RAISING AWARENESS ON SAVINGS AND FINANCIAL

INSTRUMENTS FOR OVERSEAS FILIPINO WORKERS

Overseas Filipino Workers Journalism Consortium (OFWJC)

June 30, 2006July 17, 2006

DISCLAIMER

“The views expressed in this report are strictly those of the authors and do not necessarily reflect those of the United States Agency for International Development (USAID) and the Ateneo de Manila University”.

Abstract These news packets of the Overseas Filipino Worker Journalism Consortium were written in collaboration with the Economic Policy Reform and Advocacy Project as part of a series of publications aimed at promoting financial literacy among the public. Among the featured issues are entrepreneurial ex-OFWs, cooperatives for seafarers, new investment instruments for OFWs, online investment, and financial scams such as Ponzi schemes and pyramiding.

 

OFW JOURNALISM CONSORTIUM Stories for the Faraway Filipino

www.ofwjournalism.net

Volume 5, Numbers 4 and 5 NEWSPACKET June 30, 2006

Special Edition on Financial Literacy for Overseas Filipinos and their Families (Part 1)

Ateneo de Manila University

This media product is made possible by the generous support of the American

people through the United States Agency for International Development.

Back to Basics Ex-OFWs, advocates confront business realities CALOOCAN CITY –FORMER overseas Filipino workers trying their hands in business are discovering the cold truth of the market: rules are unforgiving to those unprepared. While social enterprise advocates say the shock is due to lack of skills and training in entrepreneurship, former OFWs with businesses believe “luck” has something to do with it. JEREMAIAH M. OPINIANO reports for the OFW Journalism Consortium.

Seafarers turn to cooperatives for borrowings Bogus schemes MANILA–SAVINGS and investment groups like the Magsaysay Employees, Crew and Allotees Developmental Cooperative (Mecadec) have given seafarers an alternative to banks for borrowing and growing their money. Among its members are Amparo Munariz and her seafarer husband who, for being a loyal member for two decades now, said they wouldn’t have it any other way. LEO J. SANTIAGO reports for the OFW Journalism Consortium.

galore MANDALUYONG CITY—PSEUDO investment schemes such as Ponzi and pyramiding do not only promise quick cash to ordinary investors, but also rake in millions to billions of pesos for operators. JEREMAIAH M. OPINIANO explains the dynamics of these schemes in a report for the OFW Journalism Consortium.

‘Ever been scammed?’ MANILA–OVERSEAS worker’s wife Virginia Recuerda’s mind wanders to a Citibank check in her drawer every time a television show on scams began airing at Channel 11 recently. That check for US$3,000 and the show remind her of how trust in other people could lead to financial disaster.    JEREMAIAH M. OPINIANO  reports for the OFW Journalism Consortium.

The contents are the responsibility of the contractor and do not necessarily reflect the views of USAID or the US government.

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Back to Basics

Ex-OFWs, advocates confront business realities

by JEREMAIAH M. OPINIANO www.ofwjournalism.net

CALOOCAN CITY-–FORMER overseas Filipino workers trying their hands in business are discovering the cold truth of the market: rules are unforgiving to those unprepared.

While social enterprise advocates say the shock is due to lack of skills and training in entrepreneurship, former OFWs with businesses believe “luck” has something to do with it.

“[Going into business] is a daunting task when you don’t have a concrete business in mind before and upon your return to the Philippines,” Celestina Soriano said of her experience when she returned in 2002 after a 14-year domestic work stint in Hong Kong.

The 39-year-old mother of one owns a four-year-old home-based store, which was three-fourths full with food products. She also operates a six-door apartment, currently all occupied by low-income families and students.

She gave up her passenger transport business with the increasing prices of tricycle and jeepney parts, maintenance and fuel costs.

For Cecilia Icaonapo, operating a micro-store is enough. “The sari-sari store is my dream business,” says Icaonapo, who manages her family’s store since high school and

prior to working in Singapore and Taiwan from 1997 to 2002. “I’m comfortable with it,” Icaonapo says, who earns as much as P39,000 monthly. That income comes from daily

retail sales (P600), electronic mobile phone pre-paid loading sales (P400), and wholesale of alcoholic beverages and cold drinks to other stores (P300).

But for Ramon Gallinera and Acier Lotilla, former OFWs must go into manufacturing, as they claim their soap and health products business also creates employment for OFWs’ families and migrant Filipinos returning for good.

“[We’re] ‘lucky’ to have supplied at least 5,000 bars daily to distribution centers and have given jobs to 50 people from Calamba, Laguna and Bulusan, Sorsogon jobs,” said Gallinera, a former marketing employee in Riyadh.

Some OFWs are entrepreneurial, says Maria Angela VIllalba of the enterprise development NGO Unlad Kabayan Migrant Services Foundation, and “many others are not.”

These observations on OFWs-cum-entrepreneurs hold true since the early 1990s, Villalba adds.

Skillet RHODORA Hizon of the nongovernment group Center for Small Enterprises agrees with Villalba.

Dizon points to their group’s data that over 75 percent of the former overseas workers who sought CSE’s advice and help on their enterprises failed to make their enterprises grow.

CSE provides technical assistance and training to small enterprises worth over a million pesos, That is why they go into minor trading and sari-sari stores, adds CSE’s executive director. Dizon, however, said these options reflect “their lack of skills”. Hizon also notices many migrant workers “do not have that dream enterprise”. “It is seldom that you enter into an enterprise you stumbled upon that succeeded.” Villalba points to readiness. “There are those ready to make their businesses grow, and those who can only reach as much,” she said. Villalba adds migrant workers trying to make their enterprises grow are those “who think of their businesses’

needs”—and this is where they will be tested because many of them think business is “merely about buying and selling.” Hizon says there are two types of enterprises: livelihood-oriented enterprises, where incomes go straight to the

entrepreneur’s daily family needs; and growth-oriented enterprises, where entrepreneurs plow back part of their profits into the business for possible expansion.

 

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Only a small number of enterprises run by former overseas workers are growth-oriented, Hizon observes, as she also called the stores owned by overseas workers as “micro-micro enterprises.”

Citing government data, Hizon estimates there are more than 700,000 micro-enterprises, 62,000 small enterprises, 2,000 medium-scale enterprises, and 2,000 corporations in the country today.

Within those micro-enterprises, Hizon says, those with assets worth P100,000 below are “micro-micro,” P100,000 to 1 million are “middle-micro,” and P1 to P3 million are “mezzanine micro-enterprises”.

Soap

LOTILLA and Gallinera can’t say where in Hizon’s level they could categorize their business center for their varied organic soaps—called “Sattin” (“Sariling Atin at Tulong sa Tao, Itaguyod Natin”)–in Barangka, Mandaluyong City.

“It’s not that big,” they say. Nonetheless, it is one of a dozen business centers scattered nationwide that sell soaps ranging from a P40 Papaya-

based soap to a P1,200 soap for “slimming”. These centers are part of a network of distribution under the Sapi-OFW Development Cooperative that Lotilla and

Gallinera formed four years ago. The duo trained in soap making abroad: Lotilla while working as caregiver in Canada and Gallinera while working in

the Kingdom of Saudi Arabia capital. They returned to the Philippines in different years and established their own businesses before agreeing to merge

operations in 2002. Their soap manufacturing venture produces 5,000 bars a day and yields “a fairly good income.” Sapi-OFW uses direct marketing schemes such as inviting people to pay membership fees and avail of soap

products, forming groups to become distributors of at least P11,000 worth of products; and, enabling people to set up service centers and avail of discounts from selling the products.

Gallinera declined to disclose profits they get from Sapi-OFW’s methods. However, Lotilla, whose Acier Group of Companies is a Sapi-OFW partner, claims that since starting her soap

business in 2004, she profited from P500,000 to P1 million. Apartment owner Soriano, on the other hand, said that whatever she earns from the store goes to meet her family’s

daily expenses like food, water, and electricity. She is keeping earnings from her apartment rental business, at least P7,000 a month, for repairs and improvement. Soriano doesn’t have plans to go back to her passenger transport business and says she’s focusing on her

apartments. Icaonapo, on the other hand, plans to buy a taxi franchise.

 Happiness

VILLALBA is not worried “if these former migrant workers can only do so much in terms of making their businesses grow, so as long as they are equipped with skills and avoid ‘trial and error’ situations.”

But Hizon thinks that while giving OFWs the skills to do business will help, “many of them still lack the appreciation on why training will help them and their businesses.”

Hizon points to culture as one of the culprits. She believes Filipinos have a mindset of being “employees” and, thus, becoming an entrepreneur from being an

employee will need self-preparation. “If you really want to manage a business, you already know what business you will set up, and the risks involved in

entrepreneurship will then become calculated risks because you have planned for those already,” Hizon says. Prior to equipping yourself with skills, OFWs should make a “careful self-assessment” about their capacities to be in

business. “Part of this assessment is if the entrepreneur has plans to make the business grow.” Soriano believes that her work as domestic worker in Hong Kong has deadened her skills set as a graduate of

business administration almost two decades ago. Still Gallinera said venturing into manufacturing in the Philippines doesn’t only require skills and mindset since the

odds against this sector are high. While making soap is “easy to do,” Gallinera says Sapi-OFW’s 10-year-old venture “is not without rough sailing.” He is aware that venturing into manufacturing, a “struggling sector in the Philippines,” is no easy picking. Hence, he said they continue to seek partnerships with businessmen and with groups of overseas workers.

 

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OFWs as entrepreneurs may have “special, distinct” characteristics and needs, observes Nancy Borje of Zone One Tondo Organization (ZOTO), which provided entrepreneurial loans to nearly 50 former OFWs like Soriano and Icaonapo.

“They (OFWs) came from difficult situations abroad, and these affect their transformation into entrepreneurs back home,” ZOTO’s director for microfinance says.

Icaonapo and Soriano are among ZOTO’s OFW entrepreneurs who are “doing well” in their enterprises. Soriano, for example, started with an P8,000 loan from ZOTO and the loan became P13,000 which she dutifully paid

within 75 days recently, says Borje. Borje credits Soriano’s increasing borrowing as a reflection that the latter’s business is doing well.. “I’m happy with my life and my business,” Soriano said. “Isn’t that more important?”

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila-Economic Policy Reform and Advocacy (EPRA) project

Links: Unlad Kabayan Migrant Services Foundation -- www.unladkabayan.org Center for Small Enterprises -- www.csentrepinoy.org Zone One Tondo Organization -– www.zoto.org

 

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Seafarers turn to cooperatives for borrowings

by LEO J. SANTIAGO www.ofwjournalism.net

MANILA--AMPARO Munariz and her seafarer husband have been members of a cooperative for nearly two decades now and they wouldn't have it any other way. Savings and investment groups like the Magsaysay Employees, Crew and Alottees Developmental Cooperative (Mecadec) that Munariz belong to have given seafarers an alternative to banks for borrowing and growing their money.

The Munariz couple, for one, has relied on from their cooperative to send their children to school, put up a sari-sari store, and pay the down payment for their house and lot in Better Living Subdivision, Parañaque. The 46-year-old Amparo herself was able to graduate from a correspondence school through borrowing from Mecadec.

With P20,000 share capital each, they are able to borrow twice every year by alternating as loan borrower. Another member, Lauro Cabanilla, said he always turned to the cooperative for loans to fund his examinations and

licenses since the 1980s. It’s better than borrowing from usurers, Cabanilla said. Members Noel Abejar, 44, and wife also tapped the cooperative’s credit line to build their new house in Cavite. As Abejar puts down boxes on the floor, he said they are thinking of borrowing again to opening a market stall near

the house they are moving in. What’s buzzing up these borrowings and financial activities? Mecadec said it’s the benefits their members get from the money they put into the cooperative. Cabanilla agrees. For one, aside from access to instant cash, they receive a minimum P6,000 as patronage refund

every year. That is money called dividends that members get as windfall from the savings, borrowing, and interest operations of

the cooperative. Mecadec said one of their investment strategy is investing members’ money in mutual funds. “Members are deducted 10 per cent of their salaries, which are placed in the care of a multinational investment

company,” Mecadec chair Marlon Rono explained. Their money earned at least eight percent, which is higher than the existing banking rates, Rono added. The cooperative is able to accumulate a lot of money after 10, 15 and 20 years depending on the choice of the

member, he said. Mecadec’s mutual fund investment today has hit P180 million after only five years.

Attractions

RONO, who is also Magsaysay Maritime Corp. vice president, said the cooperative now has P56.4 million in total funds. Last year’s figures placed its loan portfolio at P100 million.

Just recently, the cooperative declared a P2,500 patronage refund or dividends for every active borrower member. Since the cooperative has total 12,700 members, this meant Mecadec shelled P31.75 million, or giving away nearly half of its total funds.

The cooperative has been providing multi-purpose loan, education, Christmas, training and license loans, housing, car loan and micro-business loan.

Rono said that the facility tapped more by seafarers is their educational loan of between P5,000 (one-time) and P10,000 every semester.

The loan bears no interest charges but exacts a P400 service fee from the borrower. Rono said more than half of their members tap such loan during the months of May-June and September-October. General manager Jong Pablo told the OFW Journalism Consortium that Mecadec also lends P10,000 to P200,000 to

seafarers building micro-enterprises. Members can choose to pay within six months or two years. Amortization is spread throughout the loan cycle plus the

share capital of 25 percent is waived.

 

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Other cooperatives providing loans to seafarers include the five-year-old Multipurpose Cooperative for UPL Manning Agency’s Employees and Crew that claims a thousand members and the Maritime Multi-Purpose Cooperative with 262 members.

The UPL coop has total funds of at least P12 million from which it dips to provide emergency, educational, and business loans to members.

Recently, it has started savings in time deposits. Members earned dividends of at least 5 to 8 percent yearly. The Maritime MPC, on the other hand, started just last year and also allows members to borrow from P20,000 up to

P200,000 payable in six months to one year. According to consultant Eugene Gonzales, Maritime MPC’s systems and rates for savings products are

overshadowed by the focus on borrowing. It has to develop efficient systems and competitive rates for savings products, Gonzales said. He explained that while membership in the coop is not mandatory for employees of manning agency Associated Ship

Management Inc., one has to be at least an associate member to be able to borrow from the coop. A member has to pay P2,500 (equivalent to 25 shares at P100 per share) to get regular membership. Members get a mandatory share of the coop income and get salary loans. This becomes the reason for many to seek membership, Gonzales said.

Big plans

COMPARED to land-based OFWs, seafarers have the competitive edge to save a lot of money. Take for example an able-bodied seaman, who is also a member of the International Transport Workers Federation,

with a monthly salary of US$1,300 and fixed overtime and other shipboard benefits worth US$300. That seaman could remit 80 percent of his income and save the rest in a cooperative or a bank.

That 20 percent is what Gonzales and the other cooperatives are trying to catch. He wants the Maritime MPC to encourage more members to save, conduct business trainings, and engage in health

and medical benefits. “The ASM cooperative may not be the best thing that happened to them, but it continues to help them economically.

At the very least, they can also build business skills through training in due time,” Gonzales said. Rono said that Mecadec would open new products to increase its membership. He said the cooperative would open a housing loan window and encourage time deposits. There’s also a plan to install a computer system where members could access information on their savings and the

status of their loans. Rono said the system would be very expensive and, hence, has still been on the drawing board ever since. The challenge facing these cooperatives is the status of employment of many seafarers who are on six-month or ten-

month contracts. There’s a need to be creative in the process of recruiting seafarers into cooperatives, Mecadec’s Rono said noting

that almost half of Magsaysay Maritime Corp.’s total 20,000 seafarers are not yet members. Still, Gonzales believes the contractual employment status of seafarers all the more give reasons for them to save,

especially in cooperatives that offer lending for startup business. “It is about time that our seafarers learn the value of saving money for their retirement and specially business

ventures. They are not always healthy. What would happen to them after they are no longer able to board ships?” Rono said. OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

 

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‘Ever been scammed?’

by JEREMAIAH M. OPINIANO www.ofwjournalism.net

Editor’s note: Victim requested anonymity in exchange for baring her story. SOMEWHERE IN LUZON ISLAND––OVERSEAS worker’s wife Virginia Recuerda’s mind wanders to a Citibank check in her drawer every time a television show on scams began airing at Channel 11 recently.

That check for US$3,000 and the show remind her of how trust in other people could lead to financial disaster. It’s exactly three years ago that Recuerda got that check–equivalent to three months her husband’s salary overseas–

which she can’t transform into hard cash due to a scam known as Ponzi. “See this? This check is our money,” Recuerda told the OFW Journalism Consortium Inc. Her gaze measured,

Recuerda doesn’t allow the check to leave her hands. The check, a contract from a local holdings company, and a handwritten acknowledgment receipt add on to the

memory of how she fell for an investment scheme in 2002. Television actor Leo Martinez’s gaze and voice narrating the cases of scams that clutched Filipino investors like

Recuerda only refresh her regrets of believing a certain Maridina Dizon that her US$4,000 investment could earn four percent. “I found her [Maridina] trustworthy since her husband’s an executive of a bank,” Recuerda recalls. “She was also very articulate and can explain things really well.” Recuerda said it was her friend who Maridina also lured for investment that she was introduced to Dizon who

represented Logaton Holdings Inc. Logaton, it was revealed after several dinners and cocktail parties where Maridina brought her, acted as an agent of

Multinational Telecommunications Investors Corp. or MultiTel. A year after Recuerda forked over to Dizon her money in a tête-à-tête at a fastfood chain, MultiTel’s founder Rosario

Baladjay was arrested in Mangaldan, Pangasinan for complaints of estafa. It was only through the television that Recuerda confirmed something amiss would happen to her investment. My heart thumped like a train when I saw Baladjay on television, she said. “I almost broke down with nervousness; like the many retirees and senior citizens that also fell for the scheme.”

Natural prey

WITH their substantial disposable income, potentials for savings and some pundits say a desire to return home for good, OFWs are a natural target for legitimate businesses and illegal money-making ventures.

The Securities and Exchange Commission says most of these ventures seduce investors with the promise of extremely high returns that range from 4 percent to 29 percent.

Lawyer Lalaine Monserate of the SEC’s Compliance and Enforcement Division explained Ponzi schemes, for example, also pay investors “exceptional returns from the deposits of a growing number of new investors.”

While Recuerda and her friend Lilian were supposed to get 4-percent interest for their investment, Dizon was to get seven percent every time she brought in third-party investors like them.

Monserate said the Ponzi scheme is similar to pyramiding, which rewards participants for inducing other people to join, and which focus is primarily on the exchange of money for recruitment, and not for the selling of products such as health supplements, food and shoes.

Aside from the dangled promising returns, the factor of trust comes in when a scam operator brings along or introduced to the victim by a confidant.

In Recuerda’s case, it was her friend Lilian who, she said, attested to the viability of the investment. As a semblance of formality, documents are presented, like the acknowledgment receipt that Dizon gave to

Recuerda when she paid US$1,000 in 2002 “for placement at MultiTel.” With the promise of high returns and the confidence in her friend, Recuerda relented and accepted the receipt

handwritten only by Dizon.

 

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“See here, she even wrote the serial numbers of the dollar bills I gave her,” Recuerda said as her fingers traced the yellowing paper.

The receipt was later replaced by a peach-colored paper bearing a contract for the investment between Logaton, Recuerda and her husband Felipe.

Money walks

EVERY month since then, Dizon would invite Recuerda to dinners catered by MultiTel owner Baladjay. “She [Baladjay] would even personally call to invite us to prove that she was telling the truth [about the viability of the

investment].” Dizon and Baladjay, hence, acted as a tag-team, with the former assuring Recuerda and other investors they could

get their money back with interest. “I believed in them so much I planned to add US$2,000 more in my investment,” Recuerda said. That time she has already earned half of the US$4,000 she gave Dizon. But after Felipe returned to his work abroad in 2003, unsolicited advice against hiking that investment poured in,

especially from my in-laws and other friends, she said. Her worries grew when on March 12 that year, news reports cited Baladjay was arrested in view of regulators’ clamp

down on MultiTel and other suspected Ponzi and pyramid schemes. With the US$3,000 Citibank check and a contract nestled in her handbag, Recuerda said she immediately went to

Logaton’s Makati City office, a two-hour drive from her house. What she found there was a room bare of furniture; not even a paper clip on the floor. The Logaton office was gone. Dizon, meanwhile, became difficult to contact after she told Recuerda to exchange the check for cash after she

comes home from the United States for her child’s enrolment. “She was still confident and reassuring,” Recuerda recalled. Later, Recuerda was told by fellow MultiTel investors that Dizon couldn’t return to the Philippines because her name

was “blacklisted” by US immigration and law enforcement officials. Recuerda doesn’t know if Dizon was able to slip past authorities after two years. She may still be hiding somewhere in the US with our money, Recuerda can only surmise. However, the real money may still be with Baladjay and husband Saturnino, whose P10-billion worth of assets the

Supreme Court ruled in May this year to remain frozen, throwing out a Court of Appeals decision to lift the freezing of these assets.

Haul

SOME P25 billion to 90 billion were lost to these schemes, SEC officials said, affecting a low estimate of 250,000 Filipinos and a high estimate of a million Filipinos who include overseas workers, class A, B, and C sectors, and government and private sector employees and retirees.

Up to 4,000 people, mostly Filipinos, in the United Arab Emirates and Oman lost US$2 million to the Manila-based PowerHomes Unlimited, says a 2003 report by Gulf News. An appeals court in Manila said PowerHomes had no real product to sell outright and earns primarily through recruitment. The document tagged this scheme as “pyramiding”.

Recuerda said her husband’s fellow worker lost half a million pesos to this type of scam. In MultiTel’s case, complainants claim they lost P625 million in principal investment and P125-million in interest

payments. SEC’s June 1 website showed it issued cease and desist orders against 48 companies that include MultiTel, its

sister company MultiTel Investment Holdings, PowerHomes, and the Tibayan Group of Companies for conducting “fraudulent investment schemes.”

Filipinos abroad and at home should always check the websites of SEC and the trade and industry department for announcements and steps to elude these investment schemes, said SEC director Hubert Dominic Guevara.

Guevara also observed that even OFWs who fell prey to these investment schemes “don’t conduct due diligence on the companies that approached them”.

“They shouldn’t wait for the time they are not earning anything before they lodge in complaints.” “The first line of defense is the people themselves as we in the SEC can only do so much as a regulator,” he added. Guevara’s advice came late for Recuerda. Still she says she has learned her lesson: “I focus on my work and my son who’s preparing for a board examination

as a licensed professional”.

 

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Her husband, however, remains working abroad, the only sad twist on their aim to double their savings. But Recuerda said the decision to pour money into the MultiTel investment was a conjugal decision and responsibility

she and Felipe shares. “Money has never been an issue between my husband and I.” While our trust in people outside our family of three has eroded, our trust in hard work through good investment

hasn’t, she adds. Recuerda points to her son as the best investment they have right now.

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

 

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Bogus schemes galore

by JEREMAIAH M. OPINIANO www.ofwjournalism.net

MANDALUYONG CITY–PSEUDO-INVESTMENT schemes such as Ponzi and pyramiding do not only promise quick cash to ordinary investors, but also rake in millions to billions of pesos for operators.

Ponzi scheme operators, explains lawyer Lalaine Monserate of the Securities and Exchange Commission, pay exceptional returns to investors coming from the deposits of “a growing number of investors.”

Generally, an investor can receive seven post-dated checks, said Monserate of the SEC compliance and enforcement division.

Suspected Ponzi companies get helped by agents or counselors, either an individual or a corporation, who will recruit as many investors, she explained.

The company or individual agent then gets the deposit of its first investor, who tells others of this “good investment opportunity” and who also receives an interest income. A second one comes in, gives his or her investment, and also earns from the interest.

The first investor is then paid by the agent her or his next interest income as a result of the money from the second investor.

When a third investor comes in, gives his or her money, and earns interest income from it, the second and first investors also get their next interest incomes. The cycle then continues (see diagrams A, B, C and D).

Monserate said one Ponzi company that operated only for five months earned as much as P25 million in a single day. The company’s only physical asset was a 35-square meter office space, yet it was able to collect around P1.2 billion in that period.

Another Ponzi company that operated for eight months earned P351.05 million as principal, and paid P67.41 million as interest income to its investors. The interest was from 8 to 18 percent

A pyramid scheme, on the other hand, is similar to multi-level marketing schemes. Monserate said participants in this scheme get commissions for recruiting as many people as possible. Monserate says pyramid scheme operators hook on the selling point that “each participant can get back their original

investments and make more money by introducing more participants.” Some companies hide these schemes by layering it with products, even if these products “have no real world value

and are priced in an inflated manner.” Pyramid sales schemes or chain distribution plans have been disallowed by the Consumer Act of the Philippines in

the sale of consumer products. The law, particularly Article 53, cites there is a pyramid scheme if the person using a chain distribution profits

“primarily from the recruitment of other persons into the plan rather than the sale of consumer products, services and credit.” Divina (not her real name) from the southern part of Metro Manila remembers joining one of those schemes, putting

in P18,000 of her savings as a domestic helper in Hong Kong to the company. But while recruiting friends and former overseas Filipino workers (OFWs) like her to join, Divina had to shoulder the

transportation and meals when she meets them. She can’t remember how many commission payments were given to her, but a recruit taken gives her P1,500.

After five months, people she recruited –called “downlines”– blamed her for not earning. While she sold products as part of recruitment, Divina said she still lost a total P40,000 from her five-month stint with

a multi-level marketing firm. Since only those on top, called “uplines,” earn, hence the stress of pyramid schemes are positioning, timing, and

getting “downlines” in the left and right sides of the pyramid, Monserate said (see diagram E). The SEC treats pyramid schemes as “an unregistered sale of investment papers or securities if there is an

investment of money into a common enterprise, and the investor is led to expect profits from the efforts of the promoter or a third party,” Monserate added.

 

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If pyramid scheme operators are registered as corporations, the SEC holds jurisdiction over them. However, if registered as single proprietorship or as corporations, the Department of Trade and Industry (DTI) covers these scheme operators.

The decision to join these investment or marketing schemes rests on the individual, and SEC director Hubert Guevara advises people to “stop, read and listen to them by asking questions to the companies and to regulators.”

If the scheme “is a quick-buck thing” such that you earn more than what a bank or mutual fund offers, “raise the ‘red flag’ and begin to ask questions,” Guevara added.

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

Diagram A: How Ponzi Schemes Operate (1)

Ponzi Company

Counselor / Agent (individual or corporation)

Investor Investor Investor

Diagram B: How Ponzi Schemes Operate (2)

Company Company returns part of A’s investment as “interest”

Promise of unusually high interest rates (4 to 29 percent a month)

A invests

A tells others of “good investment opportunity”

 

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Diagram C: How Ponzi Schemes Operate (3) Company pays A’s next

interest due from B’s money Company

B invests

Company returns part of B’s investment as “interest”

A invests

A and B tell others of “good investment opportunity”

Diagram D: How Ponzi Schemes Operate (4)

Company

A invests

Company pays A’s next interest from B’s and C’s monies

Company returns part of CB’s investment as “interest”

C invests B invests

Company pays B’s next interest due C’s money

The cycle continues

Diagram E: The pyramid scheme

1

1 1

1 1 1 1

1 1 1 1 1 1 1 1

1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

Source: Lalaine Monserate (2006). “Alternative Investment Oppprtunities: Pseudo Investment Schemes” (A Powerpoint presentation). Securities and Exchange Commission.

 

OFW JOURNALISM CONSORTIUM Stories for the Faraway Filipino

www.ofwjournalism.net

Volume 5, Numbers 4 and 5 NEWSPACKET July 17, 2006 Special Edition on Financial Literacy for Overseas Filipinos and their Families (Part 2)

Ateneo de Manila University

This media product is made possible by the generous support of the American

people through the United States Agency for International Development.

Experts say OFWs not ready for market Despite soured deal,

groups offer OFWs QUEZON CITY–EVEN if some returning overseas Filipino workers parked their money into investment products here at home, finance experts think OFWs are not yet ready for these kinds of financial instruments. This, they say, is especially true if OFWs are not familiar with these products, and are not financially literate. WILLIAM ALZONA and ISAGANI DE LA PAZ outline their observations in this report for the OFW Journalism Consortium.

to milk dairy industry QUEZON CITY-- DESPITE the soured deal between the National Dairy Authority and the Economic Resource Center for Overseas Filipinos, executives of both group bank on the dairy industry for migrant Filipino workers' investment. WILLIAM IMPERIAL and ARIANNE APOSTOL explain the dynamics of this pilot investment scheme in a report for the OFW Journalism Consortium.

Q and A with Antonio Ranque ‘Internet improves investment initiatives’ QUEZON CITY—HE’S his own guinea pig. Former overseas Filipino worker turned stock trader Antonio V. Ranque applies his trial-and-error style on the Philippine Stock Exchange trading board on himself first before giving solicited advice. He shares his findings to OFW Journalism Consortium editor DENNIS D. ESTOPACE in this one-on-one interview.

Dutch offers treat for OFWs MAKATI CITY-- WHAT'S with the Filipinos and the Dutch? The Netherlands have been the long-time home for the Philippine government's political foes and an estimated 12,000 to 15,000 Filipino workers and migrants. Now, that country's second largest bank is leading initiatives in capturing money of overseas Filipino workers (OFWs) for investment. WILLIAM ALZONA reports for the OFW Journalism Consortium.

The contents are the responsibility of the contractor and do not necessarily reflect the views of USAID or the US government.

Recipients and readers can copy and paste articles from this newspacket at the OFW Journalism Consortium website, www.ofwjournalism.net. This service is for free.

15

 

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Recipients can use stories from this material, provided that they acknowledge the OFW Journalism Consortium. For print publications and Internet websites, kindly give the OFW Journalism Consortium the newspaper edition or website link that carried some - or all - of the stories. Newspapers published in local dialects can even translate the material, provided the acknowledgments are given. For radio and television outfits and migrant civil society groups, please email or call the Consortium that you are using the material for your purposes. May the Consortium be informed soonest.

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OFW Journalism Consortium, Inc.

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themselves are welcome in the OFW Journalism Consortium. Original manuscript contributions must be typewritten, double-spaced, on regular bond paper, and should include some identification on the author(s). The identity of the writer may be withheld upon request. Contributions may be sent to the OFW Journalism Consortium, Inc. through the following: email: ofwjc@lycos.com (for Jeremaiah Opiniano), or by posting comments at the official website, www.ofwjournalism.net.

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Experts say OFWs not ready for market

 

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by WILLIAM ALZONA and ISAGANI DE LA PAZ www.ofwjournalism.net

QUEZON CITY--TONY Ranque's heart beats faster every time someone from a bank pops up a message on his mobile phone.

Like a lover on a tryst, Ranque punches the keypad where a set of numbers sways his decision whether or not to log on to the Internet, access his account, and buy or sell stocks he bought from three or four publicly-listed firms in the country's exchange.

He's in Bohol, 630 kilometers southeast of Manila, where his stocks, bought from savings of a 20-year work in Saudi Arabia, are one of millions traded at the Philippine Stock Exchange (PSE).

The former overseas Filipino worker, however market savvy he appears, says it took him more than a year after returning from Riyadh before engaging in the market for securities.

He advises against OFWs from following his lead. "I'm a poor example of a day trader," Ranque told the OFW Journalism Consortium over cups of cappuccino when he was

vacationing in Manila. "The best ones are those who studied the market longer than I did. It would take double my courage and a high level of

financial literacy," he added. Two experts, one of them a former OFW also in Saudi Arabia, agree with Ranque. "They [OFWs] are not yet ready for these kinds of [financial] instruments," Jonathan Ravelas, market strategist at Banco

de Oro Universal Bank, told the OFW Journalism Consortium. "If [they] are not familiar with the product, it will be too difficult [for OFWs] to invest," former banker Julian Roseus added in

a separate interview. For Ravelas and Roseus, however, the culprit is the market itself: the lack of products attractive for OFWs with high

disposable incomes as well as the lack of access to market data. It took Roseus two decades to nurse his stocks in the Philippine National Bank, Petron Corp., and Philippine Airlines. It would take Ranque, seven years younger, 18 years to reach Roseus's stature.

Late bloomer

ROSEUS credited his savvy for investing mainly because he was a banker, and as such, he can wiggle his way in the market. "I was lucky I'm in the industry. But for other people, I don't think they can access it because there's no information

dissemination," he said. Some 4,800 miles away from Manila, Roseus managed to buy shares of several companies because he was constantly in

touch with friends and family members who gave him investment leads. There was no Internet at that time so I had to rely on information from here, he said. Back home, when the Retail Treasury Bonds were first offered a few years ago by the Bureau of the Treasury, I managed

to get some of it with 14-percent return upon maturity, Roseus claims. Roseus said aside from being tipped by a friend working in a bank on the RTBs, its issuance was also usually published in

newspapers. "It was just a tombstone advertisement. Only a trained eye could see it. If you are not used to reading ads such as that,

you'll probably miss the opportunity." Roseus thinks some banks are not advertising vigorously and, hence, not attracting OFWs for investment. Financial analysts, however, think OFWs have an aversion to risks that's why they're avoiding the market. Others point to

Filipinos' weak savings rate and capacity for spending for investments. The case for OFWs, however, is different since they have relatively higher salary and disposable income than most

working employees in the Philippines. An Asian Development Bank study has cited OFWs could save and invest their money and still live comfortably. If the products are there, Roseus said. Roseus said part of the reason for low OFW participation in the market was that most of the products being offered to them

were all for consumption—from insurance policies to house and lot to appliances to automobiles. "But for investment outlets, almost all of them are (marketed) through word of mouth," he said, adding that there aren't

enough effort exerted by companies to entice OFWs towards these kinds of instruments. Ravelas, whose bank owns the chain of Shoemart Malls in the country, said that such instruments, nonetheless, are too

risky for OFWs. He added that OFWs should stick to fix-yielding savings accounts and time deposits.

 

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Gains, pains HOWEVER, even savings accounts remain unattractive, with a two-percent annual yield while time deposits at four-percent annual interest.

This is lower compared with the returns, say, of the Unit Investment Trust Fund, which promises gains by as much as 20 percent a year, or ten times the yield of the savings account. Buying bonds or debt paper floated by either the government or a private entity, can yield not as much as UITF but definitely higher than those of savings account.

But due to the risks –loss of money– attached to these instruments, financial analysts, brokers, and other experts that the OFW Journalism Consortium talked to for this story failed to recommend a single investment product OFWs should sink their teeth on.

"It all depends on the risk appetite of the investor," an executive from the Hong Kong Shanghai Banking Corp. said. Indeed, most instruments follow a rule of thumb in investing: low yield begets low risk; a high yield means high risk. Even savings accounts or fixed income instruments carry the risk of having a bank or firm folding up for various reasons. A comforting thought for this is that savings are protected by the Philippine Deposit Insurance Corp. up to P250,000. Likewise, savings accounts, unlike bonds, don't follow so many benchmarks and are protected from speculative attacks. For instance, when interest rates go down, bond prices go up and vice versa. If the UITF follows the same market trend, the rates for a time may hit a negative mark and the principal amount could be

slashed along the way or, worse, wiped out. Hence, even Nestor Espenilla, Bangko Sentral ng Pilipinas deputy governor, cautioned that banks should educate its

clients on the pitfalls of UITF products. "They should tell their clients that a UITF is not a deposit product, and as such it is not insured [with the PDIC]," Espenilla

said. "It is still subject to market risks; they may decline along the way." The UITF will replace the common trust fund, which would be phased out by October this year. UITF managers, mostly banks, accept investments for as low as P50,000, unlike the volume in the stock market and bonds

that go at a minimum of P500,000. Basically, the UITF is money pooled by banks. Acting as financial managers, these banks invest the money on various

instruments such as the stock market and government-issued bonds. Unlike the CTF, the UITF is "marked to market" and, as such, the banks cannot assure its returns. Likewise, past

performance of the investment may not necessarily reflect future trends. So far, the UITF has posted double-digit rates, or between 14 percent and 16 percent, as a result of the surge of both the

stock market and the peso's slight strengthening rate against the US dollar. Prior to negative reports on the UITF, Roseus recommended it as investment for OFWs, citing higher returns as reason.

Literacy

AT the heart of moves to attract investments from the billions of dollars of OFW remittances lies financial literacy, Roseus said. Financial literacy, Roseus said, is the fundamental step even before an OFW starts spending hard-earned money, much

less begin investing. While consumption from OFW remittances drives the Philippine economy, this has led to dependence to the migrant

worker of the Filipino family left behind, according to several studies. This dependence has resulted to decreasing domestic productivity that even the World Bank warned the Philippines of

relying too much on remittances to spur economic activity. What if migrant workers' families hold back on spending remittances as Dennis Arroyo cited occurred late last year? "There were anecdotal evidences that families of OFW did not spend as much during the Christmas holidays," said the

director of the National Planning and Policy Staff of the National Economic Development Authority. Hence, Arroyo urges the business sector to devise ways to capture the huge money that was kept in the banks by the

families of OFWs who held back spending late last year. "Businessmen should know how to tap that huge money," Arroyo said. He cited one move could come from the PSE that,

he said, should start offering stock to the OFWs or their families here. It only takes a minimum of P25,000 (US$472 at P53=US$1) in opening an account to trade in the stock market. Easier said than done, especially when financial market players are not convinced OFWs are "educated enough" to trade

in the money market where the stakes are high. Ravelas said OFWs should instead put their money to real estate, or to some fixed-income financial instruments rather

than toy with the idea of trading their hard-earned money to equities or foreign exchange markets. "I think they (OFWs) should be educated well before they trade their money," he added. Roseus admits he used his money earned while working in Saudi Arabia to buy a house and lot.

 

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Real estate, in itself, can be considered as an investment as its price does not fluctuate, he explained, adding that prices at the equities market follow many patterns that boggle the mind even of financial analysts.

Analysts themselves cannot predict whether it is best to buy, sell, or hold on to a specific stock, Roseus said. He recommends that OFWs neither engage in stock trading nor invest in other derivative products such as futures

contracts, forward contracts, options, and swaps. "Since they won't be [here] to manage it [and act decisively] such as withdrawing the money on time when uncertainty is at

hand," the risks are higher, according to Roseus. A notch more difficult to predict are derivatives products, Roseus added, since the prices of these investment products rely

on –or derive from, hence the term– one or more underlying assets, such as stocks, bonds, commodities, currencies, and interest rates.

Relatively "safer" but difficult to buy by an ordinary investor are bonds, he added, since only banks would know when these will be offered.

They are usually the ones allowed to buy and sell these instruments, he added. Jose Vistan Jr., senior analyst of AB Capital Securities, recommends more public education by the PSE to attract OFWs

and their families into the stock and equities markets. Or study and begin sharpening the mind, Ranque said, especially of their children. "The cycle has to be broken."

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

Q and A with Antonio Ranque

‘Internet improves investment initiatives’

 

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by DENNIS D. ESTOPACE (Editor) www.ofwjournalism.net

Ed. -- Mr. Ranque worked for nearly two decades in Saudi Arabia and is project development officer of the NGO Economic Resource Center for Overseas Filipinos. He also shares insights and tips on financial literacy to OFWs and their families here and abroad, such as during recent financial literacy seminars conducted by the Bangko Sentral ng Pilipinas in Cebu, Laguna and Pampanga. QUEZON CITY – HE’S his own guinea pig. Former overseas Filipino worker turned stock trader Antonio V. Ranque applies his trial-and-error style on the Philippine Stock Exchange trading board on himself first before giving solicited advice. DDE: I heard you traded in stocks while working in Saudi Arabia. AVR: No, no. It was after six months when I arrived after working in Saudi that I went into online trading. My entry into stocks was due to difficulties that I saw start-up businesses experienced. Mabuti kung mahilig sa negosyo ang maiiwan mong pamilya dito; yung sa akin wala. Personally, I also experienced that when I went into a taxi business years ago, but the driver I hired cheated me on many things. I lost P200,000 and the parcel of land I sold for that business. From that experience I learned it's difficult to go into the taxi business, especially here in Manila. Kung gusto mong kumita dito sa taxi, kailangan big time ka kaagad: minimum na 3 to 5 ang taxi units mo. Isipin mo, you're parting with hard-earned money on a vehicle that would depreciate in the long run e yung amortization mo di naman bumababa so dun lang mapupunta yung kinikita mo. DDE: But I heard you're in online trading and it began in Saudi. AVR: Ah, yes, I'm really into the Internet even when I was in Saudi. I was involved in a computer society and my line of “specialty” there was Internet for communication. I started with electronic mail, chatting, and then joining e-groups. Besides that, ang pinakamaganda talagang gamit ng Internet for OFWs like me is online news and online banking. I usually use my bank account to send money, especially to my children. For example, I send them allowance through an online bank transfer service called third-party enrolment. They'll send me an email and then I transfer money from my account to their savings account. From online banking, nagtuloy na ko sa online investment but months after I arrived here in the Philippines. DDE: How does this online investment work? AVR: You need to be an account holder of that bank to open a separate account for trading. Hindi pwedeng walang benefiting account because if you're withdrawing from the trading platform, where would the bank place your money? Ganun din sa time deposit, kailangan may benefiting account. So what I did was apply online or through the Internet for the platform. I printed the application and submitted it to the bank's branch. A week later, they sent me an email saying my account for trading has been approved and they gave me my username and password. It's basically like a savings account where you need a maintaining balance.

After that, you could already buy stocks or shares in publicly-listed firms. May lot number yan. For example, the price of a stock is P100 and below, ganitong number of shares ang minimum na dapat mong bilhin. Kung mataas, pwedeng sampu lang. Halimbawa, PLDT, which has a price per stock of above P1,000 each, 10 ang minimum shares na dapat mong bilhin. Pero dun sa iba, kailangan 100 or 1,000 shares.

You could also see your account's activated when you check your online savings account where you get your money to trade in your trading account. Real time iyung trading ha. Meron din syang ticker tape for monitoring your stock's performance. DDE: How much did you initially trade? AVR: Maliit lang, mga P50,000 kasi balita ko that time the market's volatile. Minsan, nagbabawas ako; aabot ng tatlo. Hindi ko pinararami kasi I noticed my stocks were just compensating each other: minsan negative yung isa, yung dalawa positive, so balewala. Hindi pala advisable na maliit ang pera mo: you spread yourself thin. So I just monitor two to three stocks at the Philippine Stock Exchange Index. Unless mahilig ka kumuha ng maliliit na aalagaan mo, I suggest maintain two stocks, and maximum of three. Siguro sa US (United States), puwede yung mag-alaga ka ng maraming maliliit na stocks. Pero ang problema dito sa Pilipinas, hindi naman lumalaki ng ganun kalaki ang mga stocks dito. DDE: Why did you go into this type of investment? AVR: I'm trying to find an alternative to entrepreneurship. Before I left for Saudi, my problem 20 years ago was that I didn't have that much money. Sure, I earn as an employee but I didn't get my share when the business of my bosses was booming. Pag kumita

 

21

yung kumpanya, hindi ako kasama sa hatian; kung may bonus, bonus lang sa akin kasi nga empleyado lang ako. So naisip ko, pag-aralan kung pano ba nagpapatakbo ng negosyo. I was 23 years old that time but I'm one of the few subscribers of Business Day newspaper. [Business Day is the precursor to today's Business World broadsheet founded by the late Raul Locsin. -Ed.]

That time, late 1970s, I always read the financial pages so I was amazed with the zooming earnings from the stock market. Even when I was in Saudi, the first section I read is the business pages. So, deep in my mind, one of the options to grow money is to play in the stock market. But it was cumbersome that time because trading was manual; wala pang Internet. E kung malayo ka tulad ko?

After two years of working in Saudi, may pera ka nga di ka naman makauwi kasi nakapanghihinayang umalis sa trabaho. Plus, your priorities change: bili muna ng lupa, patayo ng bahay, paaralin mga anak. Naudlot nang naudlot iyung pagpapatayo ng negosyo, laluna't wala naman akong mapagkatiwalaan na syang mag-uumpisa dito sa Pilipinas e wala pa akong anak at asawa nuon.

Even when the Internet came to Saudi, and it came early, before the new millennium, online trading didn't hit me that time because the environment was for fund transfer. Even the VOIP [voice over Internet protocol], which was already prevalent in Saudi that time, was still relegated to lesser priorities.

But after leaving 20 years of employment as a migrant worker, and because of kinks in my plan to migrate to another country, I was left with a substantial amount of money I saved. May dala akong pera pero hindi ko alam kung saan ko dadalhin, until I discovered the stocks and equities markets. DDE: How much are you earning from this investment? AVR: It's not really the earning but the learning. I'm a person who wouldn't recommend to you anything until I tried it myself. Hindi ako nagre-rekomenda based sa theory especially if it concerns money. There are OFWs in Saudi trading in stocks but in the US market but I didn't go into that because I haven't tried it myself. Nonetheless, I will not use that experience to convince others. The reason why I go through all these hassles is because I really want to be familiar with the ins and outs of business. If you'll ask me which stock to buy, I won't tell you: you have to find it out yourself. Kasi, parang nagtanong ka rin kung ano ba ang magandang negosyo ngayon. Mahirap sagutin yun. Pero, if you want to be familiarized, I can share my experience. I won't tell you which stock to buy or business to put up. I will not expose myself. ‘Di bale nang maging genius, pero ang guinea pig ako para kung may nagtanong, meron akong maitutulong. DDE: You're connected with this NGO called Ercof (Economic Resource Center for Overseas Filipinos). How much of your market participation is due to your work there? AVR: You can say I do this partly for myself, partly because Ercof promotes financial literacy among OFWs. What I want is for OFWs to see that there are better investments of their money than putting it in a savings account or time deposit. But I'm not the only OFW who worked in Saudi and played in the stocks. There's a friend of mine, an advocate for absentee voting who has majority of his investment in the US. I believe that majority of OFWs wouldn't go into business, so that's one of the challenges facing us in Ercof: to make them shift from consumer to saver to investor. DDE: Is there a secret ingredient in your investment? AVR: Wala naman. Just read. When I was in Saudi, ang una kong binabasa business pages. At least, alam ko kung ano nangyayari sa mga kumpanya, sa ekonomiya. The fundamental analysis has become automatic for me since I'm aware of what's happening. DDE: You still found time for reading while working abroad? AVR: Marami namang time ang Filipino worker abroad. Actually, uwi ka sa bahay, wala ka namang ginagawa diyan. Yun naman ang advantage ng mga OFWs: wala yung better half nila so they can focus on thinking about business. DDE: But you have access to the Internet, others have not. AVR: Kahit naman nuon naging problema ko na yan dahil before 2000, wala akong telephone sa bahay na tinitirhan ko sa Saudi. It was rare during that time for expatriates to have telephone lines in their homes. So, basically, I access the Internet at the office during break time or before going home. Saka may diyaryo naman and I also read books. Pinag-aralan ko ang stocks and mutual funds. Pagbalik ko, nagpasok ako ng pera sa isang equity market trader kasi doon, malaki-laki ang kita. But, admittedly, the Internet made investing easier since kung manual, tawag ka pa ng tawag sa broker mo. That's why the online trading is really better. DDE: How much time do you devote for online trading? AVR: I spent a lot of time during my familiarization with the stock market; it took me six months of self-study. But after buying stocks, usually I check it online not more than 30 minutes daily during trading days. But because the bank offers a free service of sending messages to my mobile phone, I rarely go online. Malayo din kasi ang Internet café from my house in Bohol (Ed. - He lives in the town of Jagna, some 63 kilometers from the provincial capitol of Tagbilaran City}. So as a subscriber to its alert service, the bank

 

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would send a message showing my stocks' performance: kung low or high. Tapos ibibigay rin sa iyo ang closing prices. Kung sumobra ang baba ng presyo, punta na ako sa Internet café before trading from 9:00 am to 12:30 pm. But your bids wouldn't be entered into the trading floor until half-past-nine; nakaabang lang yung offer mo to sell or buy. For example, I'm selling a stock at P100, until there's no buyer for that, my offer remains on queue. I monitor the screen for my purchases or sales. For example, if prices dip too low from my initial selling or buying price, I cancel that offer tapos hahabulin ko. Dito, I have a stop gap: I see to it that the prices don't go below 10 percent; that's my loss threshold. But if the prices continue to pick up, I just allow it to rise. Pero pag hindi ko mahabol-habol ang presyo at maganda ang trading, I usually stay at the Internet café until the trading ends, roughly four hours.

Kaya di pwede ang buy and hold sa akin; mauubos lang ang pera ko. Kasi, in five years of hold, your money would just earn 10 percent. E di ilagay mo na lang sa ibang instruments kaysa sa stocks. What for na papasok ka ng stock market and you're just going to sail on averages. For me, I ride with the tide: buy low, sell high. DDE: So how're your stocks performing? AVR: Minsan may kasama ring luck. Nagtataka nga ako minsan because in my analysis, ang lakas-lakas ng stock pero ayaw pumanhik. I bought one stock at P44 but it didn't go higher despite the company being one of the biggest food manufacturers in Asia. So I had to sell it at a loss of P35. May nakakalusot din like my bank the stock price of which soared to P51. Another stock of a bank I bought I thought was good because that time it was buying into another listed firm. But the stock price didn't move. There's also some stock I bought like this that I believe would rise sooner or later. I'm thinking of selling my stock in a telecommunications firm na matagal ko nang nilalaro kasi tingin ko nag-peak na. DDE: Aren't you afraid of losing money? AVR: I've already lost money. Remember the taxi business I went into? That was four-fold the amount I invested in the stock market today. Ganito siguro ang risk profile ko the fact na yung una kong negosyo hindi naman kumita. I've exposed myself to a start-up business that was more risky compared to what I'm doing with my stocks. And I bought shares of these big firms that I believe wouldn't crash overnight unless the whole market crashes. If that happens, I wouldn't be the only one affected.

That's also one attitude that OFWs wanting to go into business should learn: if they want to go into business, they should be ready to lose money. From the start, they should accept the possibility of losses. I don't want to paint a rosy picture of business because there are fundamentals in doing business and one of the fundamentals is the preparation against losses, against risks. If they are ready to soar high, they should be ready to land. Hindi pwede na gusto mong malaki ang kita, mababa ang risk. DDE: What do you suggest for OFWs wanting to go into investment or into the stock market? AVR: To gain confidence, they should start in a savings group that invests on low-risk products. Huwag muna silang pumasok sa investments that have higher risks, like the stock market, kasi kapag napaso, baka hindi na sila tumuloy. So as OFWs gain confidence and knowledge, slowly enter into the stocks and equities market. But they should always remember there are risks involved. DDE: But some investment products could wipe out their savings. AVR: Kapag sinabi mong wala nang matitira, e kahit naman lumaki yan wala namang matitira unless OFWs change their habits and lifestyles. They can't start sooner or later. Kapag gustong simulan, simulan mo na ngayon. Kung hindi sa kanila, sa kanilang mga anak. Kasi dalawa naman ang income e: earned and unearned. E yung mga anak, may unearned income ang mga yan: you're giving them allowance money.

Somebody told me, “Tony, we're already old. Can we still go into this?” Sagot ko: posibleng hindi na sa atin. Pero, sa mga bata puwede pa. Because if we don't help our children gain consciousness on savings and investment and the proper handling of money, they will end up in the same situation that we're in. Sure they will earn but their income would also be depleted. The cycle has to be broken.

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

Dutch offers treat for OFWs

by WILLIAM ALZONA www.ofwjournalism.net

MAKATI CITY-- WHAT'S with the Filipinos and the Dutch?

 

23

The Netherlands have been the long-time home for the Philippine government's political foes and an estimated 12,000 to 15,000 Filipino workers and migrants. Now, that country's second largest bank is leading initiatives in capturing money of overseas Filipino workers (OFWs) for investment.

“Our target is money or funds of the Filipinos abroad that were just kept [in the banks],” Cesar C. Zulueta said in an interview.

Zulueta, a Filipino, is managing director and head of the investment management unit of the Amsterdam-headquartered International Netherlands Group (ING) Bank, which recently got Philippine regulators' nod to go ahead with its investment scheme.

“We are not targeting those [money] that they [OFWs] are remitting in the country because the banks are already capturing it,” Zulueta told the OFW Journalism Consortium.

Zulueta is referring to the ING's The Overseas Filipino Fund, a financial instrument to capture at least 90 percent of savings kept by an estimated eight million Filipinos working and living abroad.

The OF Fund, while not yet finalized according to Zulueta, is basically a mutual fund, or pooled money from small investors like OFWs. The pooled money would then be reinvested in or used to buy financial instruments like stocks, bonds, securities, derivatives, among others.

In broad strokes, a Filipino working or living overseas could pay for a share in the OF Fund with a minimum US$1,000 investment. The migrant worker pays the fund to a partner bank of ING, which would act as fund manager.

Zulueta said they are eyeing a launch of the OF Fund within the third quarter of this year. Citing that the investment strategy of ING is conservative, Zulueta said the pooled money, which will be an offshore fund

domiciled in Dublin, Ireland and then managed out of Hong Kong, will only be invested in fixed income instruments, such as the government bonds.

Bangko Sentral ng Pilipinas Deputy Governor Nestor Espenilla was reported as saying in March that the BSP has approved ING's proposal.

Dutch treat ZULUETA said that the product has a developmental approach since it is aimed at spurring financial literacy and increasing consciousness of savings in view of the Philippines's low savings rate.

Likewise, he added that with 40 percent of the entire fund would be invested in the country, therefore it would contribute to the local economy.

Zulueta said 30 percent of the OF Fund would be invested in emerging markets and the rest to other developed countries. According to its market strategy, fund manager ING Investment Management Asia Pacific will partner with local banks that

have already mapped out countries where there are huge numbers of Filipinos, working on a contractual basis. Its partner Philippine banks would then sell the securities to its Filipino customers overseas, after complying with certain

country regulations. Initially, he said, the product would be marketed in Asia Pacific and Europe, but “there's nothing definite yet.” While he refused to name the banks that they are talking to become possible partners, Zulueta said these are the same

leading banks in the country that have extensive international branch networks. According to Asian Development Bank's study Enhancing the Efficiency of Overseas Filipino Workers’ Remittances,

Equitable-PCI Bank, the country's third largest, tops the list of Philippine banks that have the most number of presence overseas with 252 branches and tie-ups with other firms.

It was followed by the Philippine National Bank with 112, Rizal Commercial Banking Corp. with 197, and Bank of the Philippine Islands with 56. Metrobank, the country's largest, has 50 affiliates abroad, while state-owned Land Bank of the Philippines has 48.

Zulueta said ING would allot US$10 million as seed fund, but it is asking would-be partner banks to contribute at least the same amount to make the fund bigger.

The problem is ING still has to convince the Philippine banks to become its partner. Zulueta said ING is also talking to other financial institutions to contribute to the seed funds. Zulueta added the bank would

conduct road shows in countries like Hong Kong to market the OF Fund.

Go Dutch THIS is not the first time that an international bank such as ING has approached the country's monetary authorities to “advise” them on ways to tap OFW remittances.

When the Asian Development Bank held a forum on remittances late last year, Deutsche Bank's head of securitized products group, Raj Shourie paid central bank officials a visit for the possible securitization of remittances.

Central bank deputy governor Diwa Guinigundo said they are still studying the proposal, since there are issues that they have to contend with, including determining who owns the money.

 

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Incidentally, ADB has backed such proposal because many Latin American countries did so a few years back and succeeded. Proceeds from the measure, the ADB said, could be used to pay the country's $60 billion in debts, among others.

Securitization is the process of creating a financial instrument by combining other financial assets and selling them to investors. In the case of OFW remittances, banks would develop a debt instrument to be sold to the international market using the future flow of remittances as assurance or collateral.

This is also not the first time that attempts to structure a financial product for the OFWs. During the early years of the Arroyo administration, then Philippine Vice President Teofisto Guingona wanted to float OFW Bonds, which would be sold to OFWs abroad.

According to Guingona's plans, the proceeds would be used to development projects for migrant workers and their families.

That plan, however, fizzled out due to government's lack of interest, with some financial executives citing the perceived high administrative cost to be shouldered by the bureaucracy.

However, monetary authorities have warmed up to ING's plan to tap OFW money. Zulueta said they have secured the clearance to hurdle two rules regulating trade in mutual funds. These rules generally prohibit local banks from investing in mutual funds and from distributing products not from their

subsidiaries and affiliates. These rules are aimed at protecting local banks from external risks (exposure, in technical parlance) bearing on these

financial instruments traded in the international market.

Dutch in ING's OF Fund, if successfully launched, would add on to existing investment funds offered to overseas Filipinos.

PNB, notably, offers its own investment product called “Punla ng Bayani Fund” and “Dollar Punla Fund” while the Development Bank of the Philippines has its “Gintong Sikap Fund”.

Other institutions offering investment products to migrant Filipinos include the Social Security System's Flexi-Fund program, Pag-Ibig, and various pre-need insurance firms.

In its briefing paper, ING has cited these investment products are hobbled by several financial requirements. One of these is the requirement for securities to be registered with the Securities and Exchange Commission or equivalent

body of the respective country. For example, a group wanting to sell shares to OFW families in the Philippines must be registered with the Philippine SEC and follow the Securities and Regulation Code.

Selling of unregistered securities is prohibited by law and doing so could earn penalty, or worse, revocation of the firm's corporate license.

Some countries also require agents of financial securities to be licensed. Finally, marketing investment products to migrant Filipinos are hobbled by the lack of network since, according to ING's

paper, the units and employees within the network are focused solely on money transfer services or selling other products. Zulueta said the dollar-denominated OF Fund would be registered with the Ireland regulatory agency and sold by trained

and licensed agents. Risks, he added, would be mitigated by ING's strategy of investing only in government securities that are guaranteed by

the respective government issuing these papers. Still, as a mutual fund investment, the risks remain. The ugly reports of newspapers on the Unit Investment Trust Fund, for one, have even added to market jitters. These reports, according to analysts, may hobble the OF Fund, which is already behind its October 2005 target for actual

sale and marketing to overseas Filipinos. As of this writing, Zulueta is still looking for the US$50 million needed to at least jumpstart the project. Some could only hope he succeeds for a good Dutch treat for the Philippines.

OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila University-Economic Policy Reform and Advocacy (EPRA) consortium

Despite soured deal, groups offer OFWs to milk dairy industry

by WILLIAM IMPERIAL and ARIANNE APOSTOL www.ofwjournalism.net

 

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QUEZON CITY-- DESPITE the soured deal between the National Dairy Authority and the Economic Resource Center for Overseas Filipinos, executives of both group bank on the dairy industry for migrant Filipino workers' investment.

"Even without the MOA, [the NDA] will be there to assist them in starting their own dairy business," NDA chief Sally Bulatao told the OFW Journalism Consortium.

"They [Ercof and other investors] are very much welcome," she added. Bulatao was referring to a memorandum of agreement that the NDA entered into with Ercof January this year that would allow migrant Filipinos to invest on livestock, specifically cows.

However, the NDA terminated the deal last March upon Ercof's withdrawal of its P100,000-advance payment. “The only reason why we initiated the deposit was to have a priority in the cow purchase from NDA, given the scarce

supply and the NDA being the main source,” Ercof president Ildefonso Bagasao told the OFW Journalism Consortium. The deal was supposed to give Ercof the privilege of selecting and buying the cows ahead of other potential buyers. Dairy industry trader Danilo Fausto who represented Ercof in the NDA deal said he advised pulling out the money since he

found another source of cows at lower prices. "If we can get a better animal at a better price why not? The reason why we have withdrawn the money is because we

found a better livestock," said Fausto, the recently elected Chairman of the Philippine Dairy Confederation, which is the biggest umbrella organization of dairy cooperatives and federations in the country.

Fausto said that, at the time of the MOA, the NDA offered cows at a price of P68,000 per head. But, the DVF Dairy Farms Inc. president and chief executive said: “We were able to buy a good one at P35,000.”

In a recent letter, Bagasao said that Ercof has forged a partnership with DVF Dairy Farms to promote ownership of dairy cows as a savings and investment mechanism for OFs and help in growing the Philippine dairy industry.

Where before we have always spoken about microfinance and local government bonds, this program is different,” Bagasao's letter read.

Round up BULATAO doesn't take the decision against Ercof. The NDA would be able to produce the cows only by late April, Bulatao said who also expressed relief Ercof withdrew since it could have created a misconception the Department of Agriculture unit would manage OFW money and the business.

"The OFWs might think that we will be the ones who will hold their money. What if nalugi iyung investment nila, baka kami pa ang masisi. ”We don't want to encounter any problems particularly on the financial side [of it]," Bulatao said in an interview.

Bulatao explained that money as payment for the cows will only be accepted once the NDA produced the cows. Bagasao, for his part, said the termination of the MOA was better for both NDA and possible investors in the long run. According to him, both the NDA and Ercof entered into the agreement out of sincerity in floating an investment option for

OFWs. But we didn't foresee the deal would have meant more paperwork, accounting, and fiduciary issues, he said. The agreement cited that Ercof would deposit funds to the NDA as advance payments for the dairy animals owned and

sold by NDA to Ercof. On the other hand, the NDA as seller would give technical assistance. The MOA prompted the NDA to issue a monthly report on the status of the funds received from Ercof. According to a copy of the MOA which the OFW Journalism Consortium acquired, Ercof was supposed to be responsible

for evaluating and transporting the animals. It also gave Ercof the option to insure the livestock. With the dissolution of the MOA, "investors would (now) have flexibility in finding sources as well as making use of the

money, e.g., putting it in interest-earning time deposits, while waiting for the cows [to be bought]," he added. Bulatao said despite the deal's termination, OFWs should still look into investing money in the dairy industry and go to the

NDA for help. We are here to help them start their business, she said, adding that the deal's termination doesn't preclude Ercof from tapping technical assistance that the NDA offers.

Bulatao cited this assistance fall under their "Save the Herd" and "Palit-Baka" programs. Mooing along

BAGASAO concurs with Bulatao's views since Ercof has been advocating for migrant Filipinos to maximize the power of their remittances in fuelling long-term development.

"When they left the country, they sold their cows. Now, what they should do is to return the cows by purchasing them out of their earnings abroad," Fausto said.

"If you buy a cow, it gives birth and reproduces; it multiplies. You'll have the milk and cash flow from it. After six years of owning a cow you'll be having 14 of them already," he added.

In his book titled Dare to Dream, Fausto explained that cows give birth after nine months and produces four to seven liters of milk a day.

Since a calf could only consume between two to five liters of the milk, the excess could be sold by farmers. A mother cow can be milked for 300 days after giving birth, even at its 15th to 20th year of age.

 

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Milk production also increases as a cow gives birth. Calves, which need approximately 150 liters of it's mother's milk in the first four months, can be weaned from its mother after four months and impregnated 18 months from birth.

A new-born calf is currently sold at P7,000; a year-old at P15,000; at two years old for P25,000; and at three years old for P35,000.

So far, Fausto said he has already bought 11 cows for Ercof's OFW investors while non-OFWs who availed of the same program of investment bought 22 cattle heads.

As of February, six cows bought by OFWs from Geneva, Luxembourg, and Singapore already gave birth while five are already pregnant.

The dozen OFWs in Singapore put in $100 each as members of a savings group called Global Pinoy. The group's fund is lent to a member so she could buy a cow. The group shares the income earned from the cows bought by the group.

Bagasao said that so far, eight persons have invested a total of about P400,000 (US$7,547.20 at US$1=P53) in dairy cows, which are now dispersed among different dairy farmers in Talavera, Nueva Ecija.

“These are covered by contracts between the investors, the farmers and the DVF Dairy Farms on care of animals, sharing of profits and off-springs, and of course the automatic deposit of milk proceeds by DVF, which buys all the milk and deposits investors' share in his/her bank account.”

Dairy life ANONG Taruc, one of the dairy farmers of the Talavera Dairy Cooperative in Nueva Ecija, credits his earnings from investing in cows for his home improvement.

He said he has also bought a car for his family and ensures his children continue going to school. Bagasao, who bought three pregnant cows in August last year through the NDA, is already thinking of retirement and

going back to playing music or reviving his rock and roll band. His cows just recently gave birth to two male calves and a female calf. He also augmented his stocks with two more cows.

He now has eight cows with the first three producing milk. "This means we have started to make money from the proceeds," he said. Though Bagasao does not have the figures of how much he earns with his investment, he said everything is all accounted

for through an accounting system of DVF Farms Inc., a firm owned and managed by Fausto. Proceeds are automatically deposited to his bank account, the same goes for other cow investors, he said.

In that investment program, cows purchased will be dispersed among dairy farmers who are Talavera Cooperative members. The farmers take care of cows based on a partnership and profit sharing agreement between them and the investor.

"OFWs who get rich spend money on a lot of things" but not for long-term investment," Fausto said. Fausto admitted that investment through cows is a new business opportunity but is more or less stable: "Of course there are risks because we are dealing with live animals."

Fausto said the country's dairy business is a P65-billion market with local investors credited only with a P100-million share. He estimates that the Philippines milk imports hit US$60 million annually.

The country's largest input when it comes to liquid milk supply is only 20 percent, compared to foreign brands, with only about 3,000 milking animals as local source, Fausto said. The rest of the industry are owned and run by foreign companies.

According to Bagasao, Ercof plans to offer three layers of investment for OFs as individual investor, a cluster of at least five investors, and, a Farmers' Trust Fund.

Having these investment layers affords the investor various investment options, depending on capacity and needs. “One need not look further if seeking to find a concrete example of linking migration, remittances, poverty reduction and

development,” Bagasao said. OFW Journalism Consortium Inc. in partnership with the Ateneo de Manila

University-Economic Policy Reform and Advocacy (EPRA) consortium

Readers’ Survey: Feedback on Articles and OFWs’ Remittance Behavior

Kindly email your answers to ofwjc.epra@gmail.com, or you may give us a call at 63-02-5517861 (telefax) Views on the articles 1. Did you learn anything useful from the articles below related to financial literacy for OFWs and their families? * Entrepreneurship by returning OFWs (by Jeremaiah Opiniano) __ A lot __ Not much __ No * Detecting scams (by Jeremaiah Opiniano) __ A lot __ Not much __ No * Seafarers lending in cooperatives (by Leo Santiago) __ A lot __ Not much __ No

 

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* OFWs investing in the market (by Isagani de la Paz and William Alzona) __ A lot __ Not much __ No * Q and A with an online stock trader (by Dennis Estopace) __ A lot __ Not much __ No * Mutual fund product of a foreign bank (by William Alzona) __ A lot __ Not much __ No * Dairy cow investment vehicle (by William Imperial and Arianne Apostol) __ A lot __ Not much __ No

2. What other information do you still want to know about savings and investment opportunities? ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ ___________________________________________________________________________________________________ Mini-survey for OFWs (those abroad, and those who were formerly abroad) 1. Where is your country of work? ______ Asia ______ Middle East ______ Europe ______ Africa ______ USA and Canada ______ South America ______ Australia and the Pacific

2. What is your work?(check one only) ______ Domestic worker ______ Seafarer ______ Laborer, unskilled worker, farmer ______ Service worker, sales, etc ______ Technical and skilled worker ______ Entertainer, performer ______ Professional, associate professional ______ others (please underline or specify): retired, housewife, student, ___________

3. After spending for your personal needs (such as food, clothing, rental, grocery, etc.), what proportion of your monthly

income is usually left over? _______ 1-5% _______ 6-10% _______ 11-15% _______ 16-20% _______ more than 20% 4. What do you usually do with the amount that is left after spending for your personal needs? Indicate the share of this total

amount that goes to each of the uses you specified. Percentage (total should be 100%) _____ Remit money to family in the Philippines ___ percent _____ Pay off debts ____percent _____ Save in a bank in your country of employment or residence ____percent _____ Others, please specify ____percent 5. How do you usually remit money to your family in the Philippines? ______ Bank-to-Bank ______ Door-to-Door ______ Money transfer agency like Western Union, Aboitiz, EBusiness Services Inc., Lhuillier Inc., PetNet, RCPI, LBC ______ Padala through friends, co-workers, relatives ______ Others, please specify _______