The BSP approved the innovation launched by the country’s two biggest telecommunication firms that would utilize the combined network of their telecom centers and the branches of their partner banks.
The Ayala-owned Globe has linked up with the Ayala-owned bank, Bank of the Philippine Islands while Smart has linked with the Sy-owned Banco de Oro.
BSP Deputy Governor Alberto V. Reyes told reporters yesterday that Smart’s "Smart Padala" and Globe’s "G-Cash" were approved by the Monetary Board with provisions for daily transaction limits in order to prevent the channel from being abused for money-laundering purposes.
According to Reyes, the BSP also required Smart Padala and G-Cash to comply with the usual know-your-customer (KYC) provisions of the BSP where the remittance centers would be required to verify the identities and credentials of their clients.
"The KYC rules will apply to both the recipients and the remitters," Reyes said.
The cash remittance service works through banks with expansive networks abroad. Overseas Filipino workers can remit their money through the banks and their families who are either Globe or Smart subscribers can use up the cash loaded in their electronic wallets.
Reyes said the scheme also had a micro-finance component, particularly the G-Cash program which would allow Globe subscribers to make payments for their micro-finance loans using their Globe wallet.
The cash remittance service is a hybrid form of bank remittance service and the padala-system. "The objective is to make it as convenient as possible for the remitting entity and the recipient," Reyes said.
The Philippines is now the world’s third biggest recipient of workers’ remittances but the BSP expressed concern that the inflow of funds is not being utilized for economic activities aside from consumption.
The BSP said a targeted program for overseas Filipino workers was needed to channel the huge resources to productive use. This meant that the productive potential of the country’s exported labor force was not being maximized unless remittances were tapped to scale up development.
The BSP said the World Bank has ranked the Philippines as the third largest recipient of remittances after India and Mexico. As a result, OFW remittances are now equivalent to 10.5 percent of gross domestic product and compared to foreign exchange receipts, remittances from January to September alone are equivalent to about 20 percent of the value of the country’s exports of goods and services.
"It’s an offshoot of the combination of two factors: the lack of opportunities at home and the demand for labor offshore," said BSP Deputy Governor Amando Tetangco. "Remittances are likely to remain strong due to the continued expansion in the global economy and the aging population in some advanced nations."
According to Tetangco, however, there is a need to address the question of whether remittances could be a tool for promoting growth and development and how.
"There are those who believe that remittances are an impediment for growth because the inflow of funds creates a dependency syndrome among the families that receive them," Tetangco pointed out. "Its also argued that remittances lead to conspicuous consumption rather than savings or investments."