OFW loans in the Philippines

James Ryan Jonas

President Noynoy Aquino recently announced that he is instructing the Overseas Workers Welfare Administration (OWWA) to set aside P1 billion (US$23.5 million) as “reintegration fund” from which returning Overseas Filipino Workers (OFWs) can borrow money.

The goal is definitely noble but it is our hope that the loans program be managed efficiently so that it won’t be a losing venture for the government.  Some OFWs do need financial support upon their return and providing access to business capital is a big help towards convincing them to stay permanently.

However, proper administration of the loan program is a must, lest the government wants to again waste taxpayer’s money. At a time when budget cuts are prevalent, the government cannot afford to make this program contribute further to the ballooning deficit of the country.

Why do we have this concern? Because several times in the past, the government has proven itself to be not a good administrator of loans.

Pre-departure loans for OFWs

For instance, during Pres. Gloria Macapagal-Arroyo’s term, the OWWA had a pre-departure loans program for OFWs leaving the Philippines. More than P100 million was allocated to this program and in 2008, around P70 million was already released. However, only P21 million were collected — a mere 30% payment rate. OWWA decided to discontinue the program because OFWs were not repaying their loans.

‘Study Now, Pay Later’ Program

OFWs are not the only ones defaulting on their government-issued loans. A UNESCO report on Student Loans in the Philippines shows that 97% of students who took out loans in the 1990s via the “Study Now, Pay Later” program have not paid their loans. The culprit for the dismal 3% repayment rate, the UNESCO cites, is government inefficiency in loan collections. In fact as of 2009, more than P180 million worth of student loans remain unpaid and uncollected.

Proposal for Loan Administration

Our suggestion, therefore, is that this program be administered by a private entity, preferably a financial institution. Pres. Aquino said the Landbank of the Philippines and the Development Bank of the Philippines (DBP) will implement the program. That’s a good start.

We suggest that funding simply comes from OWWA — apparently they are cash-abundant with P10.2 billion in total assets — and this money is simply transferred to Landbank and DBP for program administration, with interest income perhaps remitted every year. The OWWA and other OFW-related agencies such as the POEA, DFA, and embassies SHOULD NOT have a hand in the screening and approval of applicants. Neither should they be involved in the disbursement of funds. At the most, they can merely act as marketing channels to promote the program.

We believe that Landbank and DBP should be solely tasked to handle OFW loans and should be expected to manage them the way they manage regular business or personal loans. Through this, the program can be run by experts familiar with loans processing and collections. Direct involvement of agencies who do not know about loans administration will simply lead to the failure of this promising program, as in the cases of the pre-departure and “Study Now, Pay Later” loans in the past.

Source: GMANews.tv; Commission on Higher Education (CHED); UNESCO

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.