Diversifying investment opportunities of migrant workers\' remittances

Remittances from overseas migrant wage earners have contributed to Bangladesh's economy in various ways. This has reduced unemployment and under-employment in the country. More important is their contribution to foreign exchange earnings that has been playing a crucial role in the surge of foreign exchange reserve of the country. Therefore, the recent slowdown of remittance inflow is being viewed with concern.
Nonetheless, the other aspects of the benefits of remittance flow have received less attention. These include investment and savings of remittance money received by the remitters' families. Productive use of remittance can contribute to the growth of the country's economy. This issue thus needs closer analysis which can lead to policies for creating an enabling environment for raising the rate of savings and investment out of these funds.
Recently the Bangladesh Bureau of Statistics (BBS) has taken up a laudable initiative and conducted two rounds of sample surveys focusing on utilisation of remittances by the remittance-receiving households (RRHH). The first one was carried out in 2013 and the second one in 2016 (data was collected in 2015). Comparison of these two rounds of data can provide interesting insights.
Macro data from various sources show that inflow of remittance has risen during this period. As a result, remittance per receiving household has also risen. BBS surveys show that remittance received by per household has risen from Tk 20,5642 in 2013 to Tk 30,2183 in 2015, reflecting a rise of 47 per cent in nominal terms.
What has happened to investment and savings out of these funds? Before dealing with this question, a comment on the definitions used in the report can be useful.
Definition of savings should include all forms of savings, for example, bank deposits, various savings instruments, cash savings at hand as well as direct investment by the receiver of remittance. However, it appears that BBS's reports have kept the last item separate and others are included in savings (the reports do not explicitly spell out the definition). Therefore, while discussing these two, I have also created another item which is "total savings" adding direct investment with savings in other forms.
Data presented in Table 1 (based on the findings of the two reports of BBS mentioned above) show that investment has increased by 16 per cent during this period. Of course, this is in nominal value and in real terms (taking into account inflation) it will be almost the same in the two years. In contrast, savings in other forms have gone through a decline even in nominal terms, by 6.4 per cent. As a result, "total savings" have increased by 9.5 per cent. Therefore, there is a need for adoption of policies to encourage investment and savings out of the remittances received.
Before proceeding to comment on the reasons behind such stagnation of investment out of remittance, a few observations can be made on the pattern of use of the fund received by RRHH.
Table 2 shows the share of use of fund in some major heads. The share of investment has decreased from 33.4 per cent in 2013 to 25.3 per cent in 2015. Similarly, share of savings out of total funds received has declined from 13.7 to 8.6 per cent.
Loan repayment and land purchase account for about 20 per cent of remittance received by households. These are shown in the reports as non-food consumption expenditure. However, in a practical sense, these heads may as well be defined to constitute savings which will give a much higher total savings rate and raise both average propensity to save and marginal propensity to save by receiving households.
Share of funds going to land purchase was 14.7 per cent in 2013 and 9.1 in 2015.Share of funds going to loan repayment has risen from 9.3 to 10.9 per cent during this period. Moreover, the share of investment on purchase, construction or improvement of houses/flats was as high as 86 per cent in 2015 and 89.2 per cent in 2013. This indicates that there is a lack of other investment opportunities for these households. Moreover, in the absence of the male heads of households, other investment may not be feasible. These households will be hardly willing to allow others to invest this hard-earned money on their behalf. Therefore, the strategy for investment in diversified heads will require that savings are routed through formal channels which can then be made available for use by other investors.
   Table 2: Share of different uses of total remittance by receiving households
To make policy suggestions for reversal of the trend, the reasons behind the declining savings and investment rate must be examined. To understand the factors which can result in these changes, one has to take into account: a) the returns to savings & investment; and b) the workers' way of thinking which may influence their propensities to save and the forms in which the savings are kept or invested.
First of all, returns from savings with banks in the form of savings account and fixed deposits, etc., have gone through a decline during these three years and thus have negatively influenced these forms of savings.
In addition, the returns from land purchase are expected to rise and the escalating land price at present fuels such expectations. The other head, which has attracted the highest share of investment of these households, is house construction and improvement of house quality, purchase of flats, etc. These forms are favoured by savers because these are considered to be risk-free.
Data on the workers show that most of the migrant workers are from landless and marginal landowning households. The share of workers going with overseas jobs from these groups has increased during this period. The first priority of such households is to get ownership of land and house which is a source of security and social recognition. Thus it is not surprising that a high share of remittance is going to these uses.
Poor education level has its correlation with landlessness. Education in the majority of the heads of such households is not up to the SSC level. And they are hardly aware of the banking services available in the locality and face difficulties in availing those services. Half of the households of remittance senders are females who face more difficulties in terms of access to formal financial services. Thus with a rising share of landless households receiving remittances, a small share of remittance received is saved through various forms of financial services.
Policies targeted to increase savings and productive investment of remittance should try to help them overcome the barriers to availing such savings services and encourage them to avail services of formal financial institutions. In this context, especial training on the use of banking services may be organised for the receiving households. Women heads and poorer receivers among the RRHH should be targeted in such training. Media can also play a role by organising programmes to disseminate knowledge about usefulness of banking services for the families of those seeking overseas employment.
However, information about the banking services can be useful if supplemented by incentives for use of such services. In the medium and longer term, interest on wage earners' bond may go through upward revision. Other innovative programmes may also be adopted to provide incentives.
Rushidan Islam Rahman is Member, Board of Directors, Bangladesh Bank and Executive Director, Centre for Development and Employment Research (CDER0. rir1312@gmail.com