Dutch offers treat for OFWs
by WILLIAM ALZONA

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.

“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.

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
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