incidence of

exclusion is high among agricultural workers and those without a non-farm enterprise. In terms of type of

work, unpaid family workers are the most likely to be fi nancially excluded, closely followed by employers, the

self-employed and the unemployed.

In terms of socio-demographic indicators (Figure 26), the truly fi nancially excluded are concentrated among

the extremes of the age distribution (lower than 17 and more than 55) and among the poorly educated

(primary school or less). Also, the fi nancially excluded score slightly lower on fi nancial literacy skills. As

measured here, there is no distinction in terms of gender (see Figure 26).

These observations echo some of the points made in World Bank (2009b). Namely, it emphasizes that the

target for special programs should be the older, uneducated poor who live in rural areas will stop in terms of

readings the primary target should be NTT.

Figure 26: The ‘Truly Financially Excluded’, as Surveyed (in %)

15.5

9.0

25.4

0

10

20

30

East Java West Nusa Tenggara

East Nusa Tenggara

by Province

0.1

.2.3

.4.5

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureThe Truly Financially Excluded

18.3 18.3

0

5

10

15

20

Male Female

by Gender

13.4

19.3

0

5

10

15

20

Urban Rural

by Rural-urban

0 5 10 15 20 25

University

Senior high school

Junior high school

Primary school

Inc. primary school

Never go to school

by Education

0 7 14 21 28 35

<17

17-<25

25-<40

40-<55

>55

by Age

68



0 7 14 21 28 35

Unemployed

Government Employee

Private Employee

Self Employee

Employer

Freelance/Casual Worker

Unpaid Family Worker

by Type of Work

0.400.43

0

0.09

0.18

0.27

0.36

0.45

'The Excluded' 'The Included'

by Financial Literacy Score

19.7

11.5

20.9

0

5

10

15

20

25

Agri. sector worker

Salaried Employee Don't have non-farm Ent.

by Selected Categories

4.9 Households of Migrant Workers and InsuranceTake-up rates for conventional insurance are low in Indonesia, the evening mainly a product for higher-

income, urban households (see Word Bank 2009b). However, legal migrant workers, who come predominantly

from poor rural areas, have been required to purchase insurance before they go overseas since mid-2006.

Evidence here suggests that this insurance scheme for migrant workers does not provide is signifi cant level

of benefi ts and protection for migrant workers, as intended.

These Survey results indicate that 62% of Indonesian households with migrant workers have some form

of insurance, which is even higher than the average national rate of 50% indicated in World Bank (2009b).

However, by far the most common type of insurance (56%) is some form of government health insurance

(see Figure 27). 55 Those holding more conventional types of insurance, such as like private health, education

or life insurance, are in a tiny minority (Figure 27). Excluding government health insurance, only 11% of surveyed

households have insurance, which is more in line with previous fi ndings (World Bank (2009b)).

This Survey investigated the reasons for the low rate of usage of insurance products except for government

health insurance. As a preliminary investigative step, all respondents were asked about risks to their fi nancial

condition. They identifi ed the top risks as illness, harvest failure and death (Figure 27). The most signifi cant

proportion of respondents stated that their reasons for not insuring against these risks were that 1) they don’t

understand insurance products; and 2) they feel that they can’t aff ord them. A response to the fi rst of the stated

reasons could involve consumer education; a response to the second could involve the development of

low-cost options insurance products (micro insurance).

55 Almost certainly, this high level of coverage is accounted for by: PT ASKES, which provides compulsory coverage of government workers (about 3% of sampled households); Jamsostek, which covers private formal sector employees and their dependents; and Askeskin, which is social health insurance for the identifi ed poor, based on individual and household targeting. Of these, Askeskin would be the most important in the regions sampled by this Survey. Its coverage in all of Indonesia is some 54 million persons, with spending directed at the poorer regions of the country. The benefi ts include in-patient services; maternity benefi ts; ambula-tory services; and prevention and health promotion. (Source: Annex S of World Bank 2008c).


69


Looking at the characteristics of the uninsured (Figure 27), there is a clear downward correlation between

lower incomes and lower rates of usage of insurance products, with this relationship being more pronounced

in urban regions than rural regions. Likewise, there is a similar correlation with education levels. Women are

slightly more likely to be uninsured than men (89% compared to 87%), while those in rural areas are more

likely to be uninsured than those in urban areas. In terms of type of work, those most likely to be uninsured

are unpaid family workers; casual workers; and the self-employed. Government employees are the least

likely to be uninsured. There is relatively little variation between the three surveyed provinces.

Figure 27: Insurance on Surveyed Households of Migrant Workers (in %, except as indicated)

Insurance of Any Kind

62.1

37.9

Have Ins. Don't Have Ins.

Types of Insurance Ownership

0.10.70.71.0

5.78.5

55.8

Home owner's ins.rivate medical ins.

Life ins. policyEducation ins.

Asset ins.Travel ins.

Gov't medical ins.

0 15 30 45 60

0.7

2.3

7.4

20.5

54.2

60.8

The term is too long

Other

Premium is too expensive

Don't need it

Don't have money

Unfamiliar with any ins.

Reason for Not Having Insurance

0 15 30 45 60 75

0.5

1

0 5 10 0 5 10

Urban Rural

Wei

ghte

d M

eans


By Monthly Per Capita ExpenditureUninsured

Uninsured

by Gender

87.3

89.2

0

25

50

75

100

Male

Female

Uninsured

by Urban-Rural

78.7

90.4

0

25

50

75

100

Urban

Rural

70



Risk to HHs Fin. Condition

1.2

5.9

7.4

12.2

17.9

30.9

37.0

47.4

52.9

85.6

Other

Loss/dmg. to vehicle

Loss/dmg. to cattle

Natural disaster

Poor business perf.

Loss/dmg. to dwelling

Losing job

Death

Fail harvesting

Illness

0 30 60 90

Uninsured

by Province

87.1 83.492.2

0

25

50

75

100

East Java West Nusa Tenggara

East Nusa Tenggara

Uninsured

by Education

0 25 50 75 100

University

Senior high school

Junior high school

Primary school

Incomplete primary school

Never go to school

Uninsured

by Types of Work

0

25

50

75

100 Unpaid Family Worker

Freelance/Casual Worker

Self Employee

Private Employee

Employer

Government Employee

4.10 Econometric Results Concerning Access to All Types of Insurance

The statistically signifi cant socio-economic determinants of access to insurance are (in rough order of

importance; see Annex E for details):

• The household has a member who is a government employee (+ impact);

• The household is in an urban location (+ impact);

• Respondent is head of household (- impact);

• Owning an enterprise (+);

• Some household amenities (+ and -, depending upon amenity);

• Financial literacy and cognitive skills (+);

• Legal status of the migrant worker, and whether she is a fi rst-time migrant (+); and,

• The size of the household (+).

Curiously, consumption (the income proxy) is not signifi cant and the various household amenities (which

are further proxies for income) tend to off -set each other. Also, being a MW in the Middle East reduces the

likelihood of having insurance. As for other fi nancial products, these results are robust as regards controlling

for provincial and island cluster eff ects.


71


4.11 Migrant Workers and Their InsuranceThe low rate of usage of insurance products (excluding government health insurance) among surveyed

households of migrant workers is surprising, because all legal migrant workers are required to have insurance

before they go abroad (see World Bank 2009b, Section 5.2.2). Looking more closely at this issue, legal migrant

workers are aware that they have insurance.56 However, the households of migrant workers are not aware of

the migrants’ insurance coverage, which calls for closer examination,57 as pursued below and in Box 9.

Table 12: Coverage & Documentation of TKI Insurance58

Type of Protection Coverage Pre-departureDuring

migrationPost migration

Required

Documents58

Accidental death * * * a, b, c, d, e, f

Death resulted from sickness * * * a, b, c, d, f

Cost of funeral * * * g

Accident resulting total or partial

permanent disablement* * * h, i, e

Medical expense for accident treatment * * * b, j, o, e

Medical expense for sickness treatment * * * b, j, o

The risk of trip cancelation aside from

migrant workers fault* k, m

The risk of physical abuse and rape * * * c, j, e

The risk of failure in work placement * y, l, m, n

Medical expense for continuation of

treatment in home country * b, j, o

The risk of contract termination before

completion * l, m, n, x

The risk of entering legal case * p, l, n, q, r, s

The risk of being unpaid * l, m, n, t

The risk of deportation resulted from illegal

conduct * n, u, v

The risk of incurring mental illness * b, c, j, n

The risk of being transferred to other

workplace without migrant workers consent * l, m, n, w

Protection Duration 5 months 24 months 1 month

Premium (IDR ,000) 50 300 50

Notes on Extensions:

Available only to migrant workers receiving working contract extension

Premium: 40% for 1 year extension, 80% for 2 years; apply only during the migration period.

Benefi ts for post-migration insurance still apply

Sources: TKI Insurance of Mitra Consortium and Ministry of Manpower and Transmigration Regulations #23 of 2006 and #20 of 2007.

56 Among respondents who were legal workers, 100% indicated that they have insurance, which is consistent with the compulsory nature of the insurance.

57 Lack of awareness among households would create a problem, for instance, in claiming a death benefi t, if the migrant were to die while overseas.

58 See Annex F.

72



Box 9: Diagnostic Review of MWs’ Insurance

This Box summarizes material from a World Bank mission of early 2010 to analyze the system of compulsory insurance for

Indonesian Migrant Workers and to make recommendations for improvement.

• Findings By and large, the report confi rms those fi ndings reported in the main text, and it makes some important additional points as summarized immediately below: The current system of supervision and regulation is not eff ective, resulting in: regulatory duplication in areas like licensing of providers and brokers; contradictory interpretation of the validity of claims; policy exclusions that contradict regulations; the revoking of licenses by diff erent agencies; and gaps in supervision (like reporting requirements, disclosure of exclusions, client communications, the handling of complaints and payment of claims).

• The insurance coverage is comprehensive, but not all the benefi ts can be managed in an eff ective way through

insurance and several of the risks covered are related to poor performance of the PPTKIS.

• The system of a consortium of insurance companies using their appointed broker is expensive; it adds administrative

complexity; and the interests of the insured are not represented free from confl ict of interests.

• Data reporting requirements urgently need improvement. Mandated data requirements are inadequate to determine

the claims’ costs and settlement delays; exclusions and policy wording that might be causing diffi culties; the quality

of underwriting; and claim patterns to prevent possible fraud. Furthermore, the data reported are not easily

accessible to the consortiums nor the public.

Recommendations on Supervision and Reporting

1. Transfer the responsibility for supervision to Bapepam-LK. BNP2TKI could be in charge of the inspection of extraordinary regulatory requirements of the MW insurance companies. The MoMT could continue to evaluate regulatory impact and to suggest regulatory changes. The continued involvement of the three agencies requires on-going coordination and this should accordingly be established.

2. Additional data should be reported, for example: time required for payment; number of complaints; use of host

country representation; cause of claim; and brokerage and other fees collected. This would help MoF, BNP2TKI and

MoMT supervision. The data should be available on the web page of MoMT, providing transparency and guidance

for future regulatory changes.

Recommendations on Product Re-Design

1. Major changes are needed to the structure of insurance coverage. i) Individual protection for life and health of

the MW should be provided by life insurance companies through individual policies at a fi xed premium. ii) Benefi ts

that aff ect the placement of the MW should be covered by non-life insurance companies through a corporate

policy insuring the PPTKIS. (The cost of coverage should depend on the claim experience of each individual PPTKIS).

iii) Non-insurable benefi ts should be provided by the government. The uniqueness of this situation requires an

Indonesian solution and the combination between the three forms of protection providers has strong merits. (For

more specifi c recommendations and the experience of some other countries, see Annex 2 of the source below.)

2. Certain technical changes in coverage and quality could be considered, for example, diff erent classes of insurance

depending upon the destination and type of work. Also, segmentation of the benefi ts into a life policy (protecting

the MW) and a corporate policy (insuring the PPTKIS) would simplify the product and make it more eff ective.

3. Re-consider the consortium model of operation in the light of other reforms. Consortiums work best when risk

is best managed by a pool of insurance companies. However, the administrative cost is higher and settlement times

are longer (because each member of the consortium is required to pay its share of the claim).

4. The role of the broker should be reconsidered and a cap placed on the brokerage fee. The mandatory nature and

full regulation of benefi ts and costs of the insurance product diminishes signifi cantly the value-added of a broker.

This should be refl ected in the cap on the brokerage fee, and a distinction could be drawn between individual

insurance for the MW and corporate insurance for the PPTKIS.

5. Awareness of the insurance product for the MW should be raised by, for instance: mandated communication

between insurer and insured after the pre-placement phase; continuing MW benefi ts like free phone calls or annual

medical check- ups; representation in the host country that facilitates reporting and settlement of claims; training

that includes the MWs’ benefi ciaries; and a standard policy for the mandatory products, written in a way that takes

due account of the literacy levels of the typical MW.

6. Institutional arrangements in the host country for timely claims settlement. This could be achieved through

an immediate claim payment or a preliminary settlement in the form of a low fi x interest loan.

Source: ‘Review of the Existing Migrant Worker Insurance Products’, Word Bank internal report dated February 2010 by Dr. Rodolfo

Wehrhahn (Senior Insurance Specialist), under the direction of Ms. Yoko Doi.


73


At a superfi cial level, the level of coverage provided by the compulsory insurance program for migrant workers is impressive (Table 12) and the cost is quite low (see the ‘Premium’ line in Table 12). Also, general documentation requirements appear reasonable (Table 13), although claims on behalf of the migrant look diffi cult.

Table 13: General Documents Required for Claiming Against TKI Insurance

(i) Claim letter signed by the insured or benefi ciary;

(ii) Insurance card;

(iii) Copy of passport;

(iv) Copy of identifi cation of migrant workers or benefi ciary;

(v) If the claim is by other than the insured or the benefi ciary, the authorized person should bring a

letter from the attorney of either the migrant worker or benefi ciary in a sealed or regular letter, with Rp

6,000 (for a seal stamp).

Source: See Table 12.

However, the details behind the rightmost column of Table 12 tell a diff erent story. Namely, the required

documentation to submit an insurance claim must be daunting for the typical migrant worker with low fi nancial

literacy (see Annex F). For example, to submit a claim for treatment of an accident, the migrant must obtain:

a medical report from the hospital; a list of medical and medicinal costs incurred in the hospital; and a report

of the accident from the police station. Likewise, to submit a claim for unpaid wages, the migrant needs:

copies of his/her working and placement contracts from the PPTKIS; an offi cial letter from the Indonesian

embassy; and a letter from BP3TKI, confi rming the unpaid wages.

All of these processes will be intimidating, time-consuming and costly for the typical, poorly educated

migrant worker. Eff ectively, this represents a barrier for the migrant worker to access benefi ts of the insurance.

At present, the insurance premium is little more than a tax on the migrant worker, with the tax proceeds

accruing to the insurance company.59

Some options for reform of this process are discussed in Chapter 6.

4.12 Strategic Matters Arising in this ChapterStrategic Matters Concerning Financial Products: Surveyed households’ ordering of fi nancial services is

very similar to the general population, but their rate of usage of most services is lower. The most important

single fi nancial service is a bank account, mainly because it facilitates fast, secure a remittance payment. Credit

is important, too, but a range of diff erent service providers currently provide sources of credit, which complicates

policy solutions. Concerning the cost of credit, indicative interest rates range from 15 to 40% per annum,

with banks and shop credit at the lower end of this range. At the strategic level, these suggest that MW

households are best served by expanding their access to the most basic fi nancial services, namely:

• a basic bank account;

• lower-cost sources of credit (i.e., banks rather than MFIs, or MFIs rather than informal providers);

and

• simple insurance products, like micro-insurance.

59 Data are not available on the frequency of submission of claims; on the size and number of claims that have been settled; or on the waiting period before settlement. However, discussions with government offi cials indicate that the claim settlement rate is very low.

74



It should be emphasized that the use of bank accounts is relatively high among surveyed households, but

the ownership of bank accounts is much more limited. Many migrant workers rely on trusted third parties for

delivery of their remittances. This suggests great potential for increased access to fi nancial services, if migrant

worker households understand the benefi ts of opening their own bank account

Strategic Matters Concerning the Financially Excluded: The Survey indicates that the rate of exclusion from

credit facilities is relatively low amongst those holding savings accounts (27% compared to 32% for the general

population) and use of banks is high (because of remittances). By contrast, exclusion from credit is very high

(57% compared to 40% for the general population) and banks are a very limited source of credit. These

characteristics confi rm the view that banks are currently interested in facilitating the sending of remittances by

migrant workers, although they regard the provision of loans to these workers as too risky.

Among survey respondents stated reasons for nonparticipation, physical accessibility is not perceived to be

a constraint, despite distances and time taken to reach banking facilities. Rather, voluntary exclusion is high.

The great bulk of excluded savers believe that they don’t have the money or the job to justify having a bank

account, or they simply don’t see the advantage. Similarly, the dominant reason for not borrowing is ‘no

perceived need to borrow’. As a strategic matter, these attitudes will be diffi cult to change, but they do

suggest a role for fi nancial literacy training. Also, the current high cost of fi nancial services many obviously

be a strong factor leading to voluntary exclusion. If the cost of holding savings account or accessing credit

reduced, this rate may well change.

Some 18% of surveyed migrant worker households are ‘truly fi nancially excluded’ (i.e., no credit and no

savings account), which is just slightly higher than the national average. The strategic target for special

programs should be households of the older, uneducated poor who live in rural areas.

Strategic Matters Concerning Insurance: Migrant workers are currently required to have insurance before

they go overseas, but existing product is not meeting their needs, essentially because the claims process is

too complicated and required documentation is excessive. Reform of the system would be helpful to migrant

workers (see Chapter 6).

Strategic Matters Concerning Econometric Results: Rigorous multivariate econometric results almost always

confi rm other observations throughout this Chapter concerning access to fi nancial services. There are two

notable exceptions. First, gender is a statistically signifi cant variable in determining access to formal savings

providers (but not informal providers). Overall, there is a 7% greater probability of having a savings account

of any kind if the respondent is male. And second, income does not have the expected, dominant role in

determining rates of usage of insurance services. Other factors are statistically more important, including:

being a government employee; being an urban resident; and having high fi nancial literacy and cognitive

skills.

Another important point concerns the extent to which informal service providers substitute for formal ones.

For both savings and credit, the directional impact (that is, positive or negative) of statistically signifi cant

variables often vary between informal and formal service providers.


Chapter 5

Summary of Gender-Based Results

This Chapter briefl y summarizes the report’s results as they relate specifi cally to gender. It is important to bear

in mind that the nationally representative study (World Bank (2009b)) found very few signifi cant diff erences

between the genders. In the current context, the topic of gender is especially important, because the

majority (60% or so) of Indonesian migrant workers are female.

Beginning with points that have been made previously in this report, the general, gender-related characteristics

of migrant workers are:

• Females work primarily in the informal sector as household domestics, with a legal status; 60

• Most females working as household domestics are legally registered workers;

• The majority female workers (56%) are repeat migrants; and

• They tend to be slightly better educated than their male counterparts.

Regarding fi nancing and remittances:

• Females’ average pre-clearance time is longer than men, probably because so many men work as

illegals;

• Women borrow more than men, and they borrow to a signifi cantly greater degree from their

sponsor and their employer. Again, this may refl ect their legal status, because illegal workers do

not have such sponsors and therefore do not have access to this form of credit;

• the average time before women make their fi rst remittance is longer than for men, probably because

women initially take on more debt that has to be re-paid early in the work contract through salary

deductions and other means;

• Women tend to remit less frequently than men, possibly because their jobs (in the informal sector)

are paid somewhat less; and

• The amount of a female migrant’s average remittance is almost twice that of a male counterpart,

which off sets the points noted in the previous two bullet points.

Although not conclusive, these fi nal three bullet points imply that female migrant workers tend to have a

higher saving rate than male migrant workers. This provides indirect support for the view that women are

more responsible with their earnings and probably more reliable potential clients for banks.

Turning to the critical components of fi nancial exclusion:

• A slightly higher proportion of men do not have a savings account than women (28% compared to

26%);

60 By contrast, men tend to work illegally in the construction and plantation sectors. Working in the formal sector, which is common among males, is better paid than informal jobs, which are dominated by females.

76


Chapter 5Summary of Gender-Based Results

• A slightly higher proportion of females have never taken out a loan than men (60% compared to

57%);

• There is little diff erence in the sources of credit access by men and women, although women make

greater use of community welfare schemes.

• Women are uninsured more frequently than men (35% compared to 40%).

• Among the ‘truly fi nancially excluded’ (that is, no bank account and no loan), the incidence among

males and females is identical at 18.3%.

Other gender-related results that were not covered earlier in this report are summarized in Figure 28.

• In terms of destination, females make up a signifi cantly higher proportion of workers the males in

the Middle East. By contrast, males dominate in the Asia-Pacifi c, partly because so many males work

without legal status in Malaysia;

• Looking at the use of remittances, the priorities of men and women are very similar, although there

are some diff erences in emphasis. For example, women emphasize meeting daily needs, school

fees and loan repayments. For their part, men emphasize asset accumulation (including housing)

and business investments;

• Concerning sources of fi nancial information. Males rely to a slightly higher degree on friends and

relatives; radio and television but equally signifi cant for both genders; and all other sources are

relatively insignifi cant;

• in terms of choice of vehicles for saving, women prefer to have their own accounts at banks and

informal institutions; men tend to use others’ accounts;

• The rate of ownership of non-farm business enterprises is very similar for men and women, it 28%

of males and 27% of females;

• In terms of the type of loan they take out, men are more frequent borrowers from both informal and

semi-formal institutions. Neither gender makes any signifi cant use of banks;

• As for types of insurance, men are somewhat more frequent policy holders in most categories.61

As mentioned previously, there is an analytical issue with some of the preceding commentary, because

it is does not adequately consider the multi-dimensional nature of the determinants of access to fi nance.

However, more rigorous multivariate econometric analysis generally confi rms this commentary. Most

notably, related to gender:

• There are no statistically signifi cant gender-related eff ects observed in this extensive data set, except

for access to some forms of savings accounts;

• there is a statistically signifi cant, greater (7%) probability of access of men holding savings accounts

in the formal sector than women;

• This result is true for ‘all types of savings’ but does not apply to informal savings.

To summarize, the evidence from this study indicates that similarities between patterns of accessibility

amongst men and women migrant workers are far more striking than the diff erences. This remains true

when controlled statistically for other factors. As measured in this report’s household survey, the gender gap

in Indonesian migrant workers’ access to fi nancial services appears to be quite narrow, the sole statistically

signifi cant exception being access to some types of savings accounts. Indeed, a gap does not appear to

exist in some critical areas, including access to credit and the rate of incidence of ‘true fi nancial exclusion’.

61 It should be noted that the sample size is extremely small for some of these categories, and cannot be considered statistically reli-able. For example, from a total population of 3368, there are only 2 observations for home ownership insurance. Likewise, only 18 persons have medical insurance and 20 have life insurance.


77

Chapter 5Summary of Gender-Based Results

Figure 28: More Gender-Related Results (in %)

MWs Destination Country

by Gender

0

20

40

60

80

100

Middle East

Male

Female

Main Usage of Remittance

by Gender

0 10 20 30 40 50

OtherBuying motorbike

Buying assetSpecial occasion

Business investmentPaying heatlh exp.Paying school feeLoan repayment

Built/buy/renovate houseDaily needs

Female Male

Sources of Financial Information

by Gender

0 15 30 45 60 75

Other

Related institution

Advertisement

Other reading

Newspaper

Radio/TV

Friends/relatives

Female Male

Form of Savings

by Gender

0 10 20 30 40 50

Bank

Other Formal

Informal

Using other's

Female Male

Types of Loan

by Gender

0 10 20 30 40 50

Bank

Semi formal

Informal

Female Male

Types of Insurance

by Gender

0 2 4 6 8 10

Medical

Home ownership

Asset

Travel

Life insurance policy

Female Male


Chapter 6

Policy Conclusions

6.1 General

This report raises a number of important policy issues in a number of key areas, with policy changes

having signifi cant potential for improving the material well-being of migrant workers and their households,

with strong fl ow-on eff ects to local villages and surrounding areas.

The root problem is poverty, especially in remote rural locations. Addressing this root problem requires

broader, long-term policies that emphasize issues such as strong sustained economic growth, fi nancial

stability and the provision of better infrastructure and key public services, including basic education.

However, until these broader issues can be addressed more fully, narrower policies designed to meet the

more specifi c needs of this key group can still be very helpful. As detailed below, there is much that can be

done to improve existing access to services through relatively simple, low-cost means.

6.2 Policies on Access to SavingsSurvey respondents indicate that savings accounts are the single, most important fi nancial service they

require. To improve services access to savings facilities, several important steps could be taken, including

the widening the range of service providers; extending bank branching and ATM networks; and fi nancial literacy

training. All of these are discussed in the following sections. In addition, the Government could consider the

following steps.

The Introduction of ‘No Frills’ Savings Accounts: Bank Indonesia is encouraging banks to off er very basic,

low-cost services to all customers, including migrant workers and their households. While this may be

helpful, it will be important to limit the cost of regulatory compliance and to avoid disruption of existing,

comparable services. For example, Bank Indonesia might set minimum acceptable standards and let the

banks decide how to meet them. In addition, Bank Indonesia should also consider explicit exemptions for

banks with limited branching networks.

Review the Currently Compulsory Bank Account: The current requirement that migrant workers hold bank

accounts compulsory system of a bank account for migrant workers has potential as an entry point into the

formal banking system. However, the majority of migrant workers abandon the bank account after opening.

80


Chapter 6Policy Conclusions

There is no obvious reason why opening this bank account should be links to migrant workers exemption

from the airport exit tax, as is currently the case.

To address this issue, there could be better fi nancial literacy training for migrant workers, which would make

them more aware of their options, one of which might be voluntarily opening a bank account before

departure. As a further step, the account could be a joint account with family members living back in the

village, which would facilitate the making and receipt of remittances. (Also see Section 6.4, below.)

6.3 Policies on Related to Access to Credit Policies in this area are complicated by existing, moderately high levels of gross indebtedness of surveyed

households of migrant workers. Consequently, narrowly-defi ned policies to increase credit to migrant

workers and their households have to be approached cautiously. A more appropriate strategy would be to

increase access to lower-cost sources of credit, for example, by enabling the substitution of bank credit for

MFI credit, and MFI credit for private money lenders. Some simple, eff ective means for achieving this as set

out in the following subsection:

More Credit Providers with a Broader Range of Services: Almost any of the policies advocated in World

Bank (2009b) for improved access to fi nancial services would work to the great benefi t of migrant workers

and their households. As emphasized in that report, commercial banks (especially those with a wide

regional reach) have an important role to play in this regard because they are the most likely to introduce

new services and products such as mobile banking and to put competitive pressure on other providers to

improve services and reduce prices.

However, banks are unlikely to be the primary answer to most issues related to better access to fi nance,

because the commercial banks do not reach deeply enough into poorer, more isolated regions of Indonesia.

Improved access by lower-end households would be better served by working on the legal and regulatory

framework for rural banks (BPRs), MFIs, cooperatives and pawnshops.

Chapter 6 of World Bank (2009b) provides a long list of helpful regulatory changes, with diff erent changes

appropriate for varying types of institutions. To cite just a few examples, regulatory changes for banks should

encourage the development of a more extensive network of branches and ATM, with re-structured reporting

requirements.62 For rural banks (BPRs), restrictions on ownership by foreign investors and NGOs could be reduced

or eliminated; there could be a lower tier of minimum capital requirements for small BPRs in remote locations; and

reporting and managerial requirements could be restructured to reduce constraints on the operations of BPRs

in isolated regions.

Pawnshops are an important source of access to credit. Thus, the pawnshop business should be opened-up to

private fi rms to put more competitive pressure on the state-owned pawnbroker.

For micro-fi nance institutions—which are proven to operate very eff ectively at the village level—certain

legal issues need to be resolved to facilitate their role in improving access to fi nancial services63. Momentum

62 As indicated in Chapter 6 of World Bank 2009b, these include: regulations concerning relocations of branches and ATMs; policies to close-out small inactive accounts; combining business plans with annual reports; and requiring business plans only in relatively general terms. Moreover, it would also be useful to ease offi cial regulations on branching, at least to bring them into line with Bank Indonesia’s relatively relaxed approach to implementation. One major option, more new entrants into the industry, is eff ectively closed off by the central bank’s current policy of consolidation of the industry.

63 As indicated in Chapter 6 of World Bank 2009b, this is a complicated, historical issue. In essence, the Banking Act of 1992 required certain microfi nance institutions (then known as LDKPs) to change their legal status. Many never did for their own good reasons, leaving a large—but unknown—number to operate on the fringes of the legal fi nancial system. This limits their operations and the services that they can off er to their clients.


81


should be restored to the drafting of a new MFI Law. For cooperatives, there are many issues, with the most

important of these being prudential issues. For almost all types of fi nancial institutions, the capacity of

regulators and supervisors needs to be strengthened.

Cosigners for Migrant Workers’ Credits: Some NGOs and international institutions argue that commercial

banks, which provide relatively low-cost fi nancing in Indonesia, should take a greater role in providing

access to credit for migrant workers. The banks are very reluctant to do this because they believe that

pre-departure fi nancing for migrant workers in an excessively risky business. One simple, eff ective way to

address this problem is for NGOs and development partners with special interests in this area to act as co-signers

for commercial bank loans directly to migrant workers. Eff ectively, this would eliminate the need for high-

cost intermediaries and provide much cheaper fi nancing directly to the migrant workers.

If the migrant workers are low-risk borrowers, then a few million dollars per year of fi nancing from interested

parties would go a long way towards the provision of cheap fi nancing to large numbers of migrants.64 NGOs

and donors might consider this initiative on a pilot basis, to demonstrate to the commercial banks that

lending to migrants is, indeed, a commercially viable business.

Policies to Reduce the Cost of Credit from PPTKIS: As stated earlier, eff ective lending rates from PPTKIS

are very high, at roughly 10-20% per month. Some simple options exist to reduce these costs to the migrant

workers. For example, these could include extending the tenor of the PPTKIS loan to match the contract

of the migrant worker, and spreading the costs over a longer time period by extending migrant workers’

initial contract by one year. However, a more eff ective approach would be reform of the system for licensing and

supervision of PPTKIS (see Section 6.6, below).

6.4 Policies on RemittancesThe evidence of this report indicates that the current system for bank remittances is working reasonably well

and costs are not out of line with international comparators. However, there is still a wide variation in the

cost is involved in using remittance services, and it pays for migrant workers to shop around for services

appropriate to their needs. This suggests a role for fi nancial literacy training. Further effi ciencies could be

achieved through domestic policies that encourage new low-cost technologies for transferring money, such as

mobile banking, and wider bank branching and ATM networks, mentioned above. More extensive branch and

ATM networks would reduce costs related to physical accessibility by the recipient.

Remittances as a Public Service Obligation: Another possibility is for the Government to explicitly subsidize

remittances by requiring Indonesian banks with a physical presence abroad to make these transfers at no

charge to the remitter. The bank would then be reimbursed for its costs and perhaps paid a small fee directly

by the government, fi nanced on-budget. The subsidy could be justifi ed as a poverty alleviation measure, or

on the basis of the large positive externalities that accrue from Indonesians working abroad.

Mobile Banking: As detailed in World Bank (2009b), advances in mobile banking have great potential for

facilitating remittances because of the low unit costs involved and the existing, widespread access to mobile

phones, even among the poor. However, certain Indonesian regulatory hurdles need to be overcome for these

potentials to be achieved.

To repeat the main points made in World Bank (2009b) on this issue, the Indonesian regulatory framework

needs to allow non-bank service providers to use networks of agents to off er and maintain their products; to

64 As one simple example, assume individual loans of US$500 to 200,000 migrants per year at a default rate of 5% (a bit above the current proportion of non-performing loans in the overall banking system). In this case, total cash requirements (excluding man-agement overheads) would be US$5 million per annum.

82



make person-to-person transfers; to off er cash-out facilities; and to sign-up new customers, at least for those

below a relatively low threshold. At the drafting of this report, quick progress looks diffi cult, mainly owing to

Know Your Customer regulations and local concerns over terrorism. To accelerate the process, there may be

a role for a pilot program of some type, possibly in the form of a public-private partnership.

Other Useful Steps: Many of the remaining problems with bank remittances are beyond the reach of

Indonesian policies (e.g., inconvenient hours of bank operations in host countries and cultural norms that

limit women’s movements, for example in the Middle East). However, others are not. For instance, an initiative

to re-negotiate MoU on guest workers with more host countries could contribute signifi cantly to improving the

material well-being of migrant workers and facilitating their remittances. See Section 6.6.

6.5 Policies on InsuranceThe current system of compulsory insurance for migrant workers is not working well. This is demonstrated

in part by the fact that the great majority of migrant worker households don’t even know that it exists,

although the migrant worker herself is aware of that. To improve this situation, the following steps involving

improved supervision and reporting and product re-design could be taken.

Supervision and Reporting: The responsibility for supervision should be transferred to Bapepam-LK, which

currently has broader responsibility for supervision of insurance in Indonesia. BNP2TKI could be in charge

of extraordinary regulatory requirements of the insurance companies off ering services to migrant workers,

while MoMT could continue to evaluate regulatory impact and to suggest regulatory changes. The

continued involvement of the three agencies requires on-going coordination and this should accordingly

be established. As regards reporting, certain additional data are urgently needed. Amongst other matters, this

data relates to time required for payment; number of complaints; use of host country representation; cause

of claim; and brokerage and other fees collected. The availability of this data would help MoF, BNP2TKI and

MoMT to fulfi ll their roles. The data should be available on the web page of MoMT, providing transparency

and guidance for future regulatory changes.

Product Re-Design: The distinction between products intended to provide individual protection for

migrant workers (to be provided by health and life companies) and corporate protection for the PPTKIS

(to be provided by other companies). Also, diff erent classes of insurance could be introduced for diff erent

destinations and diff erent types of work. Moreover, the role of the broker should be re-considered, with

a cap placed on the brokerage fee, taking due account of the mandatory nature and full regulation of

benefi ts and costs of the product. Furthermore, the consortium model could be re-considered, taking into

consideration the costs and benefi ts of the approach.

6.6 Broader Policy IssuesReform of Licensing & Supervision of PPTKIS: The current system for licensing of PPTKIS looks very similar

to a traditional export licensing scheme65 The Ministry of Manpower and Transmigration currently grants

licenses and has the power to revoke them, through an opaque process that appears tilted towards the

commercial interests of the exporting agency and away from the welfare of the individual migrant worker.

This system could be improved—with signifi cant fl ow-on eff ects for poverty alleviation—by the following

actions:

65 The main diff erence is that the current system governs the temporary export of individuals’ services not commodities. Eff ectively, this closes off certain policy options, such as auctioning off export licenses to the highest bidder, because that involves ethical issues concerning the overt exploitation of MWs as a commercial resource.


83


• The revocation of licenses of known, under-performing PPTKIS;

• Broadening the authority for issuing new licenses by transferring its authority from the Ministry of

Manpower and Transmigration, to a licensing board that includes, for example, the Ministry,

BNP2TKI, and Bapepam-LK. This board could be chaired by the Offi ce of the Economic Coordinating

Minister;

• Increase the number of licensed PPTKIS and associations of PPTKIS, with intentional overlap among

jurisdictions to increase competition;

• Strengthen supervision of PPTKIS, by introducing independent external stakeholders to the supervision

process. This could include, for instance, representatives of local NGOs with special interests in the

area. The fi ndings of the stakeholders could be made public;

• Encourage more industry self-regulation by inviting representatives of the associations of PPTKIS to

participate in the strengthened supervision process;

• Require the publication of audited fi nancial accounts of the PPTKIS;

• Add more windows for migrant workers to go abroad, eff ectively circumventing the current system of

PPTKIS; and

• Consider the possibility of joint-venture PPTKIS, where one role of the foreign partner would be to

protect the interests of the migrant worker while they are abroad.

Renegotiate Memoranda of Understanding with Host Countries: There are good possibilities for resolving

problematic practices in host countries where signifi cant proportions of Indonesian migrants work. The

conditions of migrant workers in host countries is a legitimate issue for Indonesia to raise in negotiations

of bilateral or regional trade agreements, because these constitute a barrier to exports of services. In this

context, Indonesia could ask to re-negotiate the terms of its Memoranda of Understanding (MoU) on migrant

workers with select host countries. In general terms, the objective should be to better balance the protection

of the workers with the commercial interests of employers and recruitment agencies. Details could include

a clause in the MoU that provides for access to foreign fi nancial services once the migrant worker in the

host country, thereby reducing the leverage of sponsors in the provision of fi nancing to migrants. Other

negotiating points could include issues such as: acceptable forms of worker identifi cation for access to

fi nancial services, including for workers without legal status; and exemptions to Know Your Customer

regulations for individuals making small remittances.

Financial Literacy Training: Many of the problems faced by migrant workers and their families stem in

large part from limited formal education and associated low rates of fi nancial literacy. Presently, some pre-

departure training in this area is provided at the PPTKIS training center, but it is relatively limited, being held

for one or two days only and usually delivered just before the trainees departure.

To address this problem, the migrants could be given better training in personal fi nancial management,

with particular areas of focus including: insurance coverage; sources of low-cost fi nancing; exchange rates; and

options for remitting money home. Also, fi nancial literacy training could be provided earlier in the broader

training program to facilitate the absorption of the information and discussion amongst the workers and

their dependents. There are two main problems to be overcome in the provision of fi nancial literacy training.

The fi rst of these is the challenge of scaling up a training program to meet the needs of some 800,000

migrants per year. The second challenge is managing the fact that improved fi nancial literacy on the part

of workers may run contrary to the commercial interests of the PPTKIS, which currently provide the pre-

departure training. The latter looks likely to require unbundling of the fi nancial training from other training

provided by the PPTKIS. Another possibility is to ask Bank Indonesia to off er such training, perhaps on a pilot

basis, as part of its fi nancial inclusion program.

Counseling Services Abroad: Each year, a signifi cant proportion of migrant workers face unexpected

problems in the host country. It would be very helpful if the Government were to improve counseling

84



services for migrants in host countries, perhaps beginning with the two largest host countries (Saudi Arabia

and Malaysia). The government could also look into other solutions, such as encouraging NGOs in host

countries to act in the same role (for example, bi-national NGOs along Indonesian-Malaysian border areas);

or recruiting expatriate Indonesians to serve on a voluntary basis. As stated earlier, another option would be

to establish joint ventures between PPTKIS and foreign partners, where one responsibility is of the foreign

partner would be to provide such counseling services in major host countries. Even without such joint

ventures, insurers need to have better arrangements to facilitate the needs of workers in host countries.


Annexes

Annex A: Comparison of Results with the Nationally Representative Survey

In comparing the Survey results of this report with those in the nationally representative survey (World

Bank (2009b)), several strategic points stand out. Migrant worker households express the same ordering of

priorities for fi nancial services is nationally representative households, but the proportion of migrant worker

households that use fi nancial services is much lower.

With regard to the most important service, a savings account, there is much greater reliance upon banks

among migrant households and much less reliance on the informal sector. This refl ects the importance

to migrant households of a vehicle for remitting funds and the banks’ dominant role in facilitating that

process. There is also an important distinction to be drawn between use of a bank account and ownership

of a bank account: it is actually more common for migrant households to use someone else’s bank account

for transferring money than to have their own bank account.

Among other notable points, the proportion of migrant worker households that do not have access to savings

accounts is appreciably lower among surveyed migrant households than nationally representative households

(27% compared to 32%), probably owing to their reliance upon bank transfers for remittances. Similar to

the national survey, a disproportionately high percentage of those without access to savings accounts are

the older, uneducated poor in rural areas. Likewise, they state their reasons for not saving as predominantly

economic, although there is no noticeable drop-off as incomes rise. Nonetheless, there is a clear positive

correlation between income levels and the likelihood of holding a savings account, with little distinction in

the relationship between rural and urban areas.

Physical accessibility is not perceived as a problem, but 65% of households are not aware of the requirements

for opening a bank account. This is roughly comparable with the fi gure of 69% for the general population.

In terms of access to credit, there are two important diff erences between surveyed migrant worker households

and nationally representative households. First, the reach of exclusion is much higher among migrant

worker households (60% compared to 40% for a representative household), which is probably indicative

of the higher incidence of poverty in this group. Secondly, among those who do borrow, there is much

less reliance on banks and much more reliance upon the informal sector, with the majority of loans being

provided by friends, neighbors and family.

86


Annexes

Similar to the fi gure for representative households, there is no overall correlation between rates of access to

credit and income levels, although preferred sources of credit change markedly as incomes rise. The rate

of incidence of bank loans increases (and less markedly, from informal sources) as income levels rise, while

the rate of incidence of loans from micro-fi nance institutions declines. Interest rates incurred by surveyed

migrant worker households are very similar to those incurred by the representative household.

Concerning the ‘truly fi nancially excluded’ (those with no bank account and no access to credit), this report

echoes the fi ndings of World Bank (2009b), with one notable diff erence: the proportion of those that

are ‘truly excluded’ is slightly more common among surveyed migrant households than among nationally

representative households (18% compared to 17%). NTT, where the rate of the truly fi nancially excluded is

25%, is the worst off in this regard. Otherwise, the ‘truly excluded’ are older, uneducated poor who live in

rural areas, notwithstanding their reliance upon bank transfers for remittances.


87

Annexes

Annex B: Comparison with Bank Indonesia’s Survey Results

As mentioned earlier, Bank Indonesia (BI) conducts a biannual survey of migrant workers. The World Bank is

in discussions with BI as to whether the Bank’s experience with its Survey can contribute to strengthening

BI’s survey program. The two Surveys are compared in this Section.66

The respective structures of the two Surveys are presented in Table 14.67 Each of the Surveys covers

important ground not included in the other (see the items with a star [*] in Table 14). The World Bank’s

Household Survey, which is more wide-ranging than Bank Indonesia’s, provides additional input on items

such by examining a wider range of fi nancial services; time and money spent to get to a bank; household

expenditure and fi nancial management; associated non-farm enterprise establishments; fi nancial literacy

and math skills; and decision-making on the channel for remittances. By contrast, BI provides additional

detail on important items such as: motivation for migration; pre-migration jobs and salaries; wages during

migration; cost of remitting; bad experiences; and the impact of migration on the Indonesian household.

Regional coverage of the two Surveys overlaps, with BI providing broader coverage of Java and the World

Bank emphasizing certain eastern islands; BI adds Riau and East Kalimantan.

A comparison of key results is presented in Table 15. Concerning the characteristics of migrants, the broad

pictures are very similar. For instance, most are females (64% for BI and 58% for the Bank); most are legal

(89% for BI and 67% for the Bank); virtually identical percentages (just over a third) are educated only at the

primary level; and the main destinations for migrant workers are Malaysia and Saudi Arabia, with the Bank’s

Survey showing a slightly higher proportion in Malaysia than the BI Survey.

Table 14: Comparison of Survey Structures (* Indicates important information not covered by other

survey)

Bank Indonesia World Bank (HH Survey)

A. Respondents’ profi le A. Survey information

B. Pre-departure information B. Demographic information

* Pre-TKI jobs C. Socio-economic characteristics

* Wage of pre-TKI jobs D. Financial services (bank & savings accounts)

* Motivation for becoming TKI * Method of saving (formal, informal, non-savings)

* Source of info for working abroad * Reason not to save

* Reason for working illegally * Distribution of bank savings

C. Information related to migrant * Time spent to go to the bank

working period * Money spent to go to the bank

* Bad experiences during migration & E. Financial services (loans)

upon return * Source of credit (formal, semi-formal, informal)

* Monthly wage of TKI * Distribution of bank loans

* Method of saving during migration F. Other fi nancial services (insurance)

* Cost of transfer during migration * Insurance ownership distribution

66 There is a third survey, conducted by the International Organization for Migration. However, at drafting of this report, the IOM’s results were not at a suffi ciently advanced stage to be quoted.

67 The World Bank’s sample is about 1/3rd larger than BI’s (2724 households versus 2082).

88


Annexes

Bank Indonesia World Bank (HH Survey)

D. Social-economic impact of migrant * Reason not to have insurance

working decision * Most important person to insured

* The impact of migration on HHs G. Household fi nancial management

* Factor that hinders savings habit

H. Non-farm enterprise establishment

* Non-farm enterprise ownership

* Types of enterprise

* Average revenue

* Source of fi nancing

I. Migrant worker remittances

* Remittance channel decision making

J. Financial literacy

* Interest in fi nancial matters

* Source of fi nancial info

* Financial literacy level

* Basic math skill level

K. Household expenditure

* Detailed items on expenditure

Table 15: Comparison of Survey Results

Bank Indonesia World Bank

General Profi le # #

Respondents

Households

ex-migrant workers

migrant workers

migrant workers Family

2082

61.4%

25.8%

12.8%

Households

migrant workers

Head of Village

2724

3368

50

Survey Areas

Java (West, Central, East)

Mataram

Kupang

Pekanbaru

Nunukan

Kab. Malang, Gresik

Sumbawa, East Lombok

Kupang, East Flores

Sumba

Proportion:

Gender

Legal Status

Education Level

Destination countries

Female

Legal worker

Primary School

Malaysia

Saudi Arabia

64%

89%

34%

47%

23%

Female

Legal worker

Primary School

Malaysia

Saudi Arabia

58%

67%

35%

73%

20%

Financial Issues # #

Source of funding to

cover departure cost

Initially covered by PPTKIS

Personal savings

20%

5%

Personal savings

Sponsor

39%

21%

Average remittance IDR 5-8 million IDR 2-4 million


89

Annexes

Bank Indonesia World Bank

Frequency of remittance

Occasionally

Routine

Yearly routines

55.4%

37.7%

5-6

On special occasions

Every quarter

53%

16%

Remittance channel

Formal

Informal

Sending: bank

Receiving: bank

Sending: relatives/friends

Receiving: relatives/friends

82%

90%

8.4%

20%

Receiving: bank transfer

Receiving: relatives/friends

69%

20%

Usage of remittance

Daily expense

Build/repair house

School payment

57%

30%

25%

Daily expense

Loan payment

House repairs

School fee

53%

15%

12%

10%

Diff erences between the Surveys are slightly more pronounced in the fi nancial area (see the lower half of

Table 15). Most notably, the World Bank’s survey shows that average remittances are only barely half of BI’s

estimate, for reasons that are unclear. Concerning pre-departure fi nancing, use of personal savings is shown

to be more important in the World Bank Survey, than in the BI Survey. Rather, the BI Survey shows salary

advances from PPTKIS as being more important, although at comparable levels shown by the World Bank’s

Survey regarding borrowing from sponsors (which migrant workers may perceive as the same source).

Other results, in areas such as frequency and use of remittances and preferred remittance channels, are very

similar (Table 15).

90


Annexes

Annex C: Analytical Results Concerning SavingsTable 16: Linear Probability Regressions for Savings of Any Kind

Basic Result Province Fixed Eff ects Cluster Fixed Eff ects

Urban household 0.016

(0.021)

0.009

(0.022)

-0.005

(0.023)

Household size

-0.008

(0.004)**

-0.009

(0.004)**

-0.006

(0.004)

Respondent is head of household 0.019

(0.042)

-0.028

(0.043)

-0.034

(0.043)

Gender (M)

0.076

(0.023)***

0.072

(0.023)***

0.071

(0.023)***

Legal MW 0.024

(0.018)

0.005

(0.019)

0.039

(0.022)*

Working in Middle East 0.062

(0.020)***

-0.009

(0.023)

-0.014

(0.025)

First time MW

-0.059

(0.015)***

-0.062

(0.015)***

-0.059

(0.015)***

MW works in informal sector -0.012

(0.024)

0.013

(0.025)

0.027

(0.025)

Higher than primary school ed.

0.045

(0.015)***

0.045

(0.015)***

0.044

(0.015)***

Log of consumption expenditure

0.067

(0.014)***

0.073

(0.014)***

0.093

(0.015)***

HH with gov’t emp. member 0.024

(0.041)

0.009

(0.041)

-0.002

(0.041)

Own house

0.056

(0.024)**

0.043

(0.024)*

0.039

(0.024)

Number of rooms -0.002

(0.005)

0.008

(0.005)

0.004

(0.005)

Have electricity

0.147

(0.022)***

0.118

(0.022)***

0.064

(0.026)**

Have phone

0.090

(0.016)***

0.109

(0.017)***

0.095

(0.017)***

Have tap water

0.046

(0.017)**

0.039

(0.017)**

0.039

(0.017)**

Own enterprise 0.017

(0.016)

0.014

(0.016)

0.005

(0.016)

Financial literacy score

0.042

(0.028)

0.087

(0.029)***

0.066

(0.029)**

Cognitive/Math skills score

0.148

(0.042)

0.122

0.041

0.157

0.042

Constant

-0.686

(0.215)***

-0.791

(0.215)***

-1.099

(0.230)***

Observation 3364 3364 3364

R-squared 0.1357 0.1509 0.1595

Standard errors in parentheses: * signifi cant at 10%; **signifi cant at 5%; *** signifi cant at 1%


91

Annexes

Table 17: Linear Probability Regressions for Formal Savings

Basic Result

Province Fixed

Eff ectsCluster Fixed Eff ects

Urban household

0.053

(0.021)**

0.048

(0.023)**

0.032

(0.024)

Household size

-0.011

(0.004)**

-0.011

(0.004)**

-0.009

(0.004)**


(0.047)

-0.057

(0.046)

-0.064

(0.046)

Gender (M)

0.059

(0.025)**

0.053

(0.025)**

0.055

(0.025)**

Legal MW 0.040

(0.019)**

0.013

(0.020)

0.037

(0.023)

Working in Middle East 0.090

(0.022)***

-0.004

(0.025)

0.001

(0.028)

First time MW

-0.080

(0.016)***

-0.081

(0.016)***

-0.079

(0.016)***


(0.026)**

-0.027

(0.027)

-0.013

(0.027)

Higher than primary school ed.

0.055

(0.016)***

0.056

(0.016)***

0.054

(0.016)***


0.082

(0.015)***

0.090

(0.015)***

0.109

(0.016)***

HH with gov’t emp. member 0.034

(0.046)

0.018

(0.046)

0.007

(0.046)

Own house

0.085

(0.025)***

0.069

(0.026)**

0.066

(0.026)**


(0.005)

0.009

(0.005)

0.006

(0.005)

Have electricity

0.134

(0.022)***

0.095

(0.024)***

0.043

(0.027)

Have phone

0.077

(0.018)***

0.100

(0.018)***

0.088

(0.018)***

Have tap water 0.007

(0.020)

-0.002

(0.019)

0.000

(0.020)

Own enterprise -0.010

(0.017)

-0.014

(0.017)

-0.023

(0.017)


0.012

(0.029)

0.070

(0.03)**

0.051

(0.03)*

Cognitive/Math skills score

0.171

(0.043)***

0.139

(0.043)***

0.176

(0.044)***

Constant

-0.951

(0.232)***

-1.076

(0.230)***

-1.380

(0.247)***

Number of Observations 3364 3364 3364

R-squared 0.1320 0.1538 0.1549


92


Annexes

Table 18: Linear Probability Regressions for Informal Savings


Urban household

-0.037

(0.009)***

-0.038

(0.010)***

-0.037

(0.012)***

Household size 0.002

(0.002)

0.002

(0.002)

0.003

(0.002)


(0.026)

0.029

(0.026)

0.030

(0.026)

Gender (M) 0.017

(0.014)

0.019

(0.014)

0.017

(0.014)

Legal MW -0.016

(0.009)*

-0.008

(0.010)

0.001

(0.010)

Working in Middle East -0.027

(0.010)**

-0.005

(0.013)

-0.015

(0.015)

First timer MW

0.020

(0.008)**

0.020

(0.007)**

0.020

(0.007)**

MW works in informal sector

0.048

(0.014)***

0.040

(0.014)***

0.040

(0.014)**

Higher than primary school ed. -0.011

(0.007)

-0.011

(0.007)

-0.011

(0.007)


-0.015

(0.006)**

-0.017

(0.006)**

-0.016

(0.007)**

HH with gov’t emp. member -0.010

(0.026)

-0.008

(0.026)

-0.010

(0.026)

Own house

-0.029

(0.015)**

-0.027

(0.015)*

-0.027

(0.015)*

Number of rooms 0.001

(0.002)

-0.001

(0.002)

-0.002

(0.002)

Have electricity 0.012

(0.010)

0.023

(0.012)**

0.022

(0.013)

Have phone 0.013

(0.009)

0.009

(0.009)

0.008

(0.009)

Have tap water

0.038

(0.013)***

0.041

(0.013)***

0.039

(0.013)***

Own enterprise

0.027

(0.010)***

0.028

(0.010)***

0.027

(0.010)***

Financial literacy score 0.030

(0.016)*

0.016

(0.016)

0.016

(0.016)

Cognitive/Math skills score -0.024

(0.020)

-0.017

(0.020)

-0.019

(0.021)

Constant

0.265

(0.100)***

0.285

(0.099)***

0.281

(0.104)***


R-squared 0.0262 0.0309 0.0320



93

Annexes

Annex D: Analytical Results Concerning CreditTable 19: Linear Probability Regressions for Credit from Any Source


Urban household -0.028

(0.024)

-0.029

(0.026)

0.030

(0.028)

Household size

0.019

(0.004)***

0.019

(0.004)***

0.018

(0.005)***

Respondent is head of household -0.002

(0.060)

-0.028

(0.061)

-0.048

(0.060)

Gender (M) -0.031

(0.028)

-0.034

(0.028)

-0.031

(0.028)

Legal MW 0.023

(0.020)

0.010

(0.021)

0.032

(0.025)


(0.025)

-0.051

(0.029)*

0.006

(0.032)

First timer MW -0.007

(0.018)

-0.007

(0.018)

-0.009

(0.018)


(0.028)

-0.017

(0.029)

-0.018

(0.029)

Higher than primary school education -0.018

(0.018)

-0.017

(0.018)

0.002

(0.018)


0.052

(0.014)***

0.055

(0.015)***

0.057

(0.015)***

HH with gov’t emp. member

0.217

(0.057)***

0.211

(0.058)***

0.196

(0.058)***

Own house -0.015

(0.027)

-0.021

(0.027)

-0.017

(0.027)


(0.005)

0.004

(0.005)

0.005

(0.005)

Have electricity 0.034

(0.022)

0.016

(0.024)

0.050

(0.027)*

Have phone 0.023

(0.019)

0.032

(0.020)

0.032

(0.020)

Have tap water

-0.041

(0.024)*

-0.046

(0.024)*

-0.030

(0.024)

Own enterprise

0.171

(0.020)***

0.170

(0.020)***

0.169

(0.020)***

Financial literacy score 0.023

(0.032)

0.049

(0.033)

0.051

(0.034)


(0.045)

-0.054

(0.045)

-0.064

(0.046)

Constant

-0.537

(0.225)**

-0.586

(0.227)**

-0.683

(0.239)***


R-squared 0.0589 0.0624 0.0718


94


Annexes

Table 20: Linear Probability Regressions for Formal Credit


Urban household 0.016

(0.011)

0.007

(0.011)

0.003

(0.012)

Household size 0.002

(0.002)

0.001

(0.002)

0.001

(0.002)


(0.020)

-0.001

(0.020)

-0.002

(0.020)

Gender (M) 0.000

(0.013)

0.000

(0.012)

0.001

(0.012)

Legal MW 0.000

(0.006)

0.003

(0.007)

-0.004

(0.009)


(0.009)

-0.010

(0.010)

-0.003

(0.011)

First timer MW 0.000

(0.007)

-0.003

(0.007)

-0.004

(0.007)

MW works in informal sector 0.011

(0.013)

0.012

(0.013)

0.013

(0.013)

Higher than primary school ed. -0.002

(0.006)

-0.002

(0.006)

-0.003

(0.007)


0.020

(0.005)***

0.022

(0.006)***

0.023

(0.006)***

HH with gov’t emp. member

0.287

(0.055)***

0.280

(0.055)***

0.281

(0.055)***

Own house -0.005

(0.011)

-0.008

(0.011)

-0.008

(0.011)

Number of rooms

0.003

(0.002)

0.005

(0.002)**

0.005

(0.002)**

Have electricity

0.015

(0.006)**

0.020

(0.008)**

0.016

(0.009)*

Have phone 0.009

(0.007)

0.013

(0.007)*

0.013

(0.007)*

Have tap water

0.021

(0.012)*

0.023

(0.012)*

0.024

(0.012)**

Own enterprise

0.035

(0.009)***

0.034

(0.009)***

0.034

(0.009)***


0.044

(0.012)***

0.045

(0.012)***

0.044

(0.012)***


(0.015)

-0.021

(0.015)

-0.016

(0.015)

Constant

-0.357

(0.087)***

-0.385

(0.088)***

-0.402

(0.093)***


R-squared 0.1004 0.1036 0.1045



95

Annexes

Table 21: Linear Probability Regressions for Semi-formal Credit


Urban household 0.068 0.038 0.042

(0.017)*** (0.019)** (0.021)**

Household size 0.012 0.008 0.008

(0.003)*** (0.003)*** (0.003)***

Respondent is head of household -0.050 -0.041 -0.045

(0.020)** (0.020)** (0.021)**

Gender (M) -0.022 -0.020 -0.019

(0.017) (0.016) (0.016)

Legal MW -0.040 -0.018 -0.012

(0.012)*** (0.013) (0.014)

Working in Middle East 0.014 0.048 0.058

(0.014) (0.015)*** (0.016)***

First timer MW 0.005 -0.006 -0.006

(0.011) (0.011) (0.011)

MW works in informal sector -0.020 -0.031 -0.028

(0.018) (0.019) (0.019)

Higher than primary school ed. 0.018 0.017 0.019

(0.011) (0.011) (0.011)*

Log of consumption expenditure 0.011 0.014 0.018

(0.009) (0.009) (0.009)**

HH with gov’t emp. member -0.032 -0.048 -0.052

(0.038) (0.040) (0.040)

Own house 0.007 0.001 0.001

(0.016) (0.016) (0.016)

Number of rooms 0.000 0.003 0.003

(0.003) (0.003) (0.003)

Have electricity -0.032 0.001 -0.006

(0.015)** (0.017) (0.019)

Have phone 0.011 0.018 0.015

(0.011) (0.012) (0.012)

Have tap water -0.009 0.000 0.003

(0.014) (0.014) (0.015)

Own enterprise 0.039 0.038 0.036

(0.013)*** (0.013)*** (0.013)***

Financial literacy score 0.017 -0.005 -0.009

(0.020) (0.021) (0.021)

Cognitive/Math skills score 0.074 0.073 0.080

(0.027)*** (0.028)*** (0.028)***

Constant -0.167 -0.223 -0.300

(0.129) (0.131)* (0.139)**


R-squared 0.1004 0.1036 0.1045


96


Annexes

Table 22: Linear Probability Regressions for Informal Credit


Urban household -0.113 -0.074 -0.015

(0.021)*** (0.023)*** (0.024)


(0.004) (0.004)** (0.004)**

Respondent is head of household 0.044 0.014 -0.001

(0.057) (0.058) (0.057)

Gender (M) -0.009 -0.014 -0.014

(0.025) (0.026) (0.025)

Legal MW 0.063 0.025 0.047

(0.019)*** (0.020) (0.023)**

Working in Middle East -0.015 -0.090 -0.049

(0.024) (0.027)*** (0.031)

First timer MW -0.012 0.003 0.001

(0.016) (0.017) (0.017)

MW works in informal sector -0.023 0.003 -0.003

(0.026) (0.026) (0.026)

Higher than primary school ed. -0.034 -0.032 -0.014

(0.017)** (0.016)** (0.017)


(0.013) (0.013) (0.013)

HH with gov’t emp. member -0.038 -0.021 -0.033

(0.055) (0.056) (0.055)

Own house -0.017 -0.014 -0.010

(0.025) (0.025) (0.025)

Number of rooms -0.003 -0.004 -0.002

(0.005) (0.005) (0.005)

Have electricity 0.051 -0.005 0.039

(0.021)** (0.022) (0.024)

Have phone 0.003 0.001 0.003

(0.018) (0.018) (0.018)

Have tap water -0.053 -0.069 -0.057

(0.022)** (0.022)*** (0.022)***


(0.019)*** (0.019)*** (0.019)***

Financial literacy score -0.038 0.010 0.016

(0.030) (0.031) (0.031)

Cognitive/Math skills score -0.097 -0.106 -0.128

(0.043)** (0.043)** (0.044)***

Constant -0.013 0.022 0.019

(0.205) (0.206) (0.214)


R-squared 0.0299 0.0415 0.0515



97

Annexes

Annex E: Analytical Results Concerning InsuranceTable 23: Linear Probability Regressions for All Types of Insurance


Urban household 0.175 0.079 0.019

(0.022)*** (0.023)*** (0.025)


(0.004)*** (0.004)*** (0.004)**

Respondent is head of household -0.145 -0.183 -0.187

(0.057)** (0.056)*** (0.054)***

Gender (M) -0.017 -0.017 0.001

(0.027) (0.026) (0.026)

Legal MW 0.046 0.083 -0.010

(0.020)** (0.020)*** (0.023)

Working in Middle East -0.061 -0.060 0.004

(0.025)** (0.028)** (0.031)

First time MW 0.039 0.004 -0.001

(0.017)** (0.017) (0.017)

MW works in informal sector 0.016 0.017 0.026

(0.028) (0.027) (0.026)

Higher than primary school ed. 0.005 0.004 -0.012

(0.017) (0.016) (0.016)


(0.013) (0.013)* (0.013)**

HH with gov’t emp. member 0.253 0.186 0.205

(0.048)*** (0.047)*** (0.047)***

Own house 0.100 0.065 0.066

(0.027)*** (0.027)** (0.027)**

Number of rooms -0.036 -0.014 -0.014

(0.005)*** (0.005)*** (0.005)***

Have electricity -0.152 -0.095 -0.129

(0.021)*** (0.022)*** (0.026)***

Have phone -0.027 0.017 0.021

(0.019) (0.018) (0.018)

Have tap water -0.044 -0.027 -0.020

(0.023)* (0.022) (0.022)


(0.019)*** (0.018)*** (0.018)***

Financial literacy score 0.060 0.056 0.052

(0.030)** (0.030)* (0.030)*

Cognitive/Math skills score 0.099 0.063 0.108

(0.044)** (0.043) (0.043)**

Constant 0.406 0.106 0.027

(0.211)* (0.206) (0.213)


R-squared 0.1331 0.1839 0.2036


98


Annexes

Annex F: Special Documents Required for TKI Insurance Claims

Source Documentation for Insurance Claims in Table 5

Hospital: (a) death certifi cate,

(b) medical report,

(c) forensic/medical report by doctor upon request by police,

(h) medical report stating permanent or partial disablement (in %),

(i) X-ray,

(j) list of medical expense,

(o) list of medicine used for treatment in hospital

BP3TKI: (k) legal letter,

(s) confi rmation letter regarding the legal case,

(t) confi rmation letter regarding unpaid wage case,

(v) letter informing migrant workers deportation for making illegal conduct,

(w) letter informing work placement transfer,

(x) contract termination notice,

(y) contract cancelation notice

Legal Aid: (q) letter of attorney to appoint legal aid institution,

(r) proof of legal aid expenses

Village Head: (d) offi cial letter,

(f) legal letter of benefi ciary

Police: (e) police report

Embassy: (n) offi cial letter

Employer: (x) contract termination notice,

(y) contract cancelation notice

Foreign Court: (p) Offi cial letter stating the existence of legal case

PPTKIS: (l) working contract,

(m) placement contract

Travel agent: (u) return ticket under migrant workers name

Other: (g) receipt for all funeral expenses

Sources: TKI Insurance of Mitra Consortium and Ministry of Manpower and Transmigration Regulations #23 of 2006 and #20 of 2007.


List of References

Bank Indonesia. 2008. “Remittance Survey of migrant workers.” Jakarta, Indonesia.

International Monetary Fund. 2008. Balance of Payments Yearbook. Washington, DC.

Microfi nance Innovation Center for Resources and Alternatives (MICRA). 2008. “Promoting Female migrant workers’ Access to Finance through the National Community Empowerment Program or Program Nasional Pemberdayaan Masyarakat (PNPM)”, Jakarta, Indonesia.

United Nations 2005. “United Nations’ Trends in Total Migrant Stock: The 2005 Revision2”, New York.

World Bank. 2006. “Global Economic Prospects; Economic Implications of Remittances and Migration”, Washington. D.C.

. 2008a. “Migration and Remittances Factbook 2008”, Washington, D.C.

. 2008b. “The Malaysia-Indonesia Remittance Corridor: Making Formal Transfers the Best Option for Women and Undocumented Migrants”. World Bank Working Paper 149, Washington, D.C.

. 2008c. “Investing in Indonesia’s Health: Challenges and Opportunities for Future Public Spending.” Health Public Expenditure Review. The World Bank Offi ce, Jakarta.

. 2009a. “Bringing Finance to Pakistan’s Poor: A Study on Access to Finance for the Underserved and Small Enterprises”, May, 2009. Washington, D.C.

. 2009b. “Indonesia, Access to Financial Services”, draft of June 2009. The World Bank Offi ce, Jakarta.

Zabin, Carol. 1996. “Bridging the NGO-Grassroots Gap”. Borderlines 22 (4).



Workers:

Australia - Nusa Tenggara Assistance for Regional Autonomy(ANTARA)