Enhancing access to finance for migrant workers in Indonesia : evidence from a survey of three provinces (Vol. 2 of 2)

52058 v2 Enhancing Access to Finance for Indonesian Overseas Migrant Workers: Evidence from a Survey of Three Provinces Australia - Nusa Tenggara Assistance for Regional Autonomy (ANTARA) 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 : feedback@worldbank.org 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 findings, interpretation and conclusion expressed herein do not necessarily reflect 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. 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 Affairs; 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 Rafinus, Assistant Deputy Minister of the Indonesian Coordinating Ministry of Economic Affairs; 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). ii Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers: Evidence from a Survey of Three Provinces  List of Abbreviations List of Abbreviations A2F Access to Finance ANTARA Australia Nusa Tenggara Assistance for Regional Autonomy APEC Asia-Pacific 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 Office 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 iii IDIC Indonesian Deposit Insurance Corporation (LPS) INPRES Presidential Instruction MFI Micro Finance Institution MICRA Microfinance 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) Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers: Evidence from a Survey of Three Provinces  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 Profile 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 Profile 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 iv 3.4 Migrant Workers and Savings Accounts 45 3.5 Strategic Matters Arising in this Chapter 47 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 4.12 Strategic Matters Arising in this Chapter 73 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 Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers: Evidence from a Survey of Three Provinces  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-Pacific 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 v 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 Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers: Evidence from a Survey of Three Provinces  List of Abbreviations 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 Offered by Banks and the Post Office 46 Table 10: Statistically Significant Determinants of Access to Saving (at 95% level of significance, or higher) 59 Table 11: Statistically Significant Determinants of Access to Credit (at 95% level of significance, 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 vi 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 Indonesia Enhancing Access to Finance for Indonesian Overseas migrant workers: Evidence from a Survey of Three Provinces  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 inflows be in considerably higher. Nonetheless, among countries in the East Asia